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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended February 26, 2006

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ................ to ....................

1-13666
Commission File Number

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DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)

Florida 59-3305930
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

5900 Lake Ellenor Drive,
Orlando, Florida 32809
(Address of principal executive offices) (Zip Code)

407-245-4000
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
[X] Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No

Number of shares of common stock outstanding as of March 20, 2006: 148,211,901
(excluding 126,253,566 shares held in our treasury).

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DARDEN RESTAURANTS, INC.

TABLE OF CONTENTS

Page

Part I - Financial Information

Item 1. Financial Statements (Unaudited) 3

Consolidated Statements of Earnings 3

Consolidated Balance Sheets 4

Consolidated Statements of Changes in
Stockholders' Equity and Accumulated
Other Comprehensive Income (Loss) 5

Consolidated Statements of Cash Flows 6

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23

Item 4. Controls and Procedures 23

Part II - Other Information

Item 1. Legal Proceedings 23

Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 24

Item 6. Exhibits 25

Signatures 26

Index to Exhibits 27

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)

Quarter Ended Nine Months Ended
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February 26, February 27, February 26, February 27,
2006 2005 2006 2005
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Sales....................................................$1,474,181 $1,375,879 $4,208,441 $3,883,896
Costs and expenses:
Cost of sales:
Food and beverage................................... 431,074 412,863 1,239,844 1,172,320
Restaurant labor.................................... 472,659 435,660 1,362,775 1,242,190
Restaurant expenses................................. 225,931 206,918 655,705 604,222
---------- ---------- ---------- ----------
Total cost of sales, excluding restaurant
depreciation and amortization of $51,926,
$49,047, $152,946 and $147,752, respectively...$1,129,664 $1,055,441 $3,258,324 $3,018,732
Selling, general and administrative................... 138,984 126,488 404,201 371,853
Depreciation and amortization......................... 56,085 52,721 164,984 158,657
Interest, net......................................... 10,312 10,405 32,930 32,376
--------- ---------- ---------- ----------
Total costs and expenses..........................$1,335,045 $1,245,055 $3,860,439 $3,581,618
---------- ---------- ---------- ----------

Earnings before income taxes............................. 139,136 130,824 348,002 302,278
Income taxes............................................. (33,818) (38,194) (102,114) (95,661)
---------- ---------- ---------- ----------

Net earnings.............................................$ 105,318 $ 92,630 $ 245,888 $ 206,617
========== ========== ========== ==========

Net earnings per share:
Basic.................................................$ 0.70 $ 0.59 $ 1.63 $ 1.31
========== ========== ========== ==========
Diluted...............................................$ 0.67 $ 0.56 $ 1.56 $ 1.26
========== ========== ========== ==========

Average number of common shares outstanding:
Basic................................................. 149,400 157,300 150,800 157,200
========== ========== ========== ==========
Diluted............................................... 156,900 164,500 157,900 163,800
========== ========== ========== ==========

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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

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February 26, 2006 May 29, 2005
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ASSETS
Current assets:
Cash and cash equivalents................................. $ 53,122 $ 42,801
Receivables............................................... 39,235 36,510
Inventories............................................... 245,254 235,444
Prepaid expenses and other current assets................. 30,246 28,927
Deferred income taxes..................................... 66,339 63,584
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Total current assets.................................. $ 434,196 $ 407,266
Land, buildings and equipment, net........................... 2,408,896 2,351,454
Other assets................................................. 187,309 179,051
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Total assets.......................................... $3,030,401 $ 2,937,771
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 222,544 $ 191,197
Short-term debt........................................... 44,000 --
Accrued payroll........................................... 115,663 114,602
Accrued income taxes...................................... 50,414 52,404
Other accrued taxes....................................... 47,098 43,825
Unearned revenues......................................... 120,464 88,472
Current portion of long-term debt......................... -- 299,929
Other current liabilities................................. 268,459 254,178
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Total current liabilities............................. $ 868,642 $ 1,044,607
Long-term debt, less current portion......................... 645,125 350,318
Deferred income taxes........................................ 99,053 114,846
Deferred rent................................................ 136,245 130,872
Other liabilities............................................ 31,449 24,109
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Total liabilities..................................... $ 1,780,514 $ 1,664,752
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Stockholders' equity:
Common stock and surplus.................................. $ 1,796,108 $ 1,703,336
Retained earnings......................................... 1,621,788 1,405,754
Treasury stock............................................ (2,117,041) (1,784,835)
Accumulated other comprehensive income (loss)............. (3,950) (8,876)
Unearned compensation..................................... (46,579) (41,685)
Officer notes receivable.................................. (439) (675)
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Total stockholders' equity............................ $ 1,249,887 $ 1,273,019
------------ ------------

Total liabilities and stockholders' equity............ $ 3,030,401 $ 2,937,771
============ ============

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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the nine months ended February 26, 2006 and February 27, 2005
(In thousands)
(Unaudited)

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Common Accumulated
Stock Other Officer Total
and Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income (Loss) Compensation Receivable Equity
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Balance at May 29, 2005............. $1,703,336 $1,405,754 $(1,784,835) $ (8,876) $(41,685) $ (675) $1,273,019
Comprehensive income:
Net earnings..................... -- 245,888 -- -- -- -- 245,888
Other comprehensive income
(loss):
Foreign currency adjustment.... -- -- -- 2,722 -- -- 2,722
Change in fair value of
derivatives, net of tax of
($282)........................ -- -- -- 2,204 -- -- 2,204
-----------
Total comprehensive income.. 250,814
Cash dividends declared............. -- (29,854) -- -- -- -- (29,854)
Stock option exercises (3,522
shares)........................... 44,408 -- 5,522 -- -- -- 49,930

Issuance of restricted stock (399
shares), net of forfeiture
adjustments....................... 13,054 -- -- -- (13,054) -- --
Earned compensation................. -- -- -- -- 5,195 -- 5,195
ESOP note receivable repayments..... -- -- -- -- 2,965 -- 2,965
Income tax benefits credited to
equity............................ 30,569 -- -- -- -- -- 30,569
Purchases of common stock for
treasury(9,569 shares)............ -- -- (338,917) -- -- -- (338,917)
Issuance of treasury stock under
Employee Stock Purchase and other
plans (191 shares)................ 4,741 -- 1,189 -- -- -- 5,930
Repayment of officer notes.......... -- -- -- -- -- 236 236
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Balance at February 26, 2006 $1,796,108 $1,621,788 $(2,117,041) $ (3,950) $(46,579) $ (439) $1,249,887
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Common Accumulated
Stock Other Officer Total
And Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income (Loss) Compensation Receivable Equity
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Balance at May 30, 2004............. $1,584,115 $1,127,653 $(1,483,768) $ (10,173) $(41,401) $ (1,138) $1,175,288
Comprehensive income:
Net earnings..................... -- 206,617 -- -- -- -- 206,617
Other comprehensive income (loss):
Foreign currency adjustment.... -- -- -- 2,112 -- -- 2,112
Change in fair value of
derivatives, net of tax of
$956......................... -- -- -- (143) -- -- (143)
-----------
Total comprehensive income... 208,586
Cash dividends declared............. -- (6,251) -- -- -- -- (6,251)
Stock option exercises (4,294
shares)........................... 40,084 -- 5,196 -- -- -- 45,280
Issuance of restricted stock (388
shares), net of forfeiture
adjustments....................... 9,404 -- -- -- (9,404) -- --
Earned compensation................. -- -- -- -- 5,461 -- 5,461
ESOP note receivable repayments..... -- -- -- -- 2,268 -- 2,268
Income tax benefits credited to
equity............................ 24,763 -- -- -- -- -- 24,763
Purchases of common stock for
treasury (6,841 shares)........... -- -- (173,050) -- -- -- (173,050)
Issuance of treasury stock under
Employee Stock Purchase and other
plans (245 shares)................ 3,317 -- 1,637 -- -- -- 4,954
Repayment of officer notes, net..... -- -- -- -- -- 422 422
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Balance at February 27, 2005 $1,661,683 $1,328,019 $(1,649,985) $ (8,204) $(43,076) $ (716) $1,287,721
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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Quarter Ended Nine Months Ended
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February 26, February 27, February 26, February 27,
2006 2005 2006 2005
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Cash flows--operating activities
Net earnings................................................. $ 105,318 $ 92,630 $ 245,888 $ 206,617
Adjustments to reconcile net earnings to cash flows from
operations:
Depreciation and amortization.............................. 56,085 52,721 164,984 158,657
Asset impairment charge, net .............................. 8,350 2,611 9,719 2,498
Amortization of unearned compensation and loan costs....... 2,982 2,944 7,728 8,143
Non-cash compensation expense.............................. 45 32 1,265 1,005
Change in current assets and liabilities................... 88,206 29,989 65,035 25,030
Contributions to defined benefit pension plans and
postretirement plan...................................... (135) (237) (329) (388)
(Gain) loss on disposal of land, buildings and equipment... (996) 778 565 1,085
Change in cash surrender value of trust owned life
insurance................................................ (2,251) (956) (5,661) (4,170)
Deferred income taxes...................................... (5,130) (6,815) (18,830) (17,044)
Change in deferred rent.................................... 1,404 1,321 5,373 5,843
Change in other liabilities ............................... 3,908 5,885 7,669 8,446
Income tax benefits credited to equity..................... 16,781 11,059 30,569 24,763
Other, net................................................. (4,885) 873 2,809 (903)
--------- -------- --------- --------
Net cash provided by operating activities................ $ 269,682 $ 192,835 $ 516,784 $ 419,582
-------- -------- --------- --------
Cash flows--investing activities
Sales of short term investments, net......................... 10,000 -- -- --
Purchases of land, buildings and equipment................... (72,900) (83,879) (239,072) (230,661)
Proceeds from disposal of land, buildings and equipment...... 7,789 2,263 14,043 7,467
Increase (decrease) in other assets.......................... 95 1,522 (5,927) (728)
-------- -------- --------- --------
Net cash used in investing activities.................... $ (55,016) $ (80,094) $ (230,956) $(223,922)
--------- -------- --------- --------

