SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 1-13666
DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3305930
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5900 Lake Ellenor Drive 32809
Orlando, Florida (Zip Code)
(Address of principal executive offices)
(407) 245-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
Common stock, without par value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of Common Stock held by non-affiliates of the
Registrant, based on the closing price of $21.125 per share as reported on the
New York Stock Exchange on July 26, 1999: $2,708 million.
Number of shares of Common Stock outstanding as of July 26, 1999:
132,717,134 (excluding 32,625,961 shares held in the treasury).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement dated August 10, 1999 are
incorporated by reference into Part III, and portions of Registrant's 1999
Annual Report to Stockholders are incorporated by reference into Parts I, II and
IV.
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PART I
Item 1. BUSINESS OF DARDEN RESTAURANTS, INC.
Introduction
Darden Restaurants, Inc. and its subsidiaries (the "Company" or "Darden")
is the world's largest full-service restaurant organization.* In the United
States, as of May 30, 1999, it operated 1,106 restaurants in 49 states (the
exception being Alaska), including 635 Red Lobster(R), 459 Olive Garden(R), six
Olive Garden Cafe(R) and six Bahama Breeze(R) restaurants. In addition, the
Company operated 39 restaurants in Canada, including 34 Red Lobster units and
five Olive Garden units. All of its restaurants in North America are
Company-operated. In Japan, as of May 30, 1999, Red Lobster Japan Partners, a
Japanese retailer unaffiliated with Darden, operated 38 Red Lobster restaurants
pursuant to an Area Development and Franchise Agreement.
The Company, a Florida corporation incorporated in March of 1995, is the
parent company of GMRI, Inc., a Florida corporation ("GMRI"). GMRI and other
Darden subsidiaries own the operating assets of the restaurants. GMRI was
originally incorporated on March 27, 1968, as Red Lobster Inns of America, Inc.
The Company's principal executive offices and restaurant support center are
located at 5900 Lake Ellenor Drive, Orlando, Florida 32809 (telephone number
(407) 245-4000). Unless the context indicates otherwise, all references to
Darden or the Company include Darden, GMRI and their respective subsidiaries.
Background
The Company opened its first restaurant, a Red Lobster, in Lakeland,
Florida in January of 1968. Red Lobster was founded by William B. Darden, for
whom the Company is named. The Company was acquired by General Mills, Inc.
("General Mills") in 1970. In May of 1995, the Company became an independent
publicly held company when General Mills distributed all outstanding Darden
stock to General Mills stockholders (the "Distribution").
While the expansion of the Company's two largest restaurant chains has
historically been steady, the number of restaurants for both Red Lobster and
Olive Garden has declined in recent years due to an increased focus on market
optimization and the closing of under-performing units. Red Lobster has grown
from three restaurants in operation in 1970 to 669 units in North America by the
end of fiscal year 1999. Olive Garden, an internally developed concept, opened
its first restaurant in December of 1982, and expanded to 459 restaurants in the
United States and five restaurants in Canada by the end of fiscal year 1999.
Additionally, at the end of fiscal year 1999, Olive Garden operated six cafes in
food courts located in regional shopping malls within the United States.
The Company's newest restaurant concept is Bahama Breeze, an internally
developed concept with a Caribbean theme. At the end of fiscal year 1999, there
were six Bahama Breeze restaurants. They are located in Orlando, Florida;
Altamonte Springs, Florida; Memphis, Tennessee; Tampa, Florida; Raleigh, North
Carolina; and Atlanta, Georgia.
Strategy
The Company is a leader in the casual-dining segment of the restaurant
industry and is committed to the following key strategies.
o Developing and operating distinctive restaurant concepts, each with its
own culture, operating practices, physical environment, menu and marketing
approach.
o Expanding its current portfolio of restaurant concepts, and internally
developing or acquiring additional concepts which can be expanded profitably.
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* Source: Nation's Restaurant News, "Top 100," June 28, 1999 (based on
numbers of company-owned restaurants).
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o Attracting, developing and retaining experienced management and personnel
committed to providing customer satisfaction and business results.
o Achieving operating efficiencies by sharing support services and
infrastructure among its restaurant concepts.
o Maintaining consumer awareness through advertising and consumer
promotions.
