EXHIBIT 13
PORTIONS OF 1999 ANNUAL REPORT TO STOCKHOLDERS
(incorporated by reference herein)
EXHIBIT 13
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 22
MANAGEMENT'S DISCUSSION OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- ------------------------------------------------------------------------
Darden Restaurants, Inc. (Darden or the Company) was created as an independent,
publicly held company in May 1995 through the spin-off of all of General Mills'
restaurant operations to its shareholders. Darden operates 1,139 Red Lobster,
Olive Garden and Bahama Breeze restaurants in the U.S. and Canada and licenses
38 restaurants in Japan. All of the restaurants in the U.S. and Canada are
operated by the Company with no franchising.
This discussion should be read in conjunction with the business information and
the consolidated financial statements and related notes found elsewhere in this
report. Darden's fiscal year ends on the last Sunday in May.
REVENUES
Total revenues in 1999 (52 weeks) were $3.46 billion, a five percent increase
from 1998 (53 weeks). Total revenues in 1998 were $3.29 billion, a four percent
increase from 1997.
COSTS AND EXPENSES
Food and beverage costs for 1999 were 32.8 percent of sales, a decrease of 0.2
percentage points from 1998 and a decrease of 1.2 percentage points from 1997.
The higher level of food and beverage costs for 1997, as a percentage of sales,
primarily resulted from the repositioning strategy at Red Lobster, initiated in
1997's second quarter, that lowered check averages and improved food by
providing larger portions and enhancing food quality and presentation. Profit
margins increased during 1999 and 1998 primarily as a result of increased sales,
higher margin food items and favorable food costs.
Restaurant labor was comparable year to year at 32.3 percent of sales in 1999
against 32.3 percent in 1998 and 32.1 percent in 1997.
Restaurant expenses (primarily lease expenses, property taxes, utilities and
workers' compensation costs) decreased in 1999 to 14.3 percent of sales compared
to 14.7 percent in 1998 and 15.2 percent in 1997. The 1999 and 1998 decreases
resulted primarily from increased sales levels.
Selling, general and administrative expenses declined in 1999 to 10.4 percent of
sales compared to 10.9 percent in 1998 and 11.4 percent in 1997. The 1999 and
1998 declines resulted from an overall decrease in marketing costs each year and
increased sales levels.
Depreciation and amortization expense of 3.6 percent of sales in 1999 decreased
from 3.8 percent in 1998 and 4.3 percent in 1997. The 1999 and 1998 decreases
resulted from increased sales levels, restaurant closings and asset impairment
write-downs that occurred during 1997's fourth quarter. Interest expense of 0.6
percent of sales in 1999 and 1998 decreased from 0.7 percent in 1997.
INCOME FROM OPERATIONS
Pre-tax earnings before restructuring credit increased by 35 percent in 1999 to
$207.4 million, compared to $153.7 million in 1998 and $75.4 million before
restructuring and asset impairment charges in 1997. The increase in 1999 was
mainly attributable to annual same-restaurant sales increases in the U.S. for
both Red Lobster and Olive Garden totaling 7.4 percent and 9.0 percent,
respectively. Red Lobster and Olive Garden have enjoyed six and 19 consecutive
quarters of same-restaurant sales increases, respectively. The increase in 1998
was mainly attributable to substantially higher earnings at Red Lobster
resulting from actions beginning in the second quarter of 1997 intended to
enhance long-term performance through new menu items, bolder flavors, more
choices at lower prices and service improvements. Olive Garden also posted a
solid increase in earnings in 1998. Fiscal 1998 same-restaurant sales increases
in the U.S. for Red Lobster and Olive Garden totaled 2.5 percent and 8.3
percent, respectively.
PROVISION FOR INCOME TAXES
The effective tax rate for 1999 before restructuring credit was 34.8 percent
compared to 33.8 percent in 1998 and 27.9 percent before restructuring and asset
impairment charges in 1997. The higher effective tax rate in 1999 resulted from
higher pre-tax earnings. The 34.9 percent rate in 1999, after restructuring
credit, compared to 1998's 33.8 percent rate and to 1997's 41.1 percent benefit
after restructuring and asset impairment charges. The unusual effective rate in
1997 resulted from operating losses combined with federal income tax credits,
both of which created an income tax benefit.
NET EARNINGS AND NET EARNINGS PER SHARE BEFORE RESTRUCTURING AND ASSET
IMPAIRMENT EXPENSE OR (CREDIT)
Net earnings before restructuring credit for 1999 of $135.3 million or 96 cents
per diluted share increased 33 percent, compared to 1998 net earnings of $101.7
million or 67 cents per diluted share. 1998 net earnings increased 87 percent,
compared to net earnings before restructuring and asset impairment charges for
1997 of $54.3 million or 35 cents per diluted share.
NET EARNINGS (LOSS) AND NET EARNINGS (LOSS) PER SHARE
Net earnings after restructuring credit for 1999 of $140.5 million (99 cents per
diluted share) compared with 1998's net earnings of $101.7 million (67 cents per
diluted share) and 1997's net loss after restructuring and asset impairment
charges of $(91.0) million (59 cents per diluted share).
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 23
During 1997, an after-tax restructuring and asset impairment charge of $145.4
million (93 cents per diluted share) was taken in the fourth quarter related to
low-performing restaurant properties in the U.S. and Canada and other long-lived
assets including those restaurants that have been closed. The pre-tax charge
includes approximately $160.7 million of non-cash charges primarily related to
the write-down of buildings and equipment to net realizable value and
approximately $69.2 million of charges to be settled in cash related to carrying
costs of buildings and equipment prior to their disposal, lease buy-out
provisions, employee severance and other costs. Cash required to carry out these
activities is being provided by operations and the sale of closed properties
(see Note 3 of Notes to Consolidated Financial Statements).
During 1999, an after-tax restructuring credit of $5.2 million (four cents per
diluted share) was taken in the fourth quarter as the Company reversed a portion
of its 1997 restructuring liability. The reversal resulted from the Company's
decision to close fewer restaurants than identified for closure as part of the
restructuring action. The credit has no effect on the Company's cash flow.
(See Note 3 of Notes to Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to manage its business and its financial ratios to maintain
an investment grade bond rating, which allows access to financing at reasonable
costs. Currently, the Company's publicly issued long-term debt carries "Baa1"
(Moody's Investor Services, Inc.), "BBB" (Standard & Poor's Corporation) and
"BBB+" (Duff & Phelps Corporation) ratings. The Company's commercial paper has
ratings of "P-2" (Moody's), "A-2" (Standard & Poor's) and "D-2" (Duff & Phelps).
Darden's long-term debt includes $150 million of 6.375 percent notes due in 2006
and $100 million of 7.125 percent debentures due in 2016. The effective annual
interest rate is 7.57 percent for the notes and 7.82 percent for the debentures,
after consideration of loan costs, issuance discounts and costs to terminate an
interest-rate swap agreement that was established prior to the distribution from
General Mills.
Darden's long-term debt also includes a $66.9 million commercial bank loan to
the Company, with an outstanding principal balance of $60.2 million as of May
30, 1999, that is used to support two loans from the Company to the Employee
Stock Ownership Plan portion of the Darden Savings Plan (the ESOP). During the
fiscal year ended May 25, 1997, the ESOP refinanced $50 million in existing debt
which was previously guaranteed by the Company. The refinancing was accomplished
by the commercial bank's loan to the Company and a corresponding loan from the
Company to the ESOP.
Commercial paper is the primary source of short-term financing. Bank credit
lines are maintained to ensure availability of short-term funds on an as-needed
basis. Available fee-paid credit lines, all of which are unused at May 30, 1999,
total $250 million.
The Company's adjusted debt-to-total capital ratio (which includes 6.25 times
the total annual restaurant minimum rent and 3.00 times the total annual
restaurant equipment minimum rent as a component of debt and total capital) was
39 percent and 38 percent at May 30, 1999, and May 31, 1998, respectively. The
Company's fixed-charge coverage ratio, which measures the number of times each
year that the Company earns enough to cover its fixed charges, amounted to 6.2
times at May 30, 1999, and 5.0 times at May 31, 1998. Based on these ratios, the
Company believes its financial condition remains strong. The composition of the
Company's capital structure is shown in the following table.