Cash flows--financing activities
Proceeds from issuance of common stock....................... 22,567 18,917 54,595 49,229
Dividends paid............................................... -- -- (29,854) (6,251)
Purchases of treasury stock.................................. (150,647) (104,307) (338,917) (173,050)
Increase in short-term debt.................................. 44,000 -- 44,000 (14,500)
Proceeds from issuance of long-term debt..................... -- -- 294,669 --
ESOP note receivable repayment............................... 790 1,278 2,965 2,268
Repayment of long-term debt.................................. (150,790) (1,278) (302,965) (2,268)
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Net cash used in financing activities.................... $(234,080) $ (85,390) $ (275,507) $(144,572)
-------- --------- --------- --------

(Decrease) increase in cash and cash equivalents................ (19,414) 27,351 10,321 51,088
Cash and cash equivalents - beginning of period................. 72,536 60,431 42,801 36,694
-------- -------- --------- --------

Cash and cash equivalents - end of period....................... $ 53,122 $ 87,782 $ 53,122 $ 87,782
======== ======== ========= ========

Cash flow from changes in current assets and liabilities
Receivables.................................................. (1,169) (16,705) (2,725) (17,352)
Inventories.................................................. 2,099 (34,647) (9,810) (72,307)
Prepaid expenses and other current assets.................... 1,157 (6,601) (2,630) (4,039)
Accounts payable............................................. 12,777 24,683 31,347 11,858
Accrued payroll.............................................. 13,026 19,673 1,061 8,946
Accrued income taxes......................................... 6,421 (11,344) (1,990) 31,398
Other accrued taxes.......................................... 5,540 5,128 3,273 2,771
Unearned revenues........................................... 39,378 32,286 31,992 27,927
Other current liabilities.................................... 8,977 17,516 14,517 35,828
-------- -------- --------- --------
Change in current assets and liabilities................. $ 88,206 $ 29,989 $ 65,035 $ 25,030
======== ======== ========= ========

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See accompanying notes to consolidated financial statements.

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)

Note 1. Background

Darden Restaurants, Inc. ("we, "our" or the "Company") owns and operates
casual dining restaurants in the United States and Canada under the trade names
Red Lobster(R), Olive Garden(R), Bahama Breeze(R), Smokey Bones Barbeque &
Grill(R) and Seasons 52(R). We have prepared these consolidated financial
statements pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). They do not include certain information and footnotes
required by U.S. generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments considered
necessary for a fair presentation have been included and are of a normal
recurring nature. Operating results for the quarter and nine months ended
February 26, 2006 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 28, 2006.

These statements should be read in conjunction with the consolidated
financial statements and related notes to consolidated financial statements
included in our Annual Report on Form 10-K for the fiscal year ended May 29,
2005. The accounting policies used in preparing these consolidated financial
statements are the same as those described in our Form 10-K.

Note 2. Consolidated Statements of Cash Flows

During the quarter and nine months ended February 26, 2006, we paid $14,788
and $33,203, respectively, for interest (net of amounts capitalized) and $15,598
and $91,555, respectively, for income taxes. Interest income of $1,302 and
$3,786 associated with our cash and cash equivalents and short-term investments
was recognized in earnings as a component of interest, net, during the quarter
and nine months ended February 26, 2006, respectively. During the quarter and
nine months ended February 27, 2005, we paid $6,857 and $26,879, respectively,
for interest (net of amounts capitalized) and $45,681 and $56,038, respectively,
for income taxes. Interest income of $721 and $1,257 associated with our cash
and cash equivalents was recognized in earnings as a component of interest, net,
during the quarter and nine months ended February 27, 2005, respectively.

Note 3. Stock-Based Compensation

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages the use of a fair-value method of
accounting for stock-based awards under which the fair value of stock options is
determined on the date of grant and expensed over the vesting period. As allowed
by SFAS No. 123, we have elected to account for our stock-based compensation
plans under an intrinsic value method that requires compensation expense to be
recorded only if, on the date of grant, the current market price of our common
stock exceeds the exercise price the employee must pay for the stock. Our policy
is to grant stock options at the fair market value of our underlying stock at
the date of grant. Accordingly, no compensation expense has been recognized for
stock options granted under any of our stock plans because the exercise price of
all options granted was equal to the current market value of our stock on the
grant date. Had we determined compensation expense for our stock options based
on the fair value at the grant date as prescribed under SFAS No. 123, our net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:

Quarter Ended Nine Months Ended
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February 26, February 27, February 26, February 27,
2006 2005 2006 2005
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Net earnings, as reported $ 105,318 $ 92,630 $ 245,888 $ 206,617
Add: Stock-based compensation expense
included in reported net earnings, net of 1,464 1,284 4,016 3,913
related tax effects
Deduct: Total stock-based compensation
expense determined under fair value based (4,474) (5,203) (14,899) (15,815)
method for all awards, net of related tax
effects
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Pro forma net earnings $ 102,308 $ 88,711 $ 235,005 $ 194,715
================================================================
Basic net earnings per share
As reported $ 0.70 $ 0.59 $ 1.63 $ 1.31
Pro forma $ 0.68 $ 0.56 $ 1.56 $ 1.24
Diluted net earnings per share
As reported $ 0.67 $ 0.56 $ 1.56 $ 1.26
Pro forma $ 0.65 $ 0.54 $ 1.48 $ 1.19
=================================================================================================================

Note 4. Provision for Impaired Assets

During the quarter and nine months ended February 26, 2006, we recorded
charges of $4,569 and $5,954, respectively, for long-lived asset impairments
resulting from the decision to close, relocate and/or rebuild certain
restaurants. During the quarter and nine months ended February 27, 2005, we
recorded charges of $27 and $610, respectively, for similar actions. During the
quarter and nine months ended February 26, 2006, we also recorded charges of
$4,312 for the write-down of carrying value of two Smokey Bones restaurants,
which we continue to operate. During the quarter and nine months ended February
27, 2005, we also recorded charges of $3,260 for the write-down of carrying
value of one Red Lobster and one Olive Garden, both of which continued to
operate through fiscal 2005, but were subsequently closed in fiscal 2006. These
impairments were measured based on the amount by which the carrying amount of
these assets exceeded their fair value. Fair value is generally determined based
on appraisals or sales prices of comparable assets. During the quarter and nine
months ended February 26, 2006, we also recorded gains of $531 and $547,
respectively, related to the sale of previously impaired assets. During the
quarter and nine months ended February 27, 2005, we recorded gains of $676 and
$1,372, respectively, related to the sale of previously impaired assets. These
amounts are included in selling, general and administrative expenses in the
accompanying consolidated statement of earnings.

Note 5. Income Taxes

The effective income tax rate for the quarter and nine months ended
February 26, 2006 was 24.3 percent and 29.3 percent, respectively, compared to
an effective income tax rate of 29.2 percent and 31.6 percent for the quarter
and nine months ended February 27, 2005, respectively. The decrease in the tax
rate in fiscal 2006 is primarily attributable to an increase in certain FICA tax
credits for reported tips and the favorable resolution of prior year tax
matters.

Note 6. Short-Term Investments

We periodically invest in short-term investments consisting of investment
grade auction rate securities, which have been classified as available-for-sale
and reported at fair value. Interest rates for our investments in auction rate
securities are reset through an auction process at predetermined periods ranging
from 28 to 35 days. Despite the long-term nature of their stated contractual
maturities, there is a readily liquid market for these securities and failed
auctions rarely occur. Due to the reset feature and their carrying value
equaling their fair value, there are no gross realized or unrealized gains or
losses from these short-term investments. As of February 26, 2006 and May 29,
2005, we did not hold any short-term investments.

Note 7. Long-Term Debt

On July 29, 2005, we filed a registration statement with the SEC to
register an additional $475,000 of debt securities using a shelf registration
process as well as to carry forward the $125,000 of debt securities available
under our prior registration statement. Under this registration statement, which
became effective on August 5, 2005, we may offer, from time to time, up to
$600,000 of our debt securities. On August 12, 2005, we issued $150,000 of

unsecured 4.875 percent senior notes due in August 2010 and $150,000 of
unsecured 6.000 percent senior notes due in August 2035 under the registration
statement. Discount and issuance costs, which were $2,430 and $2,901,
respectively, are being amortized over the terms of the senior notes using the
effective interest rate method. A portion of the proceeds from these issuances
was used to repay at maturity our outstanding $150,000 of 8.375 percent senior
notes on September 15, 2005 and our outstanding $150,000 of 6.375 percent notes
on February 1, 2006.

We also maintain a credit facility under a Credit Agreement dated August
16, 2005 with a consortium of banks under which we can borrow up to $500,000. As
part of this credit facility, we may request issuance of up to $100,000 in
letters of credit, the outstanding amount of which reduces the net borrowing
capacity under the agreement. The credit facility allows us to borrow at
interest rates that vary based on a spread over (i) LIBOR or (ii) a base rate
that is the higher of the prime rate or one-half of one percent above the
federal funds rate, at our option. The interest rate spread over LIBOR is
determined by our debt rating. We may also request that loans be made at
interest rates offered by one or more of the banks, which may vary from the
LIBOR or base rate. The credit facility supports our commercial paper borrowing
program and expires on August 15, 2010. We are required to pay a facility fee of
10.0 basis points per annum on the average daily amount of loan commitments by
the consortium. The amount of interest and annual facility fee are subject to
change based on our maintenance of certain debt ratings and financial ratios,
such as maximum debt to capital ratios. Advances under the credit facility are
unsecured. As of February 26, 2006 and May 29, 2005, no borrowings were
outstanding. However, as of February 26, 2006, there was $44,000 of commercial
paper and $15,000 of letters of credit outstanding, which are backed by this
facility. As of May 29, 2005, there were no commercial paper notes or letters of
credit outstanding under this facility. As of February 26, 2006, we were in
compliance with all covenants under the credit facility.