The following table lists the number of restaurants and total sales by year
of the Red Lobster, Olive Garden and Bahama Breeze concepts. The table also
includes information about the now closed China Coast concept, as its operations
are reflected in the Company's Five Year Financial Summary (see Part II, Item
6).
Company-Operated Restaurants Open at Fiscal Year-End
<TABLE>
<CAPTION>
Fiscal Red Olive China Bahama Total Total Sales
Year Lobster Garden(a) Coast(b) Breeze Restaurants(a) (In Millions)
- ------ ------- --------- -------- ------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1970 6 6 $3.5
1971 24 24 9.1
1972 47 47 27.1
1973 70 70 48.0
1974 97 97 72.6
1975 137 137 108.5
1976 174 174 174.1
1977 210 210 229.2
1978 236 236 291.4
1979 244 244 337.5
1980 260 260 397.6
1981 291 291 528.4
1982 328 328 614.3
1983 360 1 361 718.5
1984 368 2 370 782.3
1985 372 4 376 842.2
1986 401 14 415 917.3
1987 433 52 485 1,097.7
1988 443 92 535 1,300.8
1989 490 145 635 1,621.5
1990 521 208 1 730 1,927.7
1991 568 272 1 841 2,212.3
1992 619 341 1 961 2,542.0
1993 638 400 5 1,043 2,737.0
1994 675 458 25 1,158 2,963.0
1995 715 477 51 1,243 3,163.3
1996 729 487 0 1 1,217 3,191.8
1997 703 477 0 2 1,182 3,171.8
1998 682 466 0 3 1,151 3,287.0
1999 669 464 0 6 1,139 3,458.1
</TABLE>
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(a) These numbers do not include the six Olive Garden Cafes in operation as of
May 30, 1999.
(b) In August 1995, the Company approved the closing of all China Coast
restaurants.
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Industry Overview
In the United States, the restaurant industry generates approximately $242
billion in annual sales, or roughly 36% of total consumer food expenditures.*
Expenditures for restaurant dining and other meals prepared away from home have
increased from 25% of the food dollar in 1955 to 44% in 1999.* Over the past 20
years, restaurant sales have grown at an annual rate that is one to two
percentage points faster than the growth of food-at-home sales.* The restaurant
industry is highly fragmented and is characterized by the presence of thousands
of independent operators and small chains. While chain restaurants dominate the
fast-food segment with a combined market share of 61%, chains account for just
22% in the full-service segment.* The Company believes that capable operators of
strong multi-unit concepts will continue to increase their share of the
full-service restaurant market.
Casual dining is the fastest growing segment of the full-service restaurant
market, with sales increasing at a 6.5% annual compound growth rate since 1992.*
Today, casual dining represents 37% of full-service restaurant sales, or $41
billion.* Darden is a leader in the casual-dining segment, with approximately an
eight percent market share.* Management believes that casual-dining concepts
will benefit from favorable demographic trends, most notably the maturing
population. Forty to sixty year olds are the most frequent users of
casual-dining restaurants, and through this decade and the next, the population
aged forty-five or older is projected to increase by approximately 34 million.
In addition, "baby-boomers" (i.e., thirty-four to fifty-two year olds) tend to
eat out more than generations before them, so, as they age, their casual dining
frequency may become even higher. Finally, this group includes a high proportion
of two-income families, which the Company believes could increase the demand for
food-away-from-home due to a combination of more discretionary income and less
discretionary time.
Restaurants face growing competition from the supermarket industry which is
offering improved entrees and side dishes from the deli section. Supermarkets'
renewed emphasis on such "convenient meals" may have the most impact on segments
of the restaurant industry in which the meals fulfill a primarily physiological
objective, such as in the "quick serve" and "midscale" segments. Casual dining
offers a more significant social component with the meal, a feature that the
supermarkets' "convenient meals" do not readily confer.
Restaurant Concepts
Red Lobster
Red Lobster is the largest full-service, seafood-specialty restaurant group
in the United States. It offers an extensive menu featuring fresh fish, shrimp,
crab, lobster, scallops, and other seafood in a casual atmosphere. The menu
includes a variety of specialty seafood and non-seafood appetizers and desserts.
For the eleventh consecutive year, Red Lobster was named Best Seafood Chain in
America in the 1999 America's Choice In Chains national consumer survey
published in the March 1, 1999 issue of Restaurants & Institutions magazine.