May 30, 1999 May 31, 1998
CAPITAL STRUCTURE $ In millions $ In millions
- --------------------------------------------------------------------------------
Short-term debt $ 23.5 $ 75.1
Long-term debt 316.5 310.6
- --------------------------------------------------------------------------------
Total debt 340.0 385.7
Stockholders' equity 964.0 1,019.8
- --------------------------------------------------------------------------------
Total capital $ 1,304.0 $ 1,405.5
- --------------------------------------------------------------------------------
ADJUSTMENTS TO CAPITAL
- --------------------------------------------------------------------------------
Leases-debt equivalent 266.0 250.0
Adjusted total debt 606.0 635.7
Adjusted total capital $ 1,570.0 $ 1,655.5
Debt-to-total capital ratio 26% 27%
Adjusted debt-to-total capital ratio 39% 38%
================================================================================
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 24
In 1999, the Company declared eight cents per share in annual dividends paid in
two installments. In December 1998, the Company's Board approved an additional
authorization for the ongoing stock buy-back plan whereby the Company may
purchase on the open market up to 13.8 million additional shares of Darden
common stock. This buy-back authorization is in addition to three previously
approved authorizations by the Board in December 1997, September 1996 and
December 1995 covering open market purchases of up to 15.0 million, 9.3 million
and 6.5 million shares, respectively, of Darden common stock. As of May 30,
1999, 32.6 million shares were purchased under these programs.
The Company typically carries current liabilities in excess of current assets,
because the restaurant business receives substantially immediate payment for
sales (nominal receivables), while inventories and other current liabilities
normally carry longer payment terms (usually 15 to 30 days). The seasonal
variation in net working capital is typically in the $10 million to $50 million
range.
The Company requires capital principally for building new restaurants, replacing
equipment and remodeling existing units. Capital expenditures were $124 million
in 1999, compared to $112 million in 1998, and $160 million in 1997 because of
decisions to temporarily slow the growth in new Olive Garden and Red Lobster
units. The 1999, 1998 and 1997 capital expenditures and dividend requirements
were financed primarily through internally generated funds. The Company
generated $348 million, $236 million, and $189 million in funds from operating
activities during 1999, 1998, and 1997, respectively.
IMPACT OF YEAR 2000
Background
In the past, many computers, software programs, and other information technology
("IT systems"), as well as other equipment relying on microprocessors or similar
circuitry ("non-IT systems"), were written or designed using two digits, rather
than four, to define the applicable year. As a result, date-sensitive systems
(both IT systems and non-IT systems) may recognize a date identified with "00"
as the year 1900, rather than the year 2000. This is generally described as the
Year 2000 issue. If this situation occurs, the potential exists for system
failures or miscalculations, which could negatively impact business operations.
The Securities and Exchange Commission (SEC) has asked public companies to
disclose four general types of information related to Year 2000 preparedness:
the company's state of readiness, costs (historical and prospective), risks and
contingency plans. Accordingly, the Company has included the following
discussion in this report, in addition to the Year 2000 disclosures previously
filed with the SEC.
State of Readiness
The Company began a concerted effort and established a dedicated project team to
address its Year 2000 issues in fiscal year 1997. In fiscal year 1998, the
Company formalized a task force (the Year 2000 Project Office) to coordinate the
Company's response to Year 2000 issues. The Year 2000 Project Office reports to
the Chief Executive Officer, his executive team, and the Audit Committee of the
Company's Board of Directors.
Under the auspices of the Year 2000 Project Office, the Company believes that it
has identified all significant IT systems and non-IT systems that require
modification in connection with Year 2000 issues. Internal and external
resources were used to make the required modifications and test Year 2000
readiness. The required modifications and testing of all significant systems
have been completed.
In addition, through its Year 2000 Project Office, the Company has communicated
with suppliers, banks, vendors and others with whom it does significant business
(collectively, its business partners) to determine their Year 2000 readiness and
the extent to which the Company is vulnerable to any other organization's Year
2000 issues. Based on these communications and related responses, the Company is
monitoring the Year 2000 preparations and state of readiness of its business
partners. Although the Company is not aware of any significant Year 2000
problems with its business partners, there can be no guarantee that the systems
of other organizations on which the Company's systems rely will be converted in
a timely manner, or that a failure to convert by another organization, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.
Costs
The total costs to the Company of Year 2000 activities has not been and is not
anticipated to be material to its financial position or results of operations in
any given year. As of the end of 1999, the Company had spent approximately $3.2
million on Year 2000 issues. This amount does not include the costs incurred to
develop and install new systems resulting from the Company's seafood inventory
accounting system project, which was already contemplated for replacement. The
total costs to the Company of addressing Year 2000 issues is estimated to be
less than $5 million. These total costs are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ from those
estimates.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 25
Risks
The Company utilizes IT systems and non-IT systems in many aspects of its
business. Year 2000 problems in some of the Company's systems could possibly
disrupt operations at some restaurants, but the Company does not expect that any
such disruption would have a material adverse impact on the Company's operating
results.
The Company is also exposed to the risk that one or more of its suppliers or
vendors could experience Year 2000 problems that could impact the ability of
such suppliers or vendors to provide goods and services. Although this risk is
lessened by the availability of alternative suppliers, the disruption of certain
services, such as utilities, could, depending upon the extent of the disruption,
potentially have a material adverse impact on the Company's operations.
Contingency Plans
The Year 2000 Project Office is in the final stages of developing contingency
plans for the Company's significant IT systems and non-IT systems requiring Year
2000 modification. In addition, the Company has developed contingency plans to
deal with the possibility that some suppliers or vendors might fail to provide
goods and services on a timely basis as a result of Year 2000 problems. These
contingency plans include the identification, acquisition and/or preparation of
backup systems, suppliers and vendors.
FORWARD-LOOKING STATEMENTS
Certain information included in this report and other materials filed or to be
filed by the Company with the Securities and Exchange Commission (as well as
information included in oral statements or written statements made or to be made
by the Company) may contain statements that are forward-looking within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements include
information relating to current expansion plans, business development
activities, and Year 2000 compliance. Such forward-looking information is based
on assumptions concerning important risks and uncertainties that could
significantly affect anticipated results in the future and, accordingly, such
results may differ from those expressed in any forward-looking statements made
by or on behalf of the Company. These risks and uncertainties include, but are
not limited to, those relating to real estate development and construction
activities, the issuance and renewal of licenses and permits for restaurant
development and operation, economic conditions, changes in federal or state laws
or the administration of such laws, and the Year 2000 readiness of suppliers,
banks, vendors and others having a direct or indirect business relationship with
the Company.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 26
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors and Stockholders
Darden Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Darden
Restaurants, Inc. and subsidiaries as of May 30, 1999, and May 31, 1998, and the
related consolidated statements of earnings (loss), changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended May
30, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Darden Restaurants,
Inc. and subsidiaries as of May 30, 1999, and May 31, 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended May 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Orlando, Florida
June 18, 1999
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 27
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
- ------------------------------------------
Fiscal Year Ended
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) May 30, 1999 May 31, 1998 May 25, 1997
- --------------------------------------------------------------------------------------------------------------------
Sales $ 3,458,107 $ 3,287,017 $ 3,171,810
Costs and Expenses:
Cost of sales:
Food and beverages 1,133,705 1,083,629 1,077,316
Restaurant labor 1,117,401 1,062,490 1,017,315
Restaurant expenses 493,811 482,311 481,348
- --------------------------------------------------------------------------------------------------------------------
Total Cost of Sales $ 2,744,917 $ 2,628,430 $ 2,575,979
Selling, general and administrative 360,909 358,542 361,263
Depreciation and amortization 125,327 126,289 136,876
Interest, net 19,540 20,084 22,291
Restructuring and asset impairment expense or (credit) (8,461) 229,887
- --------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses $ 3,242,232 $ 3,133,345 $ 3,326,296
- --------------------------------------------------------------------------------------------------------------------
Earnings (Loss) before Income Taxes 215,875 153,672 (154,486)
Income Taxes 75,337 51,958 (63,457)
====================================================================================================================