Note 8. Net Earnings per Share

Outstanding stock options and restricted stock granted by us represent the
only dilutive effect reflected in diluted weighted average shares outstanding.
Options and restricted stock do not impact the numerator of the diluted net
earnings per share computation.

Options to purchase 28,942 and 28,329 shares of common stock were excluded
from the calculation of diluted net earnings per share for the quarters ended
February 26, 2006 and February 27, 2005, respectively, because their exercise
prices exceeded the average market price of common shares for the period.
Options to purchase 36,412 and 2,768,460 shares of common stock were excluded
from the calculation of diluted net earnings per share for the nine months ended
February 26, 2006 and February 27, 2005, respectively, for the same reason.

Note 9. Stockholders' Equity

Pursuant to the authorization of our Board of Directors to repurchase up to
137,400,000 shares in accordance with applicable securities regulations, we
repurchased 3,729,808 and 9,569,063 shares of our common stock for $150,647 and
$338,917 during the quarter and nine months ended February 26, 2006,
respectively, resulting in a cumulative repurchase of 130,153,934 shares as of
February 26, 2006.

Note 10. Food and Beverage Costs

Food and beverage costs include inventory, warehousing and related
purchasing and distribution costs. Vendor allowances received in connection with
the purchase of a vendor's products are recognized as a reduction of the related
food and beverage costs as earned. Advance payments are made by the vendors
based on estimates of volume to be purchased from the vendors and the terms of
the agreement. As we make purchases from the vendors each period, we recognize
the pro rata portion of allowances earned as a reduction of food and beverage
costs for that period. Differences between estimated and actual purchases are
settled in accordance with the terms of the agreements. Vendor agreements are
generally for a period of one year or more and payments received are initially
recorded as long-term liabilities. Amounts which are expected to be earned
within one year are recorded as a current liability.

Note 11. Derivative Instruments and Hedging Activities

During the first quarters of fiscal 2006 and 2005, we entered into equity
forward contracts to hedge the risk of changes in future cash flows associated
with the unvested unrecognized Darden stock units granted during those periods.
The equity forward contracts will be settled at the end of the vesting periods
of their underlying Darden stock units, which range between four and five years.
In total, the equity forward contracts, are indexed to 330,000 shares of our
common stock, have an $8,264 notional amount and can only be net settled in
cash. To the extent the equity forward contracts are effective in offsetting the
variability of the hedged cash flows, changes in the fair value of the equity
forward contracts are not included in current earnings but are reported as
accumulated other comprehensive income (loss). A deferred gain of $3,945 related
to the equity forward contracts was recognized in accumulated other
comprehensive income (loss) at February 26, 2006. As the Darden stock units
vest, we will effectively de-designate that portion of the equity forward
contract that no longer qualifies for hedge accounting, and changes in fair
value associated with that portion of the equity forward contract will be
recognized in current earnings. A gain of $771 and $77 was recognized in
earnings as a component of restaurant labor during the quarters ended February
26, 2006 and February 27, 2005, respectively. A gain of $1,282 and $193 was
recognized in earnings as a component of restaurant labor during the nine months
ended February 26, 2006 and February 27, 2005, respectively.

During fiscal 2005 and fiscal 2004, we entered into interest rate swap
agreements ("swaps") to hedge the risk of changes in interest rates on the cost
of a future issuance of fixed-rate debt. The swaps, which had a $100,000
notional principal amount of indebtedness, were used to hedge a portion of the
interest payments associated with $150,000 of unsecured 4.875 percent senior
notes due in August 2010, which were issued in August 2005. The interest rate
swaps were settled at the time of the related debt issuance with a net loss of
$1,177 being recognized in accumulated other comprehensive income (loss). The
net loss on the interest rate swaps is being amortized into earnings as an
adjustment to interest expense over the same period in which the related
interest costs on the new debt issuance are being recognized in earnings. A loss
of $59 was recognized in earnings during the quarter ended February 26, 2006 as
an adjustment to interest expense.

Note 12. Retirement Plans

Components of net periodic benefit cost are as follows:

Service cost $ 1,278 $ 1,218 $ 169 $ 175
Interest cost 2,012 1,829 233 252
Expected return on plan assets (3,357) (3,210) -- --
Amortization of unrecognized prior service cost 21 (87) -- --
Recognized net actuarial loss 1,245 1,248 58 86
- ------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 1,199 $ 998 $ 460 $ 513
========================================================================================================================

Defined Benefit Plans Postretirement Benefit Plan
- ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
February February 27, February 26, February 27,
26, 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
Service cost $ 3,899 $ 3,652 $ 509 $ 524
Interest cost 6,044 5,486 699 754
Expected return on plan assets (9,891) (9,630) -- --
Amortization of unrecognized prior service cost 63 (261) -- --
Recognized net actuarial loss 3,993 3,744 156 259
- ------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 4,108 $ 2,991 $ 1,364 $ 1,537
========================================================================================================================

Note 13. Commitments and Contingencies

As collateral for performance on other contracts and as credit guarantees
to banks and insurers, we are contingently liable pursuant to guarantees of
subsidiary obligations under standby letters of credit. As of February 26,

2006 and May 29, 2005, we had $64,556 and $72,677, respectively, of standby
letters of credit related to workers' compensation and general liabilities
accrued in our consolidated financial statements. As of February 26, 2006 and
May 29, 2005, we also had $14,532 and $13,829, respectively, of standby letters
of credit related to contractual operating lease obligations and other payments.
All standby letters of credit are renewable annually.

As of February 26, 2006 and May 29, 2005, we had $1,394 and $1,768,
respectively, of guarantees associated with properties that have been assigned
to third parties. These amounts represent the maximum potential amount of future
payments under the guarantees. The fair value of these potential payments,
discounted at our pre-tax cost of capital, at February 26, 2006 and May 29, 2005
amounted to $1,119 and $1,395, respectively. We have not accrued for the
guarantees, as we believe the likelihood of the third parties defaulting on the
assignment agreements is improbable. In the event of default by a third party,
the indemnity and default clauses in our assignment agreements govern our
ability to pursue and recover from the third party for damages incurred as a
result of its default. We do not hold any third-party assets as collateral
related to these assignment agreements, except to the extent the assignment
allows us to repossess the building and personal property. The guarantees expire
over their respective lease terms, which range from fiscal 2007 through fiscal
2012.

We are subject to private lawsuits, administrative proceedings and claims
that arise in the ordinary course of our business. A number of these lawsuits,
proceedings and claims may exist at any given time. These matters typically
involve claims from guests, employees and others related to operational issues
common to the restaurant industry and can also involve infringement of, or
challenges to, our trademarks. While the resolution of a lawsuit, proceeding or
claim may have an impact on our financial results for the period in which it is
resolved, we believe that the final disposition of the lawsuits, proceedings and
claims in which we are currently involved, either individually or in the
aggregate, will not have a material adverse effect on our financial position,
results of operations or liquidity.

Like other restaurant companies and retail employers, we have been faced in
a few states with allegations of purported class-wide wage and hour violations.
The following is a brief description of the more significant of these matters.
In view of the inherent uncertainties of litigation, the outcome of any
unresolved matter described below cannot be predicted at this time, nor can the
amount of any potential loss be reasonably estimated.

In March 2003 and March 2002, two purported class action lawsuits were
brought against us in the Superior Court of Orange County, California by three
current and former hourly restaurant employees alleging violations of California
labor laws with respect to providing meal and rest breaks. Although we continue
to believe we provided the required meal and rest breaks to our employees, to
avoid potentially costly and protracted litigation, we agreed during the second
quarter of fiscal 2005 to settle both lawsuits and a similar case filed in
Sacramento County for approximately $9,500. Terms of the settlement, which do
not include any admission of liability by us, have received preliminary judicial
approval, and claims administration is underway. As of the end of the third
quarter of fiscal 2006, all settlement proceeds were paid.

In August 2003, three former employees in Washington filed a similar
purported class action in Washington State Superior Court in Spokane County
alleging violations of Washington labor laws with respect to providing rest
breaks. The Court stayed the action and ordered the plaintiffs into our
mandatory arbitration program. Pre-arbitration motions and briefs are currently
pending. We believe we provided the required meal and rest breaks to our
employees, and we intend to vigorously defend our position in this case.

Beginning in 2002, a total of five purported class action lawsuits were
filed in Superior Courts of California (two each in Los Angeles County and
Orange County, and one in Sacramento County) in which the plaintiffs allege that
they and other current and former service managers, beverage and hospitality
managers and culinary managers were improperly classified as exempt employees
under California labor laws. The plaintiffs seek unpaid overtime wages and
penalties. Two of the cases were removed to arbitration under our mandatory
arbitration program, one was stayed to allow consideration of judicial
coordination with the other cases, one is proceeding as an individual claim, and
one remains a purported class action litigation matter. Although we continue to
believe we correctly classified these employees, to avoid potentially costly and
protracted litigation, we agreed to discuss possible resolution and the cases
were stayed in December 2005. Following a mediation in February 2006, a
tentative settlement was reached. Without admitting any liability, we agreed to
pay up to a maximum total of $11,000 to settle all five cases. We recorded
settlement expenses amounting to approximately $9,000 associated with these
lawsuits during the quarter and nine months ended February 26, 2006, which are
included in selling, general, and administrative expenses. The settlement
amounts of these lawsuits are included in other current liabilities at February
26, 2006. The tentative settlement will be documented in a full settlement
agreement and must have court approval.