Dinner entree prices range from $6.99 to $18.99, with fresh fish and
certain lobster items available at market price. Lunch entree prices range from
$4.99 to $7.99. During fiscal year 1999, the average check per person was
between $14.00 and $15.00, with alcoholic beverages accounting for approximately
eight percent of sales. Red Lobster also offers a lower-priced children's menu.
The Company maintains approximately 100 different menus to reflect geographic
differences in consumer preferences, prices and selections in its trade areas.
Fiscal 1999 was a year of consistent profitable sales growth for Red
Lobster. As of the close of fiscal 1999, Red Lobster had enjoyed six consecutive
quarters of same-restaurant sales increases. For the year, same-restaurant sales
at Red Lobster increased 7.4 percent.
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* Sources: United States Department of Commerce Census of Retail Trade
(1997); National Restaurant Association Annual Foodservice Forecast (1998);
and CREST Annual Household Summary (1998).
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Olive Garden
Olive Garden is the market share leader in the Italian casual, full-service
dining segment in North America with 18% of the full-service Italian category
and 35% of total casual dining Italian sales at the end of fiscal year 1998.*
Olive Garden's focus on Hospitaliano!, which the Company defines as "Our Passion
for 100% Guest Delight", has contributed to its best-ever guest satisfaction
feedback and 19 consecutive quarters of same-restaurant sales growth as of the
close of fiscal year 1999.
Olive Garden's menu includes a variety of authentic Italian foods,
featuring fresh ingredients, and an expanded wine list with imported wines from
Italy. The menu includes antipasti (appetizers); soups, salad and garlic
breadsticks; baked pastas; sauteed specialties with chicken, seafood and fresh
vegetables; grilled meats; and a variety of desserts. Olive Garden also uses
imported coffee from Italy for its espresso and cappuccino.
Dinner entree prices range from $6.95 to $16.95, and most lunch entree
prices range from $4.75 to $7.95. The price of each entree also includes as much
fresh salad or soup as a guest desires. During fiscal year 1999, the average
check per person was $11.50 to $12.50, with alcoholic beverages accounting for
slightly more than eight percent of sales.
Olive Garden considers itself a family of local restaurants focused on
delighting every guest with an authentic Italian dining experience. Olive Garden
places importance on high standards, mutual respect, training and brand
building. Its annual investment in front-line training has increased five-fold
in the past four years. Olive Garden strives to apply the spirit of its
advertising campaign, "When You're Here, You're Family," to both its guests and
employees. RevItalia(TM), a major revitalization of each Olive Garden
restaurant, is expected to take place over the next several years and is
designed to provide the environment for an authentic Italian dining experience
for both guests and employees. The Company believes that investments such as
these have contributed to Olive Garden's success and continued profitable sales
growth.
Same-restaurant sales at Olive Garden increased 9.0 percent during fiscal
year 1999. As previously noted, Olive Garden has had 19 consecutive quarters of
same-restaurant sales increases.
Expansion Strategy
During fiscal year 1999, the Company opened five restaurants (excluding
pre-existing restaurants relocated to other sites). It plans to open
approximately 16 new Red Lobster, Olive Garden and Bahama Breeze restaurants
during fiscal year 2000 (excluding relocations). The Company's new store
openings by concept are shown below.
Actual Projected
Fiscal 1999 Fiscal 2000
----------- -----------
Red Lobster....................... 2 5
Olive Garden...................... 0 5
Bahama Breeze..................... 3 6
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Totals....................... 5 16
=== ===
The Company's objective is to continue to expand its current portfolio of
restaurant concepts, and to develop internally or acquire additional concepts
which can be expanded. It is currently testing new ideas and concepts, as well
as expanding its testing of Bahama Breeze in light of favorable consumer
response. The Company also regularly evaluates potential acquisition candidates
to assess whether they would satisfy the Company's strategic and financial
objectives. At present, the Company has not identified any specific
acquisitions.
The Company will continue to focus on improving operational returns at
Olive Garden and Red Lobster, and limit new restaurant expansion to the
highest-potential sites. In addition, the Company plans to expand Bahama Breeze
at a pace that will enable each new restaurant to capture the concept's full
potential. The specific number of openings will also depend upon a number of
factors, including the Company's ability to locate appropriate sites,
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* Sources: United States Department of Commerce Census of Retail Trade (Dec.