Net Earnings (Loss) $ 140,538 $ 101,714 $ (91,029)
====================================================================================================================
Net Earnings (Loss) per Share:
Basic $ 1.02 $ 0.69 $ (0.59)
Diluted $ 0.99 $ 0.67 $ (0.59)
====================================================================================================================
Average Number of Common Shares Outstanding:
Basic 137,300 148,300 155,600
Diluted 141,400 151,400 155,600
====================================================================================================================
See accompanying notes to consolidated financial statements.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 28
CONSOLIDATED BALANCE SHEETS
- ---------------------------
(In thousands) May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 40,960 $ 33,505
Receivables 20,256 27,312
Inventories 144,115 182,399
Net assets held for disposal 35,269 49,230
Prepaid expenses and other current assets 21,475 20,498
Deferred income taxes 65,662 84,597
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets $ 327,737 $ 397,541
Land, Buildings and Equipment 1,473,535 1,490,348
Other Assets 104,388 96,853
- --------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,905,660 $ 1,984,742
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 144,725 $ 132,938
Short-term debt 23,500 75,100
Current portion of long-term debt 2,386 5
Accrued payroll 74,265 73,240
Accrued income taxes 16,544 1,067
Other accrued taxes 25,965 24,172
Other current liabilities 246,830 252,142
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities $ 534,215 $ 558,664
Long-term Debt 314,065 310,603
Deferred Income Taxes 72,086 77,054
Other Liabilities 21,258 18,576
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 941,624 $ 964,897
- --------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock and surplus, no par value. Authorized
500,000 shares; issued and outstanding 164,661 and
161,580 shares, respectively $ 1,328,796 $ 1,286,191
Preferred stock, no par value. Authorized 25,000 shares;
none issued and outstanding
Retained earnings 178,008 48,327
Treasury stock, 32,541 and 20,434 shares, at cost (466,902) (239,876)
Accumulated other comprehensive income (12,115) (11,749)
Unearned compensation (63,751) (63,048)
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $ 964,036 $ 1,019,845
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,905,660 $ 1,984,742
====================================================================================================================
See accompanying notes to consolidated financial statements.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 29
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
Common Retained Accumulated
Stock Earnings Other Total
and (Accumulated Treasury Comprehensive Unearned Stockholders'
(In thousands) Surplus Deficit) Stock Income Compensation Equity
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 26, 1996 $1,266,212 $ 61,708 $ (25,037) $(10,351) $(69,895) $1,222,637
Comprehensive income:
Net loss (91,029) (91,029)
Other comprehensive income, foreign
currency adjustment 314 314
----------
Total comprehensive income (90,715)
Cash dividends declared ($0.08 per share) (12,385) (12,385)
Stock option exercises (261 shares) 1,450 1,450
Issuance of restricted stock (25 shares) 123 (123)
Earned compensation 1,302 1,302
ESOP note receivable repayments, net 2,200 2,200
Income tax benefit credited to equity 871 871
Purchases of common stock for treasury
(5,043 shares) (44,147) (44,147)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 25, 1997 1,268,656 (41,706) (69,184) (10,037) (66,516) 1,081,213
Comprehensive income:
Net earnings 101,714 101,714
Other comprehensive income, foreign
currency adjustment (1,712) (1,712)
----------
Total comprehensive income 100,002
Cash dividends declared ($0.08 per share) (11,681) (11,681)
Stock option exercises (1,464 shares) 10,606 10,606
Issuance of restricted stock (238
shares), net of forfeiture adjustments 1,384 (1,404) (20)
Earned compensation 2,172 2,172
ESOP note receivable repayments 2,700 2,700
Income tax benefit credited to equity 3,808 3,808
Proceeds from issuance of equity put
options 1,737 1,737
Purchases of common stock for treasury
(13,483 shares) (170,692) (170,692)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 31, 1998 1,286,191 48,327 (239,876) (11,749) (63,048) 1,019,845
Comprehensive income:
Net earnings 140,538 140,538
Other comprehensive income, foreign
currency adjustment (366) (366)
----------
Total comprehensive income 140,172
Cash dividends declared ($0.08 per share) (10,857) (10,857)
Stock option exercises (2,789 shares) 25,437 25,437
Issuance of restricted stock (370
shares), net of forfeiture adjustments 4,873 (4,844) 29
Earned compensation 2,341 2,341
ESOP note receivable repayments 1,800 1,800
Income tax benefit credited to equity 9,722 9,722
Proceeds from issuance of equity put
options 2,184 2,184
Purchases of common stock for treasury
(12,162 shares) (227,510) (227,510)
Issuance of treasury stock under Employee
Stock Purchase Plan (55 shares) 389 484 873
- -----------------------------------------------------------------------------------------------------------------------------
Balance at May 30, 1999 $1,328,796 $178,008 $(466,902) $(12,115) $(63,751) $ 964,036
=============================================================================================================================
See accompanying notes to consolidated financial statements.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
Fiscal Year Ended
- --------------------------------------------------------------------------------------------------------------------
(In thousands) May 30, 1999 May 31, 1998 May 25, 1997
- --------------------------------------------------------------------------------------------------------------------
Cash Flows - Operating Activities
Net Earnings (loss) $ 140,538 $ 101,714 $ (91,029)
Adjustments to reconcile net earnings (loss) to cash flow:
Depreciation and amortization 125,327 126,289 136,876
Amortization of unearned compensation and loan costs 4,879 4,682 3,824
Change in current assets and liabilities 70,924 (6,791) (41,401)
Change in other liabilities 2,682 (48) 323
(Gain) loss on disposal of land, buildings and equipment (1,798) 3,132 6,358
Deferred income taxes 13,967 6,496 (52,068)
Non-cash restructuring and asset impairment expense or
(credit) (8,461) 226,342
Other, net 162 651 (22)
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 348,220 $ 236,125 $ 189,203
- --------------------------------------------------------------------------------------------------------------------
Cash Flows - Investing Activities
Purchases of land, buildings and equipment (123,673) (112,168) (159,688)
Purchases of intangibles (2,203) (1,798) (651)
(Increase) decrease in other assets (8,794) (4,112) 1,844
Proceeds from disposal of land, buildings and equipment
(including net assets held for disposal) 38,134 24,494 34,017
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities $ (96,536) $ (93,584) $ (124,478)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows - Financing Activities
Proceeds from issuance of common stock 26,310 10,606 1,450
Income tax benefit credited to equity 9,722 3,808 871
Dividends paid (10,857) (11,681) (12,385)
Purchases of treasury stock (227,510) (170,692) (44,147)
Loan to ESOP (66,900)
ESOP note receivable repayments 1,800 2,700 19,100
Increase (decrease) in short-term debt (51,600) 31,700 (29,200)
Proceeds from issuance of long-term debt 9,848 66,900
Repayment of long-term debt (4,126) (2,704) (5,054)
Payment of loan costs (213)
Proceeds from issuance of equity put options 2,184 1,737
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used by Financing Activities $ (244,229) $ (134,526) $ (69,578)
- --------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 7,455 8,015 (4,853)
Cash and Cash Equivalents - Beginning of Year 33,505 25,490 30,343
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ 40,960 $ 33,505 $ 25,490
====================================================================================================================
Cash Flow from Changes in Current Assets and Liabilities
Receivables 7,056 (10,979) 8,439
Refundable income taxes, net 16,968 (16,968)
Inventories 38,284 (50,158) (11,516)
Prepaid expenses and other current assets (1,310) 1,236 2,589
Accounts payable 11,787 19,851 (15,109)
Accrued payroll 1,025 14,928 4,635
Accrued income taxes 15,477 1,067 (12,522)
Other accrued taxes 1,793 1,992 3,259
Other current liabilities (3,188) (1,696) (4,208)
- --------------------------------------------------------------------------------------------------------------------
Change in Current Assets and Liabilities $ 70,924 $ (6,791) $ (41,401)
====================================================================================================================
See accompanying notes to consolidated financial statements.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
(Dollar amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
A. Principles of Consolidation
---------------------------
The accompanying 1999, 1998 and 1997 consolidated financial statements include
the operations of Darden Restaurants, Inc. and its wholly owned subsidiaries
(Darden or the Company). All significant intercompany balances and transactions
have been eliminated in consolidation. Prior to 1996, the Company was a
wholly-owned subsidiary of General Mills, Inc. (General Mills). The common
shares of Darden were distributed by General Mills to its stockholders as of May
28, 1995.
Darden's fiscal year ends on the last Sunday in May. Fiscal years 1999 and 1997
each consisted of 52 weeks. Fiscal year 1998 consisted of 53 weeks.
B. Inventories
-----------
Inventories are valued at the lower of cost or market value, using the "weighted
average cost" method.
C. Land, Buildings and Equipment
-----------------------------
All land, buildings and equipment are recorded at cost. Building components are
depreciated over estimated useful lives ranging from seven to 40 years using the
straight-line method. Equipment is depreciated over estimated useful lives
ranging from three to ten years also using the straight-line method. Accelerated
depreciation methods are generally used for income tax purposes.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company periodically reviews restaurant sites and certain
identifiable intangibles 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 an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Restaurant sites and
certain identifiable intangibles to be disposed of are reported at the lower of
the carrying amount or fair value, less estimated costs to sell.