We cannot predict when the settlement will be final, but estimate preliminary
court approval will occur in the fourth quarter of fiscal 2006, with final court
approval and payment of the settlement proceeds no earlier than the first
quarter of fiscal 2007.

Note 14. Adoption of Accounting Standards

In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 153, "Exchanges of Non-Monetary Assets." SFAS No. 153 eliminates the
exception for non-monetary exchanges of similar productive assets and replaces
it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. SFAS No. 153 is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. We adopted
SFAS No. 153 in the second quarter of fiscal 2006. The adoption of SFAS No. 153
did not have a material impact on our consolidated financial statements.

In June 2005, the FASB's Emerging Issues Task Force ("EITF") reached a
consensus on Issue No. 05-6, "Determining the Amortization Period for Leasehold
Improvements" ("EITF 05-6"). EITF 05-6 requires that leasehold improvements
acquired in a business combination or purchased subsequent to the inception of a
lease be amortized over the lesser of the useful life of the assets or a term
that includes renewals that are reasonably assured at the date of the business
combination or purchase. The guidance is effective for periods beginning after
June 29, 2005. We adopted EITF 05-6 in the second quarter of fiscal 2006. The
adoption of EITF 05-6 did not have a material impact on our consolidated
financial statements.

Note 15. Future Application of Accounting Standards

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs," which
clarifies the accounting for abnormal amounts of idle facilities expense,
freight, handling costs and wasted material. SFAS No. 151 is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. We
do not believe the adoption of SFAS No. 151 will have a material impact on our
consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-Based
Payment." SFAS No. 123R revises SFAS No. 123, "Accounting for Stock-Based
Compensation" and generally requires the cost associated with employee services
received in exchange for an award of equity instruments to be measured based on
the grant-date fair value of the award and recognized in the financial
statements over the period during which employees are required to provide
service in exchange for the award. SFAS No. 123R also provides guidance on how
to determine the grant-date fair value for awards of equity instruments as well
as alternative methods of adopting its requirements. SFAS No. 123R is effective
for annual reporting periods beginning after June 15, 2005. As disclosed in Note
3, based on the current assumptions and calculations used, had we recognized
compensation expense based on the fair value of awards of equity instruments,
net earnings would have been reduced by approximately $3,010 and $10,883 for the
quarter and nine months ended February 26, 2006, respectively, and $3,919 and
$11,902 for the quarter and nine months ended February 27, 2005, respectively.
We have not yet concluded as to the method of adoption or the effect of adopting
SFAS No. 123R and have not determined whether the adoption will result in future
amounts similar to the current pro forma disclosures under SFAS No. 123.

In October 2005, the FASB issued Staff Position No. 13-1, "Accounting for
Rental Costs Incurred During a Construction Period" ("FSP No. 13-1"). FSP No.
13-1 is effective for the first reporting period beginning after December 15,
2005 and requires that rental costs associated with ground or building operating
leases that are incurred during a construction period be recognized as rental
expense. Adoption of FSP No. 13-1 will not have a material impact on our
financial statements as our existing accounting policies are in compliance with
FSP No. 13-1.

Note 16. Subsequent Event

On March 17, 2006, the Board of Directors declared a cash dividend of
twenty cents per share to be paid May 1, 2006 to all shareholders of record as
of the close of business on April 10, 2006.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The discussion and analysis below for the Company should be read in
conjunction with the unaudited financial statements and the notes to such
financial statements included elsewhere in this Form 10-Q and our audited
financial statements and notes thereto included in our Form 10-K for our fiscal
year ended May 29, 2005, as filed with the SEC. The discussion below contains
forward-looking statements, which should be read in conjunction with
"Forward-Looking Statements" below. The following table sets forth selected
operating data as a percent of sales for the periods indicated. All information
is derived from the consolidated statements of earnings for the quarters and
nine months ended February 26, 2006 and February 27, 2005.

Quarter Ended Nine Months Ended
----------------------------------------------------------------------------------------------------------------------
February 26, February 27, February 26, February 27,
2006 2005 2006 2005
----------------------------------------------------------------------------------------------------------------------

Sales ................................................... 100% 100% 100% 100%
Costs and expenses:
Cost of sales:
Food and beverage................................... 29.2 30.0 29.5 30.2
Restaurant labor.................................... 32.1 31.7 32.4 32.0
Restaurant expenses................................. 15.3 15.0 15.6 15.5
---- ------ ------ ------
Total cost of sales, excluding restaurant
depreciation and amortization of 3.5%,
3.6%, 3.6% and 3.8%, respectively.............. 76.6% 76.7% 77.5% 77.7%
Selling, general and administrative................... 9.5 9.2 9.6 9.6
Depreciation and amortization......................... 3.8 3.8 3.9 4.1
Interest, net......................................... 0.7 0.8 0.8 0.8
---- ------ ------ ------
Total costs and expenses........................ 90.6% 90.5% 91.8% 92.2%
---- ------ ------ ------

Earnings before income taxes............................. 9.4 9.5 8.2 7.8
Income taxes............................................. (2.3) (2.8) (2.4) (2.5)
---- ------ ------ ------

Net earnings............................................. 7.1% 6.7% 5.8% 5.3%
==== ====== ====== ======

----------------------------------------------------------------------------------------------------------------------

OVERVIEW OF OPERATIONS

Our sales were $1.47 billion and $4.21 billion for the third quarter and
first nine months of fiscal 2006, respectively, compared to $1.38 billion and
$3.88 billion for the third quarter and first nine months of fiscal 2005,
respectively. The 7.1 percent and 8.4 percent increases in sales for the third
quarter and first nine months of fiscal 2006, respectively, were driven
primarily by increased U.S. same-restaurant sales at Olive Garden and Red
Lobster and a net increase of 48 Company-owned restaurants since the third
quarter of fiscal 2005. For the third quarter of fiscal 2006, our net earnings
were $105 million compared to $93 million for the third quarter of fiscal 2005,
a 13.7 percent increase, and our diluted net earnings per share were $0.67 for
the third quarter of fiscal 2006 compared to $0.56 for the third quarter of
fiscal 2005, a 19.6 percent increase. For the first nine months of fiscal 2006,
our net earnings were $246 million compared to $207 million for the first nine
months of fiscal 2005, a 19.0 percent increase, and our diluted net earnings per
share were $1.56 for the first nine months of fiscal 2006 compared to $1.26 for
the first nine months of fiscal 2005, a 23.8 percent increase.

Olive Garden reported its 46th consecutive quarter of U.S. same-restaurant
sales growth during the third quarter of fiscal 2006 with a 5.7 percent
increase. Olive Garden continues to focus on providing an excellent guest
experience and developing new advertising and promotions that have been
successfully tested. Olive Garden is also in the process of accelerating new
restaurant growth through the introduction of two new prototypes, which are
expected to deliver the same guest experience while reducing the required
capital investment and improving operating efficiencies. Each of the new
prototypes is under construction and is expected to be opened in the fourth
quarter of fiscal 2006. Olive Garden expects to open 30 to 35 new restaurants in
fiscal 2007, which is an increase of

10 new restaurants versus fiscal 2006. Red Lobster's U.S. same-restaurant sales
for the third quarter of fiscal 2006 increased for the sixth consecutive quarter
with a 1.6 percent increase. Red Lobster continued to improve its guest
satisfaction results and had record restaurant profit margins during the third
quarter of 2006 as a result of their "Simply Great" operating discipline and
initiatives designed to ensure their restaurants are "Fresh, Clean, Friendly and
Full." Red Lobster is now working to broaden its appeal by developing new
advertising and menus, which are being finalized and will be market-tested for
an estimated 6 to 12 months. Bahama Breeze's same-restaurant sales increased 1.7
percent in the third quarter of fiscal 2006, driven by compelling new menu
offerings and an improved guest experience. Smokey Bones' restaurant level
operating profit increased 34 percent in the third quarter of fiscal 2006 as a
result of the increased number of restaurants in operation combined with lower
food and beverage costs and restaurant expenses as a percent of sales, offset
partially by increased restaurant labor costs as a percent of sales and a 5.0
percent decrease in same restaurant sales. Smokey Bones continues to focus on
becoming more relevant for a broader variety of occasions. Smokey Bones operated
27 more restaurants than in the prior year's third quarter, including nine that
were opened during the third quarter of fiscal 2006. In addition, the recent
softening of sales at Smokey Bones has led us to reevaluate our new restaurant
opening strategy. We expect to focus future openings in the geographic areas
where Smokey Bones has demonstrated sales strength in order to achieve an
appropriate return on capital. We also expect to slow the pace of new restaurant
openings for Smokey Bones from 25 to 30 in fiscal 2006 to approximately 10 to 15
new restaurants in fiscal 2007. During the third quarter of fiscal 2006, we
recorded an impairment charge for five Smokey Bones restaurants, three of which
have been permanently closed.

Hurricanes Katrina and Rita, which occurred in the second quarter of fiscal
2006, had a minimal direct effect on our sales and net earnings for the nine
months ended February 26, 2006. There are currently two restaurants (one Olive
Garden and one Red Lobster) that are closed indefinitely as a result of
Hurricane Katrina. Decisions regarding rebuilding and reopening are pending
clean-up and recovery efforts in Louisiana and Mississippi. One Red Lobster that
was closed temporarily through the third quarter was reopened in March 2006.