1997 - Nov. 1998); Nation's Restaurant News (June 22, 1998); and CREST
Annual Household Summary (1998).
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negotiate acceptable purchase or lease terms, obtain necessary local
governmental permits, complete construction, and recruit and train restaurant
management and hourly personnel.
Darden considers location to be a critical factor in determining a
restaurant's long-term success, and the Company devotes significant effort to
the site selection process for new locations. Prior to entering a market, a
thorough study is conducted to determine the optimal number and placement of
restaurants. The Company's site selection process utilizes a variety of
analytical techniques to evaluate a number of important factors. These factors
include trade area demographics, such as target population density and household
income levels; competitive influences in the trade area; the site's visibility,
accessibility, and traffic volume; and proximity to activity centers such as
shopping malls, hotel/motel complexes, offices and universities. Members of
senior management evaluate, inspect and approve each restaurant site prior to
its acquisition. After site acquisition and receipt of permits, it typically
takes 120 to 180 days to construct and open a new restaurant.
The following table illustrates the approximate capital investment, size
and dining capacity of the two Red Lobster openings (excluding relocations of
existing restaurants) that occurred during fiscal year 1999.
Capital Square Dining Dining
Investment Feet Seats Tables
---------- ------ ------ ------
Red Lobster............. $2,722,000 6,370 194 50
Red Lobster plans to open five new restaurants during fiscal year 2000, but the
actual number of openings may vary due to factors previously discussed.
Olive Garden did not open new restaurants during fiscal 1999. The Company
has developed a new "Tuscan Farmhouse" design with a building size of
approximately 8,100 square feet and seating for approximately 250 people. Olive
Garden plans to open up to five new restaurants during fiscal year 2000, but the
actual number of openings may vary.
Bahama Breeze opened three restaurants in fiscal 1999. The Company plans to
open at least six additional Bahama Breeze restaurants during fiscal year 2000,
but the actual number of openings may vary due to the factors previously
discussed.
The Company systematically reviews the performance of its restaurant sites
to ensure that each unit meets its standards. When a unit falls below minimum
standards, a thorough analysis is completed to determine the causes, and
marketing and operational plans are implemented to improve that unit's
performance. If performance does not improve to acceptable levels, the site is
evaluated for relocation, closing or conversion to one of the Company's other
concepts.
In fiscal year 1999, the Company permanently closed 15 Red Lobster
restaurants in the United States. One additional Red Lobster restaurant was
closed in the United States during fiscal 1999, but is scheduled to relocate and
re-open in fiscal year 2000. During the same period, Olive Garden permanently
closed two restaurants in the United States. No restaurants were closed in
Canada during fiscal 1999.
During fiscal 1999, Red Lobster relocated three restaurants and rebuilt
another restaurant that had been temporarily closed in fiscal 1998. These
actions repositioned older Red Lobster restaurants to better locations and more
contemporary buildings. These restaurants are not included in the numbers of new
restaurant openings or permanent closings described above.
For a discussion of restructuring and asset impairment expense or credit
related to restaurant closings, see Management's Discussion of Results of
Operations and Financial Condition and Note 3 of Notes to Consolidated Financial
Statements on pages 22 and 34, respectively, of the Company's 1999 Annual Report
to Stockholders.
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Restaurant Operations
The Company believes that high-quality restaurant management is critical to
its long-term success. It also believes that its leadership position, strong
success-oriented culture and various short-term and long-term incentive
programs, including stock options, help attract and retain highly-motivated
restaurant managers committed to providing superior customer satisfaction and
outstanding business results.
The Company's restaurant management structure varies by concept and
restaurant size. Each restaurant is led by a general manager and one to four
additional managers, depending on the operating complexity and sales volume of
the restaurant. Each restaurant also employs approximately 65 to 140 hourly
employees, most of whom work part-time. The Company issues detailed operations
manuals covering all aspects of restaurant operations as well as food and
beverage manuals which detail the preparation procedures of the Company's
formulated recipes. The restaurant management teams are responsible for the
day-to-day operation of each restaurant and for ensuring compliance with the
Company's operating standards. Restaurant general managers report to directors
at Red Lobster and Olive Garden, and each director is responsible for seven to
14 restaurants. Restaurants are visited regularly by all levels of supervision
to ensure strict adherence to all aspects of the Company's standards.