D. Intangible Assets
-----------------
The cost of intangible assets at May 30, 1999 and May 31, 1998 amounted to
$14,851 and $14,594, respectively. These costs are being amortized using the
straight-line method over their estimated useful lives ranging from five to 40
years. Costs capitalized principally represent the purchase costs of leases with
favorable rent terms. Accumulated amortization on intangible assets as of May
30, 1999 and May 31, 1998 amounted to $4,347 and $5,135, respectively. The Audit
Committee of the Board of Directors annually reviews intangible assets. At its
meeting on June 21, 1999, the Board of Directors affirmed that the carrying
amounts of these assets have continuing value.
E. Liquor Licenses
---------------
The costs of obtaining non-transferable liquor licenses that are directly issued
by local government agencies for nominal fees are expensed in the year incurred.
The costs of purchasing transferable liquor licenses through open markets in
jurisdictions with a limited number of authorized liquor licenses for fees in
excess of nominal amounts are capitalized. If there is permanent impairment in
the value of a liquor license due to market changes, the asset is written down
to its net realizable value. Annual liquor license renewal fees are expensed.
F. Foreign Currency Translation
----------------------------
The Canadian dollar is the functional currency for the Canadian restaurant
operations. Assets and liabilities are translated using the exchange rates in
effect at the balance sheet date. Results of operations are translated using the
average exchange rates prevailing throughout the period. Translation gains and
losses are accumulated in a cumulative foreign currency adjustment account
included within other comprehensive income as a separate component of
stockholders' equity. Gains and losses from foreign currency transactions are
generally included in the consolidated statements of earnings (loss) for each
period.
G. Pre-Opening Costs
-----------------
Prior to 1998, the Company capitalized the direct and incremental costs
associated with the opening of new restaurants. These costs were amortized over
a one-year period from the restaurant opening date. During 1998, the Company
adopted the accounting practice of expensing these costs as incurred. This
change in accounting method did not have a significant impact on the Company's
financial position or results of operations.
H. Advertising
-----------
Production costs of commercials and programming are charged to operations in the
year the advertising is first aired. The costs of other advertising, promotion
and marketing programs are charged to operations in the year incurred.
Advertising expense was $180,563, $186,261, and $204,321, in 1999, 1998 and
1997, respectively.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 32
I. Income Taxes
------------
The Company provides for federal and state income taxes currently payable as
well as for those deferred because of temporary differences between reporting
income and expenses for financial statement purposes and income and expenses for
tax purposes. Federal income tax credits are recorded as a reduction of income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
J. Statements of Cash Flows
------------------------
For purposes of the consolidated statements of cash flows, amounts receivable
from credit card companies and investments purchased with a maturity of three
months or less are considered cash equivalents.
K. Net Earnings (Loss) Per Share
-----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share," which
requires presentation of basic and diluted earnings per share. Basic earnings
per share is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the reporting period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. As required, the Company adopted the provisions of SFAS 128
during 1998. All prior year weighted average and per share information has been
restated in accordance with SFAS 128. Outstanding stock options issued by the
Company represent the only dilutive effect reflected in diluted weighted average
shares.
Options to purchase 120,200 and 868,300 shares of common stock were excluded
from the calculation of diluted earnings per share for the years ended May 30,
1999 and May 31, 1998, respectively, because their exercise prices exceeded the
average market price of common shares for the period. All options were excluded
from the calculation of diluted earnings per share for the year ended May 25,
1997 because their inclusion would have been antidilutive.
L. Derivative Financial and Commodity Instruments
----------------------------------------------
On January 31, 1997, the Securities and Exchange Commission (SEC) issued amended
disclosure rules for derivatives and exposures to market risk from derivative
and other financial and certain commodity instruments. Enhanced accounting
policy disclosures in accordance with this SEC release follow.
The Company may, from time to time, use financial and commodities derivatives in
the management of interest rate and commodities pricing risks that are inherent
in its business operations. The Company may also use financial derivatives as
part of its stock repurchase program as described in Note 10. Such instruments
are not held or issued for trading or speculative purposes. The Company may,
from time to time, use interest rate swap and cap agreements in the management
of interest rate exposure. The interest rate differential to be paid or received
is normally accrued as interest rates change, and is recognized as a component
of interest expense over the life of the agreements. If an agreement is
terminated prior to the maturity date and is characterized as a hedge, any
accrued rate differential would be deferred and recognized as interest expense
over the life of the hedged item. The Company uses commodities hedging
instruments, including forwards, futures and options, to reduce the risk of
price fluctuations related to future raw materials requirements for commodities
such as coffee, soybean oil, and shrimp. The terms of such instruments generally
do not exceed 12 months, and depend on the commodity and other market factors.
Deferred gains and losses are subsequently recorded as cost of products sold in
the statements of earnings (loss) when the inventory is sold. If the inventory
is not acquired and the hedge is disposed of, the deferred gain or loss is
recognized immediately in cost of products sold. The Company believes that it
does not have material risk from any of the above financial instruments, and the
Company does not anticipate any material losses from the use of such
instruments.
M. Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 33
N. Accounting for Stock Options
----------------------------
During 1997, the Company adopted Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation," which was effective
for fiscal years beginning after December 15, 1995. The statement encourages the
use of a fair-value-based 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. Companies may, however, continue to measure
compensation costs for those plans using the method prescribed by Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." Companies that continue to apply APB 25 are required to include pro
forma disclosures of net earnings (loss) and net earnings (loss) per share as if
the fair-value-based method of accounting defined in SFAS 123 had been applied.
The Company has elected to continue to account for such plans under the
provisions of APB 25 and provide the pro forma disclosure provisions of SFAS
123.
O. Employee Benefit Plans
----------------------
During 1999, the Company adopted Statement of Financial Accounting Standards No.
132 (SFAS 132), "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS 132 revises employers' disclosures related to pension and other
postretirement plans by requiring, among other things, standardization of
disclosures among such plans as well as additional information on the changes in
benefit obligations and fair values of plan assets. SFAS 132 had no effect on
the Company's financial position or results of operations as it did not change
the measurement or recognition criteria for such plans.
P. Accumulated Other Comprehensive Income
--------------------------------------
During 1999, the Company adopted Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income," which was effective for fiscal
years beginning after December 15, 1997. SFAS 130 requires that all items
required to be recognized as components of comprehensive income be reported in a
financial statement with equal prominence to the other financial statements.
Comprehensive income includes net earnings (loss) and other comprehensive income
items such as foreign currency translation adjustments and unrealized gains and
losses on investments. The Company's only item of other comprehensive income is
foreign currency translation adjustments which have been reported separately
within stockholders' equity.
Q. Operating Segment
-----------------
During 1999, the Company adopted Statement of Financial Accounting Standards No.
131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," which was effective for fiscal years beginning after December 15,
1997. SFAS 131 establishes standards for reporting information about a company's
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
As of May 30, 1999, the Company operated 1,139 Red Lobster, Olive Garden and
Bahama Breeze restaurants in North America as part of a single operating
segment. The restaurants operate principally in the United States within the
casual dining industry, providing similar products to similar customers. The
restaurants also possess similar pricing structures resulting in similar
long-term expected financial performance characteristics. Revenues from external
customers are derived principally from food and beverage sales. The Company does
not rely on any major customers as a source of revenue.
R. Future Application of Accounting Standards
------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
SFAS 133 is effective for interim and annual periods beginning after June 15,
2000. Adoption of SFAS 133 is not expected to materially impact the Company's
financial position or results of operations.
NOTE 2 - ACCOUNTS RECEIVABLE
- ----------------------------
Darden contracts with a national storage and distribution company to provide
services that are billed to Darden on a per-case basis. In connection with these
services, certain Darden inventory items are sold to the distribution company at
a predetermined price when they are shipped to the distribution company's
storage facilities. These items are repurchased at the same price by Darden when
the inventory is delivered to Company restaurants by the distribution company.