SALES

Sales were $1.47 billion and $1.38 billion for the quarters ended February
26, 2006 and February 27, 2005, respectively. The 7.1 percent increase in sales
for the third quarter of fiscal 2006 was primarily due to increased U.S.
same-restaurant sales at Olive Garden and Red Lobster and a net increase of 48
Company-owned restaurants since the third quarter of fiscal 2005. Olive Garden's
sales of $689 million were 9.8 percent above last year's third quarter, driven
primarily by a 5.7 percent increase in U.S. same-restaurant sales and its 19 net
new restaurants in operation since the third quarter of last year. Olive Garden
achieved its 46th consecutive quarter of U.S. same-restaurant sales growth
primarily as a result of a 3.4 percent increase in same-restaurant guest counts
and a 2.3 percent increase in average check. Red Lobster sales of $652 million
were 2.5 percent above last year's third quarter, which resulted primarily from
a 1.6 percent increase in U.S. same-restaurant sales. The increase in U.S.
same-restaurant sales resulted from a 2.1 percent increase in average check,
partially offset by a 0.5 percent decrease in same-restaurant guest counts. Red
Lobster's U.S. same restaurant sales results for the third quarter of fiscal
2006 were negatively impacted by an estimated two percentage points as a result
of a three week shift in the start of the company's signature Lobsterfest
promotion, which commenced in the third quarter last year versus the fourth
quarter this year. Bahama Breeze sales of $38 million were 1.8 percent above
last year's third quarter, primarily as a result of higher same-restaurant guest
counts. Smokey Bones sales of $89 million were 23.1 percent above last year's
third quarter primarily as a result of its 27 net new restaurants in operation
since the third quarter of last year. Smokey Bones' same- restaurant sales
decreased 5.0 percent compared to the third quarter of last year.

Sales were $4.21 billion and $3.88 billion for the nine months ended
February 26, 2006 and February 27, 2005, respectively. The 8.4 percent increase
in sales for the first nine months of fiscal 2006 was primarily due to increased
U.S. same-restaurant sales at Olive Garden and Red Lobster and a net increase of
48 Company-owned restaurants since the third quarter of fiscal 2005. Olive
Garden's sales of $1.95 billion were 10.1 percent above last year, driven
primarily by a 6.5 percent increase in U.S. same-restaurant sales and its 19 net
new restaurants in operation since the third quarter of last year. The increase
in U.S. same-restaurant sales resulted primarily from a 4.4 percent increase in
same-restaurant guest counts and a 2.1 percent increase in average check. Red
Lobster sales of $1.87 billion were 4.1 percent above last year, which resulted
primarily from a 3.8 percent increase in U.S. same-restaurant sales. The
increase in U.S. same-restaurant sales resulted primarily from a 2.2 percent
increase in average check and a 1.6 percent increase in same-restaurant guest
counts. Bahama Breeze sales of $120 million were 0.9 percent above last year,
primarily as a result of higher same-restaurant guest counts. Smokey Bones sales
of $248

million were 32.6 percent above last year primarily as a result of its 27 net
new restaurants in operation since the third quarter of last year.

COSTS AND EXPENSES

Total costs and expenses were $1.34 billion and $1.25 billion for the
quarters ended February 26, 2006 and February 27, 2005, respectively. As a
percent of sales, total costs and expenses increased from 90.5 percent in the
third quarter of fiscal 2005 to 90.6 percent in the third quarter of fiscal
2006.

Food and beverage costs increased $18 million, or 4.4 percent, from $413
million to $431 million in the third quarter of fiscal 2006 compared to the
third quarter of fiscal 2005. As a percent of sales, food and beverage costs
decreased in the third quarter of fiscal 2006 primarily as a result of product
cost saving and improved waste management. Food and beverage costs, as a percent
of sales, also decreased as a result of the larger contribution by Olive Garden,
which has historically had lower food and beverage costs, to our overall sales
and operating results. Restaurant labor increased $37 million, or 8.5 percent,
from $436 million to $473 million in the third quarter of fiscal 2006 compared
to the third quarter of fiscal 2005. As a percent of sales, restaurant labor
increased in the third quarter of fiscal 2006 primarily as a result of an
increase in wage rates and benefit costs and an increase in FICA taxes on higher
reported tips, which was partially offset by increased sales leverage at Olive
Garden and Red Lobster. Restaurant labor, as a percent of sales, also increased
as a result of the larger contribution by Olive Garden, which has historically
had higher restaurant labor costs, to our overall sales and operating results.
Restaurant expenses (which include lease, property tax, credit card, utility,
workers' compensation, insurance, new restaurant pre-opening and other
restaurant-level operating expenses) increased $19 million, or 9.2 percent, from
$207 million to $226 million in the third quarter of fiscal 2006 compared to the
third quarter of fiscal 2005. As a percent of sales, restaurant expenses
increased in the third quarter of fiscal 2006 primarily as a result of increased
utilities and credit card fees, which were partially offset by lower pre-opening
and general liability costs, in addition to sales leverage at Olive Garden and
Red Lobster. The decrease in our general liability expenses resulted primarily
from safety initiatives which have continued to provide reductions in the
frequency rate of claims.

Selling, general and administrative expenses increased $13 million, or 9.9
percent, from $126 million to $139 million in the third quarter of fiscal 2006
compared to the third quarter of fiscal 2005. As a percent of sales, selling,
general and administrative expenses increased in the third quarter of fiscal
2006 primarily as a result of $9 million incurred to settle legal disputes in
California related to the exempt classification of certain restaurant management
employees and $8 million for the write down of the carrying value of five Smokey
Bones restaurants, two of which continue to operate. These costs were partially
offset by reduced Red Lobster marketing expenses associated with the shift of
the start of the company's Lobsterfest promotion into this year's fiscal fourth
quarter and by increased sales leverage at Olive Garden and Red Lobster.

Depreciation and amortization expense increased $3 million, or 6.4 percent,
from $53 million to $56 million in the third quarter of fiscal 2006 compared to
the third quarter of fiscal 2005. As a percent of sales, depreciation and
amortization expense remained flat in the third quarter of fiscal 2006 as
increased sales leverage at Olive Garden and Red Lobster was offset by new
restaurant activity.

Net interest expense, as a percent of sales, decreased in the third quarter
of fiscal 2006 compared to the third quarter of fiscal 2005. Although interest
expense increased as a result of the issuance of additional long-term debt in
August 2005, this increase was offset by the interest income associated with the
investment of proceeds from the issuance of the long-term debt.

Total costs and expenses were $3.86 billion and $3.58 billion for the nine
months ended February 26, 2006 and February 27, 2005, respectively. As a percent
of sales, total costs and expenses decreased from 92.2 percent for the first
nine months of fiscal 2005 to 91.7 percent for the first nine months of fiscal
2006.

Food and beverage costs increased $68 million, or 5.8 percent, from $1.17
billion to $1.24 billion in the first nine months of fiscal 2006 compared to the
first nine months of fiscal 2005. As a percent of sales, food and beverage costs
decreased in the first nine months of fiscal 2006 primarily as a result of cost
savings initiatives. Food and beverage costs, as a percent of sales, also
decreased as a result of the larger contribution by Olive Garden, which has
historically had lower food and beverage costs, to our overall sales and
operating results. Restaurant labor increased $121 million, or 9.7 percent, from
$1.24 billion to $1.36 billion in the first nine months of fiscal 2006 compared
to the first nine

months of fiscal 2005. As a percent of sales, restaurant labor increased in the
first nine months of fiscal 2006 primarily as a result of an increase in wage
rates, including insurance and other benefits and an increase in FICA taxes on
higher reported tips, which was partially offset by increased sales leverage at
Olive Garden and Red Lobster. Restaurant labor, as a percent of sales, also
increased as a result of the larger contribution by Olive Garden, which has
historically had higher restaurant labor costs, to our overall sales and
operating results. Restaurant expenses increased $52 million, or 8.5 percent,
from $604 million to $656 million in the first nine months of fiscal 2006
compared to the first nine months of fiscal 2005. As a percent of sales,
restaurant expenses increased in the first nine months of fiscal 2006 primarily
as a result of higher utilities and credit card fees, which were partially
offset by increased sales leverage at Olive Garden and Red Lobster and lower
workers' compensation and general liability expenses.

Selling, general and administrative expenses increased $32 million, or 8.7
percent, from $372 million to $404 million in the first nine months of fiscal
2006 compared to the first nine months of fiscal 2005. As a percent of sales,
selling, general and administrative expenses remained flat in the first nine
months of fiscal 2006 primarily as a result of increased sales leverage at Olive
Garden and Red Lobster and reduced marketing expenses at Red Lobster associated
with the shift of the start of the company's Lobsterfest promotion into this
year's fiscal fourth quarter, which offset the $9 million incurred to settle
legal disputes in California related to the exempt classification of certain
restaurant management employees and the $8 million write down of the carrying
value of five Smokey Bones restaurants, two of which continue to operate.

Depreciation and amortization expense increased $6 million, or 4.0 percent,
from $159 million to $165 million in the first nine months of fiscal 2006
compared to the first nine months of fiscal 2005. As a percent of sales,
depreciation and amortization expense decreased in the first nine months of
fiscal 2006 primarily as a result of increased sales leverage at Olive Garden
and Red Lobster, which was partially offset by new restaurant activity.

Net interest expense increased $1.0 million, or 1.7 percent, from $32
million to $33 million in the first nine months of fiscal 2006 compared to the
first nine months of fiscal 2005. As a percent of sales, net interest expense in
the first nine months of fiscal 2006 was comparable to the first nine months of
fiscal 2005 primarily as a result increased sales leverage at Olive Garden and
Red Lobster.

INCOME TAXES

The effective income tax rate for the third quarter and first nine months
of fiscal 2006 was 24.3 percent and 29.3 percent, respectively, compared to an
effective income tax rate of 29.2 percent and 31.6 percent in the third quarter
and first nine months of fiscal 2005, respectively. The rate decreases in fiscal
2006 were primarily due to an increase in FICA tax credits for reported tips and
the favorable resolution of prior year tax matters.