Each concept's vice president or director of training, together with senior
operations executives, is responsible for developing and maintaining that
concept's operational training programs. These efforts include a 12-to-15 week
training program for management trainees, and continuing development programs
for managers, supervisors and directors. The emphasis of the training and
development programs varies by restaurant concept, but includes leadership,
restaurant business management and culinary skills. The Company also utilizes a
highly structured training program to open new restaurants, including training
teams consisting of groups of employees experienced in all aspects of restaurant
operations. The opening training teams typically begin on-site training one week
prior to opening and remain on location one week following the opening. They are
phased out when appropriate to ensure a smooth transition to the restaurant's
operating staff.
Quality Assurance
The Company's Quality Assurance Department helps ensure that all
restaurants provide high-quality food products in a clean and safe environment.
Through rigorous physical evaluation and testing, the Company ensures that all
seafood purchased meets or exceeds its specifications. Since 1976, the Company
has maintained a microbiological laboratory to routinely test seafood and
commodity products for quality. In addition, quality assurance managers visit
each restaurant periodically throughout the year to ensure that food is properly
handled, and to provide education and training in food safety and sanitation.
The quality assurance managers also serve as a liaison to regulatory agencies on
issues relating to food safety. The Company uses independent third party
auditors to inspect and evaluate vendors of commodity food products. In this
manner, the Company can ensure that its suppliers are maintaining good
manufacturing practices and are operating with the comprehensive industry
standard Hazard Analysis Critical Control Points programs in place.
Purchasing and Distribution
The Company's ability to ensure a consistent supply of high-quality food
and supplies at competitive prices to all of its restaurant concepts depends
upon procurement from reliable sources. The Company's purchasing staff sources,
negotiates and buys food and supplies from more than 1,400 suppliers in 44
countries. To ensure the quality of all food products, suppliers are required to
meet strict quality control standards in the development, harvest, catch and
production of food products. Competitive bids, long-term contracts and long-term
vendor relationships are routinely used to ensure availability of products and
stability of costs.
The Company believes that its seafood purchasing capabilities are a
significant competitive advantage. The Company's purchasing staff routinely
travels within the United States and internationally to source over 100
varieties of top-quality seafood at competitive prices. The Company believes
that it has established excellent long-term relationships with key seafood
vendors, and sources product directly from the vendors when possible. The
Company operates a procurement office in Singapore to source products directly
from Asia. While the supply of certain seafood species is volatile, the Company
believes that it has demonstrated the ability to identify alternative seafood
products and to adjust its menus as required. All other essential food products
are available, or can be made available upon short notice, from alternative
qualified suppliers. Because of the relatively rapid turnover of perishable food
products, inventories in the restaurants have a modest aggregate dollar value in
relation to revenues.
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Controlled inventories of specified products are distributed to all restaurants
through a national distribution company. See Note 2 of Notes to Consolidated
Financial Statements on page 33 of the Company's 1999 Annual Report to
Stockholders.
Advertising and Marketing
The Company believes that it has developed significant marketing and
advertising capabilities. The Company's size enables it to be the dominant
advertiser in the full-service segment of the restaurant industry. The Company
leverages the efficiency of national network television advertising and
supplements it with local market television advertising. The Company's
restaurants appeal to a broad spectrum of consumers and it uses advertising and
product promotions to attract customers. The Company implements periodic
promotions as appropriate to maintain and increase its sales and profits. It
also relies on radio and newspaper advertising, as well as newspaper and direct
mail couponing programs to attract customers. The Company has developed and
consistently utilizes sophisticated consumer marketing research techniques to
monitor customer satisfaction and customers' evolving expectations.
Employees
At the end of fiscal year 1999, the Company employed approximately 116,700
persons. Of these employees, 1,054 were corporate personnel, 5,058 were
restaurant management personnel, and the remainder were hourly restaurant
personnel. Of the 1,054 corporate employees, 584 were in management and 470 were
administrative or office employees. The operating executives of the Company have
an average of more than 16 years of experience with the Company. The restaurant
general managers average more than ten years with the Company. The Company
believes that it provides working conditions and compensation that compare
favorably with those of its competition. Most employees, other than restaurant
management and corporate management, are paid on an hourly basis. None of the
Company's employees are covered by a collective bargaining agreement. The
Company considers its employee relations to be good.