The receivable from the distribution company was $12,022 and $24,476 at May 30,
1999, and May 31, 1998, respectively.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 34
NOTE 3 - RESTRUCTURING AND ASSET IMPAIRMENT EXPENSE OR (CREDIT)
- ---------------------------------------------------------------
Darden recorded asset impairment charges of $158,987 in 1997 representing the
difference between fair value and carrying value of impaired assets. The asset
impairment charges relate to low-performing restaurant properties and other
long-lived assets including those restaurants that have been closed. Fair value
is generally determined based on appraisals or sales prices of comparable
properties. In connection with the closing of certain restaurant properties, the
Company recorded other restructuring expenses of $70,900 in 1997.
During 1999, the Company reversed a portion of its 1997 restructuring liability
totaling $8,461. The reversal resulted from the Company's decision to close
fewer restaurants than identified for closure as part of the restructuring
action. No restructuring or asset impairment expense or (credit) was charged to
operating results during 1998.
The components of the restructuring expense or (credit) and the after-tax and
earnings per share effects of the restructuring and asset impairment expense or
(credit) for 1999 and 1997 are as follows:
Fiscal Year
- -------------------------------------------------------------------------------------------------
1999 1997
- -------------------------------------------------------------------------------------------------
Carrying costs of buildings and equipment prior to disposal and
employee severance costs $ (3,907) $ 27,500
Lease buy-out provisions (4,554) 30,000
Other 13,400
- -------------------------------------------------------------------------------------------------
Subtotal (8,461) 70,900
Impairment of restaurant properties and other long-lived assets 158,987
- -------------------------------------------------------------------------------------------------
Total restructuring and asset impairment expense or (credit) (8,461) 229,887
Less related income tax effect 3,236 (84,528)
- -------------------------------------------------------------------------------------------------
Restructuring and asset impairment expense or (credit), net of
income taxes $ (5,225) $ 145,359
=================================================================================================
Earnings per share effect - basic and diluted $ (0.04) $ 0.93
=================================================================================================
As of May 30, 1999, approximately $31,800 of carrying, employee severance and
lease buy-out costs associated with the 1997 restructuring had been paid and
charged against the restructuring liability. The total restructuring liability
included in other current liabilities was $37,139 and $58,265 as of May 30, 1999
and May 31, 1998, respectively. The remaining restaurant closings under this
restructuring action will occur during early 2000. All other actions, including
disposal of the closed owned properties and the lease buy-outs related to the
closed leased properties, are expected to be substantially completed during
2001.
NOTE 4 - INCOME TAXES
- ---------------------
The components of earnings (loss) before income taxes and the provision for
income taxes thereon are as follows:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Earnings (loss) before income taxes:
U.S. $ 212,585 $ 149,096 $(108,687)
Canada 3,290 4,576 (45,799)
- --------------------------------------------------------------------------------
Earnings (loss) before income taxes $ 215,875 $ 153,672 $(154,486)
- --------------------------------------------------------------------------------
Income taxes:
Current:
Federal $ 53,621 $ 38,730 $ (13,285)
State and local 7,577 6,349 1,529
Canada 172 383 367
- --------------------------------------------------------------------------------
Total current 61,370 45,462 (11,389)
- --------------------------------------------------------------------------------
Deferred (principally U.S.) 13,967 6,496 (52,068)
- --------------------------------------------------------------------------------
Total income taxes $ 75,337 $ 51,958 $ (63,457)
================================================================================
During 1999, 1998 and 1997, Darden paid income taxes of $34,790, $24,630, and
$15,900, respectively.
The following table is a reconciliation of the U.S. statutory income tax rate to
the effective income tax rate included in the accompanying consolidated
statements of earnings (loss):
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
U.S. statutory rate 35.0% 35.0% (35.0)%
State and local income taxes, net of
federal tax benefits (expense) 3.3 3.3 (3.3)
Benefit of U.S. federal income tax credits (4.5) (5.8) (5.7)
Other, net 1.1 1.3 2.9
- --------------------------------------------------------------------------------
Effective income tax rate 34.9% 33.8% (41.1)%
================================================================================
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 35
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------
Accrued liabilities $ 14,042 $ 14,004
Compensation and employee benefits 43,784 39,575
Asset disposition liabilities 24,701 32,104
Operating loss and tax credit carryforwards 1,900 8,461
Net assets held for disposal 1,339 2,074
Other 1,989 2,090
- --------------------------------------------------------------------------------
Gross deferred tax assets 87,755 98,308
- --------------------------------------------------------------------------------
Buildings and equipment (58,026) (68,405)
Prepaid pension asset (15,779) (14,979)
Prepaid interest (4,379) (4,696)
Deferred rent and interest income (10,194)
Other (5,801) (2,685)
- --------------------------------------------------------------------------------
Gross deferred tax liabilities (94,179) (90,765)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (6,424) $ 7,543
================================================================================
A valuation allowance for deferred tax assets is provided when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Realization is dependent upon the generation of future taxable income
or the reversal of deferred tax liabilities during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. As of May 30, 1999 and May 31,
1998, no valuation allowance has been recognized in the accompanying
consolidated financial statements for the deferred tax assets because the
Company believes that sufficient projected future taxable income will be
generated to fully utilize the benefits of these deductible amounts.
NOTE 5 - LAND, BUILDINGS AND EQUIPMENT
- --------------------------------------
The components of land, buildings and equipment are as follows:
May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------
Land $ 387,050 $ 382,999
Buildings 1,344,625 1,320,388
Equipment 647,687 634,626
Construction in progress 38,859 30,418
- --------------------------------------------------------------------------------
Total land, buildings and equipment 2,418,221 2,368,431
Less accumulated depreciation (944,686) (878,083)
- --------------------------------------------------------------------------------
Net land, buildings and equipment $ 1,473,535 $ 1,490,348
================================================================================
NOTE 6 - OTHER ASSETS
- ---------------------
The components of other assets are as follows:
May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------
Prepaid pension $ 41,253 $ 39,160
Prepaid interest and loan costs 22,391 24,781
Liquor licenses 17,657 18,140
Intangible assets 10,504 9,459
Prepaid equipment maintenance 6,565
Miscellaneous 6,018 5,313
- --------------------------------------------------------------------------------
Total other assets $ 104,388 $ 96,853
================================================================================
NOTE 7 - SHORT-TERM DEBT
- ------------------------
Short-term debt at May 30, 1999 and May 31, 1998, consisted of $23,500 and
$75,100 of unsecured commercial paper borrowings with original maturities of one
month or less, and interest rates ranging from 5.05 percent to 5.80 percent and
5.65 percent to 5.81 percent, respectively.
NOTE 8 - LONG-TERM DEBT
- -----------------------
The components of long-term debt are as follows:
May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------
10-year notes and 20-year debentures
as described below $ 250,000 $ 250,000
ESOP loan with variable rate of
interest (5.31 percent at May 30,
1999), due December 31, 2018 60,200 62,000
Other 7,546 24
- --------------------------------------------------------------------------------
Total long-term debt 317,746 312,024
Less issuance discount (1,295) (1,416)
- --------------------------------------------------------------------------------
Total long-term debt less issuance discount 316,451 310,608
Less current portion (2,386) (5)
- --------------------------------------------------------------------------------
Long-term debt, excluding current portion $ 314,065 $ 310,603
================================================================================
In January 1996, the Company issued $150,000 of unsecured 6.375 percent notes
due in February 2006 and $100,000 of unsecured 7.125 percent debentures due in
February 2016. The proceeds from the issuance were used to refinance commercial
paper borrowings. Concurrent with the issuance of the notes and debentures, the
Company terminated, and settled for cash, interest-rate swap agreements with
notional amounts totaling $200,000, which hedged the movement of interest
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 36
rates prior to the issuance of the notes and debentures. The cash paid in
terminating the interest-rate swap agreements is being amortized to interest
expense over the life of the notes and debentures. The effective annual interest
rate is 7.57 percent for the notes and 7.82 percent for the debentures, after
consideration of loan costs, issuance discounts, and interest rate swap
termination costs.
The Company also maintains a revolving loan agreement expiring May 19, 2000,
with a consortium of banks under which the Company can borrow up to $250,000.
The loan agreement allows the Company to borrow at interest rates that vary
based on the prime rate, LIBOR or a competitively bid rate among the members of
the lender consortium, at the option of the Company. The loan agreement is
available to support our commercial paper borrowing arrangements, if necessary.
The Company is required to pay a facility fee of nine basis points per annum on
the average daily amount of loan commitments by the consortium. The amount of
interest and the annual facility fee are subject to change based on the
Company's achievement of certain financial ratios and debt ratings. Advances
under the loan agreement are unsecured. At May 30, 1999, and May 31, 1998, no
borrowings were outstanding under this agreement.