NET EARNINGS AND NET EARNINGS PER SHARE

For the third quarter of fiscal 2006, our net earnings were $105 million
compared to $93 million in the third quarter of fiscal 2005, a 13.7 percent
increase, and our diluted net earnings per share were $0.67 compared to $0.56 in
the third quarter of fiscal 2005, a 19.6 percent increase. At Olive Garden,
increased sales and lower food and beverage costs, restaurant labor costs and
selling, general and administrative expenses as a percent of sales more than
offset increased restaurant and depreciation expenses as a percent of sales,
resulting in record quarterly operating profit for Olive Garden in fiscal 2006
and a double-digit operating profit increase over the same period in fiscal
2005. At Red Lobster, increased sales and lower food and beverage costs,
restaurant expenses, selling, general and administrative expenses and
depreciation expenses as a percent of sales more than offset higher restaurant
labor costs and restaurant expenses as a percent of sales, resulting in record
quarterly operating profit for Red Lobster. The increase in both our net
earnings and diluted net earnings per share for the third quarter of fiscal 2006
was primarily due to increased U.S. same-restaurant sales at Olive Garden and
Red Lobster, new restaurant growth, decreases in our consolidated food and
beverage costs and interest expense as a percent of sales, and a decrease in our
effective income tax rate, which were partially offset by increased restaurant
labor costs, restaurant expenses and selling, general and administrative
expenses as a percent of sales.

For the first nine months of fiscal 2006, our net earnings were $246
million compared to $207 million for the first nine months of fiscal 2005, a
19.0 percent increase, and our diluted net earnings per share were $1.56
compared to $1.26 in the first nine months of fiscal 2005, a 23.8 percent
increase. At Olive Garden, increased sales and lower food and beverage costs,
selling, general and administrative expenses and depreciation expense as a
percent of sales more than offset increased restaurant labor costs as a percent
of sales, resulting in a double-digit

operating profit increase over the first nine months of fiscal 2005. At Red
Lobster, increased sales and lower food and beverage costs, restaurant expenses,
selling, general and administrative expenses and depreciation expenses as a
percent of sales more than offset higher restaurant labor expenses as a percent
of sales. As a result, Red Lobster had a strong double-digit operating profit
increase in the first nine months of fiscal 2006 compared to the first nine
months of fiscal 2005. The increase in both our net earnings and diluted net
earnings per share for the first nine months of fiscal 2006 was primarily due to
increased U.S. same-restaurant sales at Olive Garden and Red Lobster, new
restaurant growth, decreases in our consolidated food and beverage costs and
depreciation expense as a percent of sales and a decrease in our effective
income tax rate which more than offset increased restaurant labor costs and
restaurant expenses as a percent of sales.

SEASONALITY

Our sales volumes fluctuate seasonally. During fiscal 2005, our sales were
highest in the spring and winter, followed by the summer, and lowest in the
fall. During fiscal 2004 and 2003, our sales were highest in the spring, lowest
in the fall, and comparable during winter and summer. Holidays, severe weather
and similar conditions may impact sales volumes seasonally in some operating
regions. Because of the seasonality of our business, results for any quarter are
not necessarily indicative of the results that may be achieved for the full
fiscal year.

NUMBER OF RESTAURANTS

The following table details the number of restaurants open at the end of
the third quarter of fiscal 2006, compared with the number open at the end of
fiscal 2005 and the end of the third quarter of fiscal 2005.

- --------------------------------------------------------------------------------------------------------------------
February 26, 2006 May 29, 2005 February 27, 2005
- --------------------------------------------------------------------------------------------------------------------

Red Lobster - USA.................. 649 648 648
Red Lobster - Canada............... 31 31 31
------ ------ ------
Total......................... 680 679 679
------ ------ ------

Olive Garden - USA................. 569 557 550
Olive Garden - Canada.............. 6 6 6
------ ------ ------
Total......................... 575 563 556
------ ------ ------

Bahama Breeze...................... 32 32 32
Smokey Bones (1).................. 125 104 98
Seasons 52......................... 4 3 3
------ ------ ------
Total......................... 1,416 1,381 1,368
====== ====== ======

- --------------------------------------------------------------------------------------------------------------------
(1) We closed two Smokey Bones restaurants in March 2006.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operating activities provide us with a
significant source of liquidity, which we use to finance the purchases of land,
buildings and equipment, to pay dividends and to repurchase shares of our common
stock. Since substantially all of our sales are for cash and cash equivalents
and accounts payable are generally due in five to 30 days, we are able to carry
current liabilities in excess of current assets. In addition to cash flows from
operations, we use a combination of long-term and short-term borrowings to fund
our capital needs.

Our commercial paper program serves as our primary source of short-term
financing. To support our commercial paper program, we have a credit facility
under a Credit Agreement dated August 16, 2005, with a consortium of banks,
under which we can borrow up to $500 million. As part of this credit facility,
we may request issuance of up to $100 million in letters of credit, the
outstanding amount of which reduces the net borrowing capacity under the
agreement. The borrowings and letters of credit obtained under the Credit
Agreement may be denominated in U.S. dollars or other currencies approved by the
banks. The Credit Agreement allows us to borrow at interest rates that vary
based on a spread over (i) LIBOR or (ii) a base rate that is the higher of the
prime rate or one-half of one percent above the federal funds rate, at our
option. The interest rate spread over LIBOR is determined by our debt rating. We
may also request that loans be made at interest rates offered by one or more of
the banks, which may vary from the LIBOR or base rate. The credit facility
expires on August 15, 2010, and contains various restrictive covenants,
including a leverage test that requires us to maintain a ratio of consolidated

total debt to consolidated total capitalization of less than 0.65 to 1.00 and a
limitation on secured debt and debt owed by subsidiaries, subject to certain
exceptions, of 10 percent of our consolidated tangible net worth. The credit
facility does not, however, contain a prohibition on borrowing in the event of a
ratings downgrade or a Material Adverse Effect, as defined in the Credit
Agreement. None of these covenants is expected to limit our liquidity or capital
resources. As of February 26, 2006, there were no borrowings outstanding under
the Credit Agreement. However, as of February 26, 2006, there was $44,000 of
commercial paper and $15,000 of letters of credit outstanding, which are backed
by this facility. As of February 26, 2006, we were in compliance with all
covenants under the Credit Agreement.

At February 26, 2006, our long-term debt consisted principally of: (1) $150
million of unsecured 5.75 percent medium-term notes due in March 2007, (2) $150
million of unsecured 4.875 percent senior notes due in August 2010, (3) $150
million of unsecured 6.000 percent senior notes due in August 2035, (4) $100
million of unsecured 7.125 percent debentures due in February 2016, (5) $75
million of unsecured 7.45 percent medium-term notes due in April 2011 and (6) an
unsecured, variable rate $23 million commercial bank loan due in December 2018
that is used to support two loans from us to the Employee Stock Ownership Plan
portion of the Darden Savings Plan. In September 2005, we used a portion of the
proceeds from our issuance of the 4.875 percent and 6.000 percent senior notes,
which were issued in August 2005, to repay $150 million of unsecured 8.375
percent senior notes at maturity. In February 2006, we used the remaining
proceeds from the senior notes issued in August 2005 to repay $150 million of
unsecured 6.375 percent notes at maturity. The proceeds from the issuance of the
senior notes in August 2005 and the repayment of the notes in September 2005 and
February 2006 are included in net cash flows used in financing activities for
the nine months ended February 26, 2006. Through a shelf registration on file
with the SEC, we may issue up to an additional $300 million of unsecured debt
securities from time to time. The debt securities may bear interest at either
fixed or floating rates and will have such other terms as determined at the time
of any issuance.

Our Board of Directors has authorized us to repurchase up to an aggregate
of 137.4 million shares of our common stock. Net cash flows used in financing
activities included our repurchase of 3.7 million shares of our common stock for
$151 million in the third quarter of fiscal 2006, compared to 3.7 million shares
for $104 million in the third quarter of fiscal 2005. For the first nine months
of fiscal 2006, net cash flows used by financing activities included our
repurchase of 9.6 million shares of our common stock for $339 million compared
to 6.8 million shares for $173 million for the first nine months of 2005. As of
February 26, 2006, we have repurchased a total of 130.2 million shares of our
common stock. The repurchased common stock is reflected as a reduction of
stockholders' equity.

Net cash flows provided by operating activities included $16 million and
$92 million in income taxes paid in the third quarter and first nine months of
fiscal 2006, respectively, compared to $46 million and $56 million for the same
periods in fiscal 2005, respectively. The decrease in tax payments in the third
quarter of fiscal 2006 compared to the third quarter of fiscal 2005 is due to
the tax payment extension provided by the Internal Revenue Service ("IRS") in
the second quarter of fiscal 2005. This extension was provided to all Florida
taxpayers in the disaster area counties struck by tropical storm Bonnie and
hurricanes Charley and Frances in August and September 2005. Tax payments due in
the second quarter of fiscal 2005 were remitted to the IRS in the third quarter
of fiscal 2005. The increase in tax payments in the first nine months of fiscal
2006 compared to the first nine months of fiscal 2005 resulted primarily from
accelerated deductions allowable for depreciation of certain capital
expenditures during most of fiscal 2005, which lowered our income tax payments
in those periods. These accelerated deductions were not available for fiscal
2006 expenditures.

Net cash flows used in investing activities included capital expenditures
incurred principally for building new restaurants, replacing equipment and
remodeling existing restaurants. Capital expenditures were $73 million and $239
million in the third quarter and first nine months of fiscal 2006, respectively,
compared to $84 million and $231 million in the third quarter and first nine
months of fiscal 2005, respectively. The decreased expenditures in the third
quarter of fiscal 2006 resulted primarily from decreased spending associated
with building new restaurants. The increased expenditures in the first nine
months of fiscal 2006 resulted primarily from the expansion of Smokey Bones and
new restaurant growth at Olive Garden.