Management Information Systems
The Company strives for leadership in the restaurant business by utilizing
technology as a competitive advantage. Since 1975, computers located in the
restaurants have been used to assist in the management of the restaurants. The
Company has implemented systems targeted at improved financial control, cost
management, enhanced guest service and improved employee effectiveness.
Management information systems are designed to be used across restaurant
concepts, yet are flexible enough to meet the unique needs of each specific
restaurant concept.
Restaurant support is provided from the restaurant support center in
Orlando, Florida, seven days a week, 24 hours a day. A communications network
sends and receives critical business data to and from the restaurants each
night, providing timely and extensive information each morning on business
activity in every location. The restaurant support center houses the Company's
data center, which contains sufficient computing power to process information
from all restaurants quickly and efficiently. The Company's information is
processed in a secured environment to protect both the actual data and the
physical assets. The Company guards against business interruption by maintaining
a disaster recovery plan, which includes storing critical business information
off-site and testing the disaster recovery plan at a hot-site facility. The
Company uses internally developed proprietary software, as well as purchased
software, with proven, non-proprietary hardware. This allows processing power in
terms of hardware and software to be distributed effectively to each of the
Company's restaurant locations.
The Company's management believes these systems have well positioned the
Company to support current needs as well as future growth. The Company is
committed to maintaining an industry leadership position in information systems
and computing technology. The Company utilizes a strategic information systems
plan that is prepared internally and reviewed with senior management. The plan
is a result of projects approved by the Executive Information Systems Steering
Committee. This plan prioritizes information systems projects based upon
strategic, financial, regulatory and other business advantage criteria.
The Company has committed the resources necessary to ensure that its
critical information systems and technology are "Year 2000 compliant" in advance
of the next millennium. "Year 2000 compliant" refers to information systems and
technology that accurately process date/time data (including calculating,
comparing and
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sequencing) from, into and between the twentieth and twenty-first centuries and,
in particular, the years 1999 and 2000. As of May 30, 1999, virtually all of the
Company's systems either have been modified to be Year 2000 compliant or have
been eliminated due to changes in business requirements. The total cost to the
Company of achieving Year 2000 compliant systems is not expected to have a
material impact on the Company's financial condition or results of operations.
For additional discussion of the Year 2000 issue, see the subsection entitled
"Impact of Year 2000" in Management's Discussion of Results of Operations and
Financial Condition on page 24 of the 1999 Annual Report to Stockholders.
Competition
The restaurant industry is intensely competitive with respect to food
quality, price, service, restaurant location, concept, the attractiveness of
facilities, and the effectiveness of advertising and marketing programs. The
restaurant business is often affected by changes in consumer tastes; national,
regional or local economic conditions; demographic trends; traffic patterns; the
type, number and location of competing restaurants; and consumers' discretionary
purchasing power. The Company competes within each market with national and
regional chains as well as locally-owned restaurants, not only for customers but
also for management and hourly personnel and suitable real estate sites.
Restaurants face growing competition from the supermarket industry, which is
offering "convenient meals" in the form of improved entrees and side dishes from
the deli section. The Company expects intense competition to continue in all of
these areas.
Other factors pertaining to the Company's competitive position in the
industry are addressed under the sections entitled "Purchasing and
Distribution," "Advertising and Marketing," and "Management Information
Systems," and elsewhere in this report.
Trademarks and Related Agreements
The Company regards its Red Lobster(R), Olive Garden(R) and Bahama
Breeze(R) servicemarks as having significant value and as being important in
marketing the restaurants. The Company's policy is to pursue registration of its
important servicemarks and trademarks whenever possible and to oppose vigorously
any infringement of them.
The only restaurant operations outside of North America historically have
been conducted through Red Lobster Japan Partners, a partnership venture with
the Japanese retailer JUSCO that was established in 1982. The historical
financial results of Darden exclude the results of such operations. On April 26,
1995, the Darden subsidiary, GMRI, Inc., entered into an Area Development and
Franchise Agreement with Red Lobster Japan Partners, which operated 38 Red
Lobster restaurants in Japan as of May 30, 1999. Darden does not have an
ownership interest in Red Lobster Japan Partners. Royalty income is not expected
to be material.