The aggregate maturities of long-term debt for each of the five years subsequent
to May 30, 1999 and thereafter are $2,386 in 2000, $2,513 in 2001, $2,647 in
2002, $0 in 2003 and 2004, and $310,200 thereafter.
NOTE 9 - FINANCIAL INSTRUMENTS
- ------------------------------
The Company has participated in the financial derivatives markets to manage its
exposure to interest rate fluctuations. The Company had interest rate swaps with
a notional amount of $200,000 which it used to convert variable rates on its
long-term debt to fixed rates effective May 30, 1995. The Company received the
one-month commercial paper interest rate and paid fixed-rate interest ranging
from 7.51 percent to 7.89 percent. The interest rate swaps were settled during
January 1996 at a cost to the Company of $27,670. This cost is being recognized
as an adjustment to interest expense over the term of the Company's 10-year
notes and 20-year debentures (see Note 8).
The following methods were used in estimating fair value disclosures for
significant financial instruments: Cash equivalents and short-term debt
approximate their carrying amount due to the short duration of those items.
Long-term debt is based on quoted market prices or, if market prices are not
available, the present value of the underlying cash flows discounted at the
Company's incremental borrowing rates. The carrying amounts and fair values of
the Company's significant financial instruments are as follows:
May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 40,960 $ 40,960 $ 33,505 $ 33,505
Short-term debt 23,500 23,500 75,100 75,100
Total long-term debt $ 316,451 $ 306,806 $ 310,608 $ 314,502
- --------------------------------------------------------------------------------
NOTE 10 - EQUITY PUT OPTIONS
- ----------------------------
As a part of its stock repurchase program, the Company issued equity put options
that entitle the holder to sell shares of Company common stock to the Company,
at a specified price, if the holder exercises the option. In 1999 the Company
issued put options for 2,000,000 shares for $2,184 in premiums. At May 30, 1999,
no equity put options were outstanding.
NOTE 11 - STOCKHOLDERS' RIGHTS PLAN
- -----------------------------------
The Company has a stockholders' rights plan that entitles each holder of Company
common stock to purchase one-hundredth of one share of Darden preferred stock
for each common share owned at a purchase price of $62.50 per share, subject to
adjustment to prevent dilution. The rights are exercisable when, and are not
transferable apart from the Company's common stock until, a person or group has
acquired 20 percent or more, or makes a tender offer for 20 percent or more, of
the Company's common stock. If the specified percentage of the Company's common
stock is then acquired, each right will entitle the holder (other than the
acquiring company) to receive, upon exercise, common stock of either the Company
or the acquiring company having a value equal to two times the exercise price of
the right. The rights are redeemable by the Company's Board in certain
circumstances and expire on May 24, 2005.
NOTE 12 - INTEREST, NET
- -----------------------
Interest expense on average ESOP debt of $61,270, $62,688, and $65,850, in 1999,
1998 and 1997, respectively, was included in compensation expense. Capitalized
interest was computed using the Company's borrowing rate. The Company paid
$16,356 and $17,235 for interest (net of amount capitalized) in 1999 and 1998,
respectively.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 37
The components of interest, net are as follows:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Interest expense $ 21,015 $ 21,527 $ 23,336
Capitalized interest (593) (1,018) (739)
Interest income (882) (425) (306)
- --------------------------------------------------------------------------------
Interest, net $ 19,540 $ 20,084 $ 22,291
================================================================================
NOTE 13 - LEASES
- ----------------
An analysis of rent expense by property leased (all of which are accounted for
as operating leases) is as follows:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Restaurant minimum rent $ 38,866 $ 39,140 $ 40,616
Restaurant percentage rent 1,853 1,707 1,649
Restaurant equipment minimum rent 8,511 3,465
Restaurant rent averaging expense 13 (121) 595
Transportation equipment 1,856 2,169 1,951
Office equipment 1,012 990 915
Office space 505 436 406
Warehouse space 215 217 235
- --------------------------------------------------------------------------------
Total rent expense $ 52,831 $ 48,003 $ 46,367
================================================================================
Minimum rental obligations are accounted for on a straight-line basis over the
term of the lease. Percentage rent expense is generally based on sales levels or
changes in the Consumer Price Index. Most leases require payment of property
taxes, insurance and maintenance costs in addition to the rent payments. The
annual non-cancelable future lease commitments for each of the five years
subsequent to May 30, 1999 and thereafter are: $51,035 in 2000; $47,518 in 2001;
$43,940 in 2002; $36,981 in 2003; $24,729 in 2004; and $89,869 thereafter, for a
cumulative total of $294,072.
NOTE 14 - RETIREMENT PLANS
- --------------------------
The Company has a defined benefit plan covering most salaried employees and a
group of hourly employees with a frozen level of benefits. Benefits for salaried
employees are based on length of service and final average compensation. The
hourly plan provides a monthly amount for each year of credited service. The
Company's funding policy is consistent with the funding requirements of federal
law and regulations. Plan assets consist principally of listed equity
securities, corporate obligations and U.S. government securities.
Components of net periodic benefit cost (income) are as follows:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost $ 3,251 $ 2,576 $ 3,250
Interest cost 5,243 4,699 4,686
Expected return on plan assets (10,247) (8,865) (8,318)
Amortization of unrecognized
transition asset (642) (642) (642)
Amortization of unrecognized
prior service cost (456) (456)
Recognized net actuarial loss 1,088 1,164 1,864
- --------------------------------------------------------------------------------
Net periodic benefit cost (income) $ (1,763) $ (1,524) $ 840
================================================================================
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 38
The following provides a reconciliation of the changes in the plan benefit
obligation and fair value of plan assets for 1999 and 1998, and a statement of
the funded status at May 30, 1999 and May 31, 1998, respectively:
1999 1998
- -------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------------
Change in Benefit Obligation:
Projected benefit obligation at
beginning of year $ 73,112 $ 2,286 $ 59,323 $ 1,974
Service cost 3,251 2,576
Interest cost 5,243 187 4,699 172
Employer contributions 51 61
Actuarial (gain) loss 4,462 (387) 10,282 130
Benefits paid (4,959) (41) (3,768) (51)
- -------------------------------------------------------------------------------------------------------
Projected benefit obligation at
end of year $ 81,109 $ 2,096 $ 73,112 $ 2,286
=======================================================================================================
Change in Plan Assets:
Fair value of plan assets at
beginning of year $ 105,010 $ 89,064
Actual return on plan assets 2,489 19,714
Employer contributions 51 61
Benefits paid (4,959) (41) (3,768) (51)
- -------------------------------------------------------------------------------------------------------
Fair value of plan assets at
end of year $ 102,540 $ 10 $ 105,010 $ 10
=======================================================================================================
Funded Status of the Plan:
Funded status at end of year 21,431 (2,086) 31,898 (2,276)
Unrecognized transition asset (1,926) (2,567)
Unrecognized net actuarial loss 24,509 13,047
Unrecognized prior service cost (2,761) (3,218)
- -------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 41,253 $ (2,086) $ 39,160 $ (2,276)
=======================================================================================================
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the benefit
obligations were 7.0 percent and 4.5 percent in 1999, 7.25 percent and 4.5
percent in 1998, and 8.0 percent and 6.0 percent in 1997, respectively. The
expected long-term rate of return on plan assets was 10.4 percent.
The Company has a defined contribution plan covering most employees age 21 and
older with at least one year of service. The Company matches participant
contributions up to six percent of compensation on the basis of up to $1.00 for
each dollar contributed by the participant. The plan had net assets of $316,846
at May 30, 1999 and $231,220 at May 31, 1998. Expense recognized in 1999, 1998
and 1997 was $5,054, $3,038, and $2,551, respectively. Employees classified as
"highly compensated" under the Internal Revenue Code are ineligible to
participate in this plan. Amounts due to highly compensated employees under a
separate, nonqualified deferred compensation plan totaled $32,471 and $21,230 as
May 30, 1999 and May 31, 1998, respectively.
The defined contribution plan includes an Employee Stock Ownership Plan (ESOP).
This ESOP originally borrowed $50,000 from third parties guaranteed by the
Company, and borrowed $25,000 from the Company at a variable interest rate. The
$50,000 third party loan was refinanced in 1997 by a commercial bank's loan to
the Company and a corresponding loan from the Company to the ESOP. Compensation
expense is recognized as contributions are accrued. Contributions to the plan,
plus the dividends accumulated on the common stock held by the ESOP, are used to
pay principal, interest and expenses of the plan. As loan payments are made,
common stock is allocated to ESOP participants. In 1999, 1998, and 1997, the
ESOP incurred interest expense of $3,203, $3,882, and $3,815, respectively, and
used dividends received of $647, $1,339, and $5,127 and contributions received
from the Company of $4,368, $4,538, and $2,548, respectively, to pay principal
and interest on its debt.