Net cash flows used in financing activities for the first nine months of
fiscal 2006 included $30 million in dividends paid in the second quarter of
fiscal 2006, compared to $6 million in the same period in fiscal 2005. On March
17, 2006, the Board of Directors declared a cash dividend of twenty cents per
share to be paid on May 1,

2006 to all shareholders of record as of the close of business on April 10,
2006. Based on this twenty cent semi-annual dividend declaration, our indicated
annual dividend is forty cents per share. Most recently, we had paid an annual
dividend of eight cents per share.

A table of our contractual obligations and other commercial commitments as
of May 29, 2005 was included in Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of our Annual Report on Form 10-K
for the fiscal year ended May 29, 2005. During the quarter ended August 28,
2005, the issuance of our unsecured senior notes in August 2005 increased the
amount of payments due in respect of long-term debt. During the quarter ended
November 27, 2005, the repayment of unsecured senior notes at maturity in
September 2005 decreased the amount of payments due in respect of long-term
debt. During the quarter ended February 26, 2006, the repayment of unsecured
notes at maturity decreased the amount of payments due in respect of long term
debt. At February 26, 2006, the amount of payments due in respect of long-term
debt in the less than one year period was $0 million, in the 1-3 year period was
$150 million, in the 3-5 year period was $150 million, and in the more than 5
year period was $348 million. There were no other significant changes to our
contractual obligations and other commercial commitments during the nine months
ended February 26, 2006.

We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, changes in financial condition, sales or expenses, results of
operations, liquidity, capital expenditures or capital resources. We are not
aware of any trends or events that would materially affect our capital
requirements or liquidity. We believe that our internal cash generating
capabilities and borrowings available under our shelf registration statement for
unsecured debt securities and short-term commercial paper program will be
sufficient to finance our capital expenditures, dividends, stock repurchase
program and other operating activities through fiscal 2006.

FINANCIAL CONDITION

Our current assets totaled $434 million at February 26, 2006, compared to
$407 million at May 29, 2005. The increase resulted primarily from increases of
$10 million in cash and cash equivalents and $10 million in inventories. The
increase in cash and cash equivalents is primarily due to the increase in
operating performance and seasonal sales of our gift cards. The increase in
inventories is principally due to seasonality of product purchases.

Our current liabilities totaled $869 million at February 26, 2006, compared
to $1.04 billion at May 29, 2005. Accounts payable of $223 million at February
26, 2006, increased from $191 million at May 29, 2005, principally due to the
timing and terms of inventory purchases, capital expenditures and related
payments. Short-term debt of $44 million at February 26, 2006 increased from $0
at May 29, 2005, to fund our current operations and capital expenditures.
Unearned revenues of $120 million at February 26, 2006 increased from $88
million at May 29, 2005, principally due to seasonal fluctuations in sales and
redemptions of our gift cards. Current portion of long-term debt decreased from
$300 million to $0 due to the repayment of $150 million of unsecured 8.375
percent senior notes at maturity in September 2005 and $150 million of unsecured
6.375 percent notes at maturity in February 2006. Other current liabilities of
$268 million at February 26, 2006 increased from $254 million at May 29, 2005,
principally due to employee benefit-related accruals. Long-term debt of $645
million at February 26, 2006, increased from $350 million at May 29, 2005,
primarily from the issuance of $300 million of senior notes in August 2005.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in conformity with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of sales and expenses during the reporting period (see Note 1, "Summary
of Significant Accounting Policies" under Notes to Consolidated Financial
Statements included in Item 8, "Financial Statements and Supplementary Data" of
our Annual Report on Form 10-K for the fiscal year ended May 29, 2005). Actual
results could differ from those estimates.

Critical accounting policies are those we believe are both most important
to the portrayal of our financial condition and operating results and require
our most difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently
uncertain. Judgments and uncertainties affecting the application of those
policies may result in materially different amounts being reported under
different

conditions or using different assumptions. We consider the following policies to
be most critical in understanding the judgments that are involved in preparing
our consolidated financial statements.

Land, Buildings and Equipment

Land, buildings and equipment are recorded at cost less accumulated
depreciation. Building components are depreciated over estimated useful lives
ranging from seven to 40 years using the straight-line method. Leasehold
improvements, which are reflected on our consolidated balance sheets as a
component of buildings, are amortized over the lesser of the expected lease
term, including cancelable option periods, or the estimated useful lives of the
related assets using the straight-line method. Equipment is depreciated over
estimated useful lives ranging from two to 10 years, also using the
straight-line method. Accelerated depreciation methods are generally used for
income tax purposes.

Our accounting policies regarding land, buildings and equipment, including
leasehold improvements, include our judgments regarding the estimated useful
lives of these assets, the residual values to which the assets are depreciated
or amortized, the determination of what constitutes expected lease term and the
determination as to what constitutes enhancing the value of, or increasing the
life of, existing assets. These judgments and estimates could produce materially
different amounts of reported depreciation and amortization expense if different
assumptions were used. As discussed further below, these judgments may also
impact our need to recognize an impairment charge on the carrying amount of
these assets as the cash flows associated with the assets are realized.

Leases

We are obligated under various lease agreements for certain restaurants. We
recognize rent expense on a straight-line basis over the expected lease term,
including cancelable option periods as described below. Within the provisions of
certain of our leases, there are rent holidays and/or escalations in payments
over the base lease term, as well as renewal periods. The effects of the
holidays and escalations have been reflected in rent expense on a straight-line
basis over the expected lease term, which includes cancelable option periods
when it is deemed to be reasonably assured that we would incur an economic
penalty for not exercising the option. The lease term commences on the date when
we have the right to control the use of the leased property, which is typically
before rent payments are due under the terms of the lease. Many of our leases
have renewal periods totaling five to 20 years, exercisable at our option and
require payment of property taxes, insurance and maintenance costs in addition
to the rent payments. The consolidated financial statements reflect the same
lease term for amortizing leasehold improvements as we use to determine capital
versus operating lease classifications and in calculating straight-line rent
expense for each restaurant. Percentage rent expense is generally based upon
sales levels and is accrued at the point in time we determine that it is
probable that such sales levels will be achieved.

Our judgments related to the probable operating term for each restaurant
affect the classification and accounting for leases as capital versus operating,
the rent holidays and escalation in payments that are included in the
calculation of straight-line rent and the term over which leasehold improvements
for each restaurant facility are amortized. These judgments may produce
materially different amounts of depreciation, amortization and rent expense than
would be reported if different assumed lease terms were used.

Impairment of Long-Lived Assets

Land, buildings and equipment and certain other assets, including
capitalized software costs and liquor licenses, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the future
undiscounted net cash flows expected to be generated by the assets. Identifiable
cash flows are measured at the lowest level for which they are largely
independent of the cash flows of other groups of assets and liabilities,
generally at the restaurant level. If these assets are determined to be
impaired, the amount of impairment recognized is the amount by which the
carrying amount of the assets exceeds their fair value. Fair value is generally
determined by appraisals or sales prices of comparable assets. Restaurant sites
and certain other assets to be disposed of are reported at the lower of their
carrying amount or fair value, less estimated costs to sell. Restaurant sites
and certain other assets to be disposed of are included in assets held for sale
when certain criteria are met. These criteria include the requirement that the
likelihood of disposing of these assets within one year is probable. Assets
whose disposal is not probable within one year remain in land, buildings and
equipment until their disposal is probable within one year.

The judgments we make related to the expected useful lives of long-lived
assets and our ability to realize undiscounted cash flows in excess of the
carrying amounts of these assets are affected by factors such as the ongoing
maintenance and improvements of the assets, changes in economic conditions and
changes in usage or operating performance. As we assess the ongoing expected
cash flows and carrying amounts of our long-lived assets, significant adverse
changes in these factors could cause us to realize a material impairment charge.
During fiscal 2005, we recognized asset impairment charges of $6 million ($4
million after-tax) for the write-down of two Olive Garden restaurants, one Red
Lobster restaurant and one Smokey Bones restaurant that we continued to operate
through fiscal 2005 based on an evaluation of expected cash flows. These
restaurants were closed in fiscal 2006. In the first nine months of fiscal 2006,
we recognized asset impairment charges of $4 million ($3 million after tax) for
the write down of two Smokey Bones restaurants that we continued to operate
based on an evaluation of expected cash flows.

Insurance Accruals

Through the use of insurance program deductibles and self-insurance, we
retain a significant portion of expected losses under our workers' compensation,
employee medical and general liability programs. However, we carry insurance for
individual claims that generally exceed $0.25 million for workers' compensation
and general liability claims. Accrued liabilities have been recorded based on
our estimates of the anticipated ultimate costs to settle all claims, both
reported and not yet reported.

Our accounting policies regarding these insurance programs include our
judgments and independent actuarial assumptions regarding economic conditions,
the frequency or severity of claims and claim development patterns and claim
reserve, management and settlement practices. Unanticipated changes in these
factors may produce materially different amounts of reported expense under these
programs.

Income Taxes

We estimate certain components of our provision for income taxes. These
estimates include, among other items, depreciation and amortization expense
allowable for tax purposes, allowable tax credits for items such as taxes paid
on reported employee tip income, effective rates for state and local income
taxes and the tax deductibility of certain other items.