Company shares owned by the ESOP are included in average common shares
outstanding for purposes of
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 39
calculating net earnings (loss) per share. At May 30, 1999, the ESOP's debt to
the Company had a balance of $60,200 with a variable rate of interest of 5.31
percent; $43,300 of the principal balance is due to be repaid no later than
December 2007, with the remaining $16,900 due to be repaid no later than
December 2014. The number of Company common shares within the ESOP at May 30,
1999, approximates 12,217,000, representing 9,103,000 unreleased shares and
3,114,000 shares allocated to participants.
NOTE 15 - OTHER POST-RETIREMENT BENEFITS
- ----------------------------------------
The Company sponsors a plan that provides health-care benefits to its salaried
retirees. The plan is contributory, with retiree contributions based on years of
service.
Components of net periodic post-retirement benefit cost are as follows:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost $ 267 $ 225 $ 292
Interest cost 408 375 366
Amortization of unrecognized
prior service cost 18 18 67
- --------------------------------------------------------------------------------
Net periodic post-retirement
benefit cost $ 693 $ 618 $ 725
================================================================================
The plan is not funded and therefore there are no plan assets. The following
provides a reconciliation of the change in the plan benefit obligation for 1999
and 1998, and a statement of amounts included in the consolidated balance sheets
as of May 30, 1999, and May 31, 1998:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Change in Benefit Obligation:
Accumulated benefit obligation at
beginning of year $ 5,823 $ 4,735
Service cost 267 225
Interest cost 408 375
Employer contributions 22 28
Actuarial (gain) loss (780) 488
Benefits paid (22) (28)
- --------------------------------------------------------------------------------
Accumulated benefit obligation at
end of year $ 5,718 $ 5,823
- --------------------------------------------------------------------------------
Reconciliation to Balance Sheets:
Unrecognized net actuarial gain (loss) 235 (376)
Unrecognized prior service cost (100) (118)
- --------------------------------------------------------------------------------
Accrued post-retirement benefits $ 5,853 $ 5,329
================================================================================
The discount rates used in determining the actuarial present value of the
benefit obligations were 7.0 percent in 1999 and 7.25 percent in 1998.
The health-care cost-trend rate increase in the per-capita charges for benefits
ranged from 5.4 to 6.7 percent for 2000, depending on the medical service
category. The rates gradually decrease to a range of 4.6 to 5.5 percent for 2010
and remain at that level thereafter.
A one percentage-point increase or decrease in the assumed health-care
cost-trend rate would increase or decrease the total of the service and interest
cost components of net periodic post-retirement benefit cost by $140 and $110,
respectively, and would increase or decrease the accumulated post-retirement
benefit obligation by $1,099 and $875, respectively.
NOTE 16 - STOCK PLANS
- ---------------------
The Darden Restaurants Stock Option and Long-Term Incentive Plan of 1995
provides for the granting of stock options to key employees at a price equal to
the fair market value of the shares at the date of the grant and are for terms
not exceeding ten years. Fifteen million shares of common stock are authorized
for issuance under the plan; 3,000,000 of these shares are authorized solely for
issuance in connection with the granting of stock options in lieu of merit
salary increases or other compensation or employee benefits. Such options vest
at the discretion of the Compensation Committee. The plan also allows for grants
of restricted stock and restricted stock units (RSUs) for up to ten percent of
the shares under the plan.
No individual may receive in excess of two percent of the total number of shares
authorized under the plan in restricted stock or RSUs. Restricted stock and RSUs
granted under the plan vest no sooner than one year from the date of grant. No
individual may receive awards covering in excess of ten percent of the total
number of shares authorized for issuance under the plan.
The Darden Restaurants Stock Plan for Non-Employee Directors provides for a
one-time grant to each non-employee director of an option to purchase 12,500
shares of common stock and an additional option to purchase 3,000 shares of
common stock upon election or re-election at a price equal to the fair market
value of the shares at the date of grant. The plan also provides for an annual
grant of 3,000 shares of restricted stock to each non-employee director, as well
as additional options to purchase shares of common stock in lieu of retainer and
meeting fees. The terms of these grants do not exceed ten years. Up to 250,000
shares of common stock may
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 40
be issued under this plan and all options have an exercise price equal to the
fair market value of the shares at the date of grant. The Darden Restaurants
Compensation Plan for Non-Employee Directors provides that non-employee
directors may elect to receive their annual retainer and meeting fees in cash,
deferred cash or shares of common stock. The common stock issuable under the
plan shall have a fair market value equivalent to the value of the foregone
retainer and meeting fees. Fifty thousand shares of common stock are authorized
for issuance under the plan.
The per share weighted average fair value of stock options granted during 1999,
1998 and 1997 was $10.21, $8.03 and $2.88, respectively. These amounts were
determined using the Black Scholes option-pricing model which values options
based on the stock price at the grant date, the expected life of the option, the
estimated volatility of the stock, expected dividend payments, and the risk-free
interest rate over the expected life of the option. The dividend yield was
calculated by dividing the current annualized dividend by the option price for
each grant. The expected volatility was determined considering stock prices for
the fiscal year the grant occurred and prior fiscal years, as well as
considering industry volatility data. The risk-free interest rate was the rate
available on zero coupon U.S. government issues with a term equal to the
remaining term for each grant. The expected life of the option was estimated
based on the exercise history from previous grants.
The assumptions used in the Black Scholes model were as follows:
Stock Options
Granted in Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Risk-free interest rate 5.60% 6.25% 6.70%
Expected volatility of stock 30.0% 25.0% 22.5%
Dividend yield 0.1% 0.1% 0.1%
Expected option life 6.0 years 5.0 years 6.5 years
================================================================================
The expected option life decrease from 1997 to 1998 resulted principally from a
change in the vesting period of Company options from five years to four years.
The expected option life increase from 1998 to 1999 resulted principally from
the expectation that employees will hold their options longer because of a
recent history of consistent Company stock price increases. Since the Company is
a relatively new public company, the expected option life may continue to vary
as the Company builds a history of employee exercise habits.
The Company applies APB 25 in accounting for its stock option plans and,
accordingly, no compensation cost has been recognized for its stock options in
the Company's financial statements for stock options granted under any of its
stock plans. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS 123, the Company's net
earnings (loss) and net earnings (loss) per share would have been reduced to the
pro forma amounts indicated below:
Fiscal Year
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net earnings (loss)
As reported $ 140,538 $ 101,714 $(91,029)
Pro forma $ 134,527 $ 98,047 $(93,154)
Basic net earnings (loss) per share
As reported $ 1.02 $ 0.69 $ (0.59)
Pro forma $ 0.98 $ 0.66 $ (0.60)
Diluted net earnings (loss) per share
As reported $ 0.99 $ 0.67 $ (0.59)
Pro forma $ 0.95 $ 0.65 $ (0.60)
================================================================================
Under SFAS 123, stock options granted prior to 1996 are not required to be
included as compensation in determining pro forma net earnings (loss). To
determine pro forma net earnings (loss), reported net earnings (loss) have been
adjusted for compensation costs associated with stock options granted during
1999, 1998 and 1997 that are expected to eventually vest.
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 41
Stock option activity during the periods indicated is as follows:
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
Exercisable Per Share Outstanding Per Share
- ----------------------------------------------------------------------------------------------------------
Balance at May 26, 1996 6,177,151 $ 8.23 17,806,193 $ 10.01
- ----------------------------------------------------------------------------------------------------------
Options granted 120,123 $ 8.15
Options exercised (261,227) $ 5.69
Options cancelled (1,603,796) $ 10.67
- ----------------------------------------------------------------------------------------------------------
Balance at May 25, 1997 6,832,479 $ 8.81 16,061,293 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Options granted 3,335,711 $ 9.83
Options exercised (1,463,788) $ 7.26
Options cancelled (1,570,316) $ 10.48
- ----------------------------------------------------------------------------------------------------------
Balance at May 31, 1998 6,286,678 $ 9.55 16,362,900 $ 10.16
- ----------------------------------------------------------------------------------------------------------
Options granted 2,888,554 $ 15.37
Options exercised (2,789,237) $ 9.12
Options cancelled (962,666) $ 9.36
- ----------------------------------------------------------------------------------------------------------
Balance at May 30, 1999 5,883,774 $ 10.53 15,499,551 $ 11.35
==========================================================================================================
The following table provides information regarding exercisable and outstanding
options as of May 30, 1999:
Weighted
Weighted Weighted Average
Range of Average Average Remaining
Exercise Options Exercise Options Exercise Contractual
Price Per Share Exercisable Price Per Share Outstanding Price Per Share Life (Years)
- -------------------------------------------------------------------------------------------------------------
$ 5.00 - $10.00 2,121,916 $ 8.69 5,606,613 $ 9.04 5.54
$10.01 - $15.00 3,534,524 $ 11.39 6,938,761 $ 11.29 5.32
$15.01 - $20.00 177,334 $ 15.61 2,778,361 $ 15.75 8.47
Over $20.00 175,816 $ 21.82 9.90
- -------------------------------------------------------------------------------------------------------------
5,833,774 $ 10.53 15,499,551 $ 11.35 6.00
=============================================================================================================
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 42
NOTE 17 - EMPLOYEE STOCK PURCHASE PLAN
- --------------------------------------
Effective January 1, 1999, the Company adopted the Darden Restaurants Employee
Stock Purchase Plan to provide eligible employees who have completed one year of
service an opportunity to purchase shares of its common stock, subject to
certain limitations. Under the plan, employees may elect to purchase shares at
the lower of 85 percent of the fair market value of the Company's common stock
as of the first or last trading days of each quarterly participation period.
During 1999, employees purchased 55,000 shares of common stock. An additional
1,345,000 shares are available for issuance as of May 30, 1999.
As the Company applies APB 25 in accounting for its Employee Stock Purchase
Plan, no compensation cost has been recognized for shares issued under the plan.
The impact of recognizing compensation expense for purchases made under the plan
in 1999 in accordance with the fair value method specified in SFAS 123 is not
significant to the Company's financial statement disclosures.
NOTE 18 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Darden makes trade commitments in the course of its normal operations and is
subject to litigation incident to the conduct of its ongoing business. As of May
30, 1999, the Company was contingently liable for approximately $26,963,
primarily relating to outstanding letters of credit. In the opinion of
management, there are no unusual commitments or contingencies at May 30, 1999,
that would materially affect the financial position or operating results of
Darden.
NOTE 19 - QUARTERLY DATA (UNAUDITED)
- ------------------------------------
Summarized quarterly data for 1999 and 1998 are as follows:
Fiscal 1999 - Quarters Ended
- --------------------------------------------------------------------------------------------------------------------
Aug. 30 Nov. 29 Feb. 28 May 30 Total
- --------------------------------------------------------------------------------------------------------------------
Sales $ 886,057 $ 791,168 $ 866,907 $ 913,975 $ 3,458,107
Gross Profit 175,105 147,111 182,510 208,464 713,190
Earnings before Interest and Taxes 59,306 29,443 62,939 83,727 235,415
Earnings before Taxes 53,871 24,657 58,517 78,830 215,875
Net Earnings 35,179 15,919 38,353 51,087 140,538
Net Earnings per Share:
Basic $ 0.25 $ 0.11 $ 0.28 $ 0.38 $ 1.02
Diluted $ 0.24 $ 0.11 $ 0.27 $ 0.37 $ 0.99
====================================================================================================================
Fiscal 1998 - Quarters Ended
- --------------------------------------------------------------------------------------------------------------------
Aug. 24 Nov. 23 Feb. 22 May 31 Total
- --------------------------------------------------------------------------------------------------------------------
Sales $ 809,331 $ 745,263 $ 811,261 $ 921,162 $ 3,287,017
Gross Profit 161,620 132,534 165,650 198,783 658,587
Earnings before Interest and Taxes 40,943 16,509 50,307 65,997 173,756
Earnings before Taxes 36,250 11,786 45,228 60,408 153,672
Net Earnings 24,408 7,530 29,758 40,018 101,714
Net Earnings per Share:
Basic $ 0.16 $ 0.05 $ 0.20 $ 0.28 $ 0.69
Diluted $ 0.16 $ 0.05 $ 0.20 $ 0.27 $ 0.67
====================================================================================================================
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 43
Five Year Financial Summary
(In thousands, except per share data)
Fiscal Year Ended
- --------------------------------------------------------------------------------------------------------------------
Pro Forma
Operating Results May 30, 1999 May 31, 1998 May 25, 1997 May 26, 1996 May 28, 1995
- --------------------------------------------------------------------------------------------------------------------
Sales $ 3,458,107 $ 3,287,017 $ 3,171,810 $ 3,191,779 $ 3,163,289
- --------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of Sales:
Food and beverages 1,133,705 1,083,629 1,077,316 1,062,624 1,093,896
Restaurant labor 1,117,401 1,062,490 1,017,315 954,886 931,553
Restaurant expenses 493,811 482,311 481,348 455,626 470,194
- --------------------------------------------------------------------------------------------------------------------
Total Cost of Sales $ 2,744,917 $ 2,628,430 $ 2,575,979 $ 2,473,136 $ 2,495,643
- --------------------------------------------------------------------------------------------------------------------
Restaurant Operating Profit 713,190 658,587 595,831 718,643 667,646
- --------------------------------------------------------------------------------------------------------------------
Selling, General and Administrative 360,909 358,542 361,263 373,920 351,197
Depreciation and Amortization 125,327 126,289 136,876 134,599 135,472
Interest, Net 19,540 20,084 22,291 21,406 21,901
Restructuring and asset impairment
expense or (credit) (8,461) 229,887 75,000 99,302
- --------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses $ 3,242,232 $ 3,133,345 $ 3,326,296 $ 3,078,061 $ 3,103,515
- --------------------------------------------------------------------------------------------------------------------
Earnings (Loss) before Income Taxes 215,875 153,672 (154,486) 113,718 59,774
Income Taxes 75,337 51,958 (63,457) 39,363 10,600
- --------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 140,538 $ 101,714 $ (91,029) $ 74,355 $ 49,174
- --------------------------------------------------------------------------------------------------------------------
Net Earnings (Loss) per Share:
Basic $ 1.02 $ 0.69 $ (0.59) $ 0.47 $ 0.31
Diluted $ 0.99 $ 0.67 $ (0.59) $ 0.46
- --------------------------------------------------------------------------------------------------------------------
Average Number of Common Shares
Outstanding, Net of Shares Held in
Treasury (in 000's):
Basic 137,300 148,300 155,600 158,700 158,000
Diluted 141,400 151,400 155,600 161,300
====================================================================================================================
Excluding Restructuring and Asset
Impairment Expense or (Credit)
Earnings $ 135,313 $ 101,714 $ 54,330 $ 119,204 $ 108,259
Earnings per Share:
Basic $ 0.99 $ 0.69 $ 0.35 $ 0.75 $ 0.68
Diluted $ 0.96 $ 0.67 $ 0.35 $ 0.74
====================================================================================================================
Financial Position
Total Assets $ 1,905,660 $ 1,984,742 $ 1,963,722 $ 2,088,504 $ 2,113,381
Land, Buildings and Equipment 1,473,535 1,490,348 1,533,272 1,702,861 1,737,982
Working Capital (deficit) (206,478) (161,123) (143,211) (157,326) (209,609)
Long-term Debt 316,451 310,608 313,192 301,205 303,860
Stockholders' Equity 964,036 1,019,845 1,081,213 1,222,637 1,173,962
Stockholders' Equity per Share 7.30 7.23 7.07 7.70 7.43
====================================================================================================================
Other Statistics
Cash Flow from Operations $ 348,220 $ 236,125 $ 189,203 $ 294,032 $ 273,978
Capital Expenditures 123,673 112,168 159,688 213,905 357,904
Dividends Paid 10,857 11,681 12,385 12,647
Dividends Paid per Share 0.08 0.08 0.08 0.08
Advertising Expense $ 180,563 $ 186,261 $ 204,321 $ 239,526 $ 211,904
Number of Employees 116,700 114,800 114,600 119,100 124,700
Number of Restaurants 1,139 1,151 1,182 1,217 1,243
Stock Price:
High $ 23.250 $ 18.125 $ 12.125 $ 14.000 $ 10.875
Low 14.313 8.125 6.750 9.750 9.375
Close 21.313 15.438 8.250 11.750 10.875
====================================================================================================================