Our estimates are based on the best available information at the time that
we prepare the provision. We generally file our annual income tax returns
several months after our fiscal year-end. Income tax returns are subject to
audit by federal, state and local governments, generally years after the returns
are filed. These returns could be subject to material adjustments or differing
interpretations of the tax laws.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123 (Revised), "Share-Based Payment." SFAS No. 123R revises SFAS No.
123, "Accounting for Stock-Based Compensation" and generally requires the cost
associated with employee services received in exchange for an award of equity
instruments to be measured based on the grant-date fair value of the award and
recognized in the financial statements over the period during which employees
are required to provide service in exchange for the award. SFAS No. 123R also
provides guidance on how to determine the grant-date fair value for awards of
equity instruments as well as alternative methods of adopting its requirements.
SFAS No. 123R is effective for annual reporting periods beginning after June 15,
2005. As disclosed in Note 3 to the Consolidated Financial Statements
(unaudited), based on the current assumptions and calculations used, had we
recognized compensation expense based on the fair value of awards of equity
instruments, net earnings would have been reduced by approximately $3 million
and $11 million for quarter and nine months ended February 26, 2006,
respectively, and $4 million and $12 million for the quarter and nine months
ended February 27, 2005, respectively. We have not yet concluded as to the
method of adoption or the effect of adopting SFAS No. 123R and have not
determined whether the adoption will result in future amounts similar to the
current pro forma disclosures under SFAS No. 123.

for inventory costs incurred during fiscal years beginning after June 15, 2005.
We do not believe the adoption of SFAS No. 151 will have a material impact on
our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Certain statements included in this report and other materials filed or to
be filed by us with the SEC (as well as information included in oral or written
statements made or to be made by us) may contain statements that are
forward-looking within the meaning of the Private Securities Litigation Reform
Act of 1995, as codified in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Words or phrases such as "believe," "plan," "will," "expect,"
"intend," "estimate," "project" and similar expressions are intended to identify
forward-looking statements. All of these statements, and any other statements in
this report that are not historical facts, are forward-looking. Examples of
forward-looking statements include, but are not limited to, projections
regarding: our growth plans and the number and type of expected new restaurant
openings and related capital expenditures; same-restaurant sales growth;
expected diluted net earnings per share growth; expected trends that might
impact capital requirements and liquidity; expected contributions to our defined
benefit pension plans; the impact of litigation on our financial position and
the settlement timeline of litigation matters; and the impact of Hurricanes
Katrina and Rita on our fiscal 2006 sales and net earnings. These
forward-looking statements are based on assumptions concerning important
factors, risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, could cause the actual results to differ
materially from those expressed in the forward-looking statements. These
factors, risks and uncertainties include, but are not limited to:

o intense competition, especially with respect to pricing, service, location,
personnel and type and quality of food;
o economic and business factors, both specific to the restaurant industry and
general economic factors, including changes in consumer preferences,
demographic trends, severe weather, a protracted economic slowdown or
worsening economy, industry-wide cost pressures, public safety conditions,
including actual or threatened armed conflicts or terrorist attacks, and
public health conditions, including an actual or potential avian flu
pandemic;
o the price and availability of food, ingredients and utilities, including
the general risk of inflation;
o labor and insurance costs, including increased labor costs as a result of
federal and state-mandated increases in minimum wage rates and increased
insurance costs as a result of increases in our current insurance premiums;
o increased advertising and marketing costs;
o higher-than-anticipated costs to open, close, relocate or remodel
restaurants;
o litigation by employees, consumers, suppliers, shareholders or others,
regardless of whether the allegations made against us are valid or we are
ultimately found liable;
o unfavorable publicity relating to food safety or other concerns;
o a lack of suitable new restaurant locations or a decline in the quality of
the locations of our current restaurants;
o government regulations, including federal, state and local laws and
regulations relating to our relationships with our employees, zoning, land
use, environmental matters and liquor licenses; and
o a failure to achieve growth objectives, including lower-than-expected sales
and profitability of newly-opened restaurants, our expansion of newer
concepts that have not yet proven their long-term viability, our ability to
develop new concepts, risks associated with growth through acquisitions and
our ability to manage risks relating to the opening of new restaurants,
including real estate development and construction activities, union
activities, the issuance and renewal of licenses and permits, the
availability of funds to finance growth and our ability to hire and train
qualified personnel.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to a variety of market risks, including fluctuations in
interest rates, foreign currency exchange rates and commodity prices. To manage
this exposure, we periodically enter into interest rate, foreign currency
exchange and commodity instruments for other than trading purposes.

We use the variance/covariance method to measure value at risk, over time
horizons ranging from one week to one year, at the 95 percent confidence level.
As of February 26, 2006, our potential losses in future net earnings resulting
from changes in foreign currency exchange rate instruments, commodity
instruments and floating rate debt interest rate exposures were approximately $6
million over a period of one year. The value at risk from an increase in the
fair value of all of our long-term fixed rate debt, over a period of one year,
was approximately $50 million. The fair value of our long-term fixed rate debt
during the first nine months of fiscal 2006 averaged $762 million, with a high
of $967 million and a low of $640 million. The increase in the fair value of our
long-term fixed rate debt is primarily due to the issuance of $300 million of
senior notes in August 2005. The proceeds from this issuance were used to repay
at maturity our outstanding $150 million of 8.375 percent senior notes in
September 2005 and our outstanding $150 million of 6.375 percent notes in
February 2006.

Our interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows by targeting an appropriate mix
of variable and fixed rate debt.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as
of February 26, 2006, the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
February 26, 2006.

During the fiscal quarter ended February 26, 2006, there was no change in
our internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to private lawsuits, administrative proceedings and claims
that arise in the ordinary course of our business. A number of these lawsuits,
proceedings and claims may exist at any given time. These matters typically
involve claims from guests, employees and others related to operational issues
common to the restaurant industry, and can also involve infringement of, or
challenges to, our trademarks. While the resolution of a lawsuit, proceeding or
claim may have an impact on our financial results for the period in which it is
resolved, we believe that the final disposition of the lawsuits, proceedings and
claims in which we are currently involved, either individually or in the
aggregate, will not have a material adverse effect on our financial position,
results of operations or liquidity.

approximately $9.5 million. Terms of the settlement, which do not include any
admission of liability by us, have received preliminary judicial approval, and
claims administration is underway. During the nine months ended February 26,
2006, we paid $9.5 million to settle these claims.

Beginning in 2002, a total of five purported class action lawsuits were
filed in Superior Courts of California (two each in Los Angeles County and
Orange County, and one in Sacramento County) in which the plaintiffs allege that
they and other current and former service managers, beverage and hospitality
managers and culinary managers were improperly classified as exempt employees
under California labor laws. The plaintiffs seek unpaid overtime wages and
penalties. Two of the cases have been removed to arbitration under our mandatory
arbitration program, one has been stayed to allow consideration of judicial
coordination with the other cases, one is proceeding as an individual claim, and
one remains a purported class action litigation matter. Although we continue to
believe we correctly classified these employees, to avoid potentially costly and
protracted litigation, we agreed to discuss possible resolution and the cases
were stayed in December 2005. Following a mediation in February 2006, a
tentative settlement was reached. Without admitting any liability, we agreed to
pay up to a maximum total of $11.0 million to settle all five cases. We recorded
settlement expenses amounting to approximately $9.0 million associated with
these lawsuits during the quarter and nine months ended February 26, 2006, which
are included in selling, general, and administrative expenses. The settlement
amounts of these lawsuits are included in other current liabilities at February
26, 2006. The tentative settlement will be documented in a full settlement
agreement and must have court approval. We cannot predict when the settlement
will be final, but estimate preliminary court approval will occur in the fourth
quarter of fiscal 2006, with final court approval and payment of the settlement
proceeds no earlier than the first quarter of fiscal 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below provides information concerning our repurchase of shares of
our common stock during the quarter ended February 26, 2006. Since commencing
repurchases in December 1995, we have repurchased a total of 130.2 million
shares under authorizations from our Board of Directors to repurchase an
aggregate of 137.4 million shares.

- ---------------------------------- ------------------- -------------- ----------------------- -----------------------
Total Number of Maximum Number of
Shares Purchased as Shares that
Total Number Average Part of Publicly May Yet be Purchased
of Shares Price Paid Announced Plans or Under the Plans or
Period Purchased (1) per Share Programs Programs (2)
- ---------------------------------- ------------------- -------------- ----------------------- -----------------------

November 28, 2005 through
January 1, 2006 699,513 $38.33 699,513 10,276,361
- ---------------------------------- ------------------- -------------- ----------------------- -----------------------
January 2, 2006 through
January 29, 2006 39.88 1,406,000 8,870,361
1,406,000
- ---------------------------------- ------------------- -------------- ----------------------- -----------------------
January 30, 2006, through
February 26, 2006 1,624,295 $41.72 1,624,295 7,246,066
- ---------------------------------- ------------------- -------------- ----------------------- -----------------------
Total 3,729,808 $40.39 3,729,808 7,246,066
- ---------------------------------- ------------------- -------------- ----------------------- -----------------------

(1) All of the shares purchased during the quarter ended February 26, 2006 were
purchased as part of our repurchase program, the authority for which was
increased to an aggregate of 137.4 million shares by our Board of Directors
on September 28, 2004, and announced publicly in a press release issued the
same day. There is no expiration date for our program. The number of shares
purchased includes shares withheld for taxes on vesting of restricted stock
and shares delivered or deemed to be delivered to us on tender of stock in
payment for the exercise price of options. These shares are included as
part of our repurchase program and deplete the repurchase authority granted
by our Board. The number of shares repurchased excludes shares we
reacquired pursuant to tax withholding on option exercises or forfeiture of
restricted stock.

(2) Repurchases are subject to prevailing market prices, may be made in open
market or private transactions and may occur or be discontinued at any
time. There can be no assurance that we will repurchase any shares.

Item 6. Exhibits

Exhibit 12 Computation of Ratio of Consolidated Earnings to Fixed
Charges.

Exhibit 31(a) Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b) Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(a) Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(b) Certification of Chief Financial Officer pursuan to
Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

DARDEN RESTAURANTS, INC.

Dated: April 6, 2006 By: /s/ Paula J. Shives
------------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary

Dated: April 6, 2006 By: /s/ Linda J. Dimopoulos
------------------------------
Linda J. Dimopoulos
Senior Vice President and Chief
Financial Officer
(Principal financial officer)

INDEX TO EXHIBITS

Exhibit
Number Exhibit Title

12 Computation of Ratio of Consolidated Earnings to Fixed Charges.

31(a) Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

31(b) Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.

32(a) Certification of Chief Executive Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

32(b) Certification of Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.