Seasonality
The Company's sales volumes fluctuate seasonally, and are generally higher
in the spring and summer months, and lower in the fall and winter months. Severe
weather, storms and similar conditions may impact sales volumes seasonally in
some operating regions.
Government Regulation
The Company is subject to various federal, state and local laws affecting
its business. Each of the Company's restaurants must comply with licensing
requirements and regulations by a number of governmental authorities, which
include health, safety and fire agencies in the state or municipality in which
the restaurant is located. The development and operation of restaurants depend
on selecting and acquiring suitable sites, which are subject to zoning, land
use, environmental, traffic and other regulations. To date, the Company has not
been significantly affected by any difficulty, delay or failure to obtain
required licenses or approvals.
Presently about 8.2% of total restaurant revenues are attributable to the
sale of alcoholic beverages. Regulations governing their sale require licensure
by each site (in most cases, on an annual basis) and licenses may be revoked or
suspended for cause at any time. These regulations relate to many aspects of
restaurant operation, including the minimum age of patrons and employees, hours
of operation, advertising, wholesale purchasing, inventory control and handling,
storage and dispensing of alcoholic beverages. The failure of a restaurant to
obtain
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or retain these licenses would adversely affect the restaurant's operations. The
Company is also subject in certain states to "dram-shop" statutes, which
generally provide an injured party with recourse against an establishment that
wrongfully serves alcoholic beverages to an intoxicated person causing the
injury. The Company carries liquor liability coverage as part of its
comprehensive general liability insurance.
The Company is also subject to federal and state minimum wage laws and
other laws governing such matters as overtime, tip credits, working conditions,
safety standards, and hiring and employment practices. Changes in these laws
during the fiscal year ended May 30, 1999, have not had a material effect on the
Company's operations.
The Company is currently operating under a Tip Rate Alternative Commitment
("TRAC") agreement with the Internal Revenue Service. Through increased
educational and other efforts in the restaurants, the TRAC agreement reduces the
likelihood of potential chain-wide employer-only FICA assessments for unreported
tips.
The Company is subject to federal and state environmental regulations, but
these rules have not had a material effect on the Company's operations.
The Company continues to monitor its facilities for compliance with the
Federal Americans With Disabilities Act ("ADA") and related state statutes in
order to conform to their requirements. Under the ADA and related state laws,
the Company could be required to expend funds to modify its restaurants to make
them more readily accessible to disabled persons, to better provide service to
disabled persons, or to make reasonable accommodation for the employment of
disabled persons.
Executive Officers
The executive officers of the Company as of the date of this report are as
follows.
Joe R. Lee, age 58, is Chief Executive Officer and Chairman of the Board of
Darden. Mr. Lee joined Red Lobster in 1967 as a member of its opening management
team, and was named its President in 1975. He was elected a Vice President of
General Mills in 1976, a Group Vice President in 1979, and an Executive Vice
President in 1981, was named Executive Vice President, Finance and International
Restaurants in 1991, and was elected a Vice Chairman of General Mills in 1992
with responsibility for various consumer foods businesses and corporate staff
functions. Mr. Lee was elected a director of General Mills in 1985. He was named
Chief Executive Officer of Darden in December of 1994.
Blaine Sweatt, III, age 51, is President, New Business Development and an
Executive Vice President of Darden. He joined General Mills in 1976 in the Red
Lobster organization and was named Director of New Restaurant Concept
Development in 1981. Mr. Sweatt led the teams that developed the Olive Garden
and Bahama Breeze concepts, among others. He was named Vice President in 1985
and Senior Vice President in 1994. Mr. Sweatt has been Executive Vice President
and a director of Darden since 1995.
Bradley D. Blum, age 45, is President of Olive Garden and an Executive Vice
President of Darden. Mr. Blum joined General Mills in 1978. He was named
Director of Marketing in 1984, responsible for Big G Cereals, and he became Vice
President of Big G New Enterprises in 1989. In 1990, he was named Vice President
of Marketing for Cereal Partners Worldwide, General Mills' joint venture with
Nestle, headquartered in Switzerland. He joined the Company in 1994 as Senior
Vice President of Marketing for Olive Garden and was named President of Olive
Garden in December of 1994. He was named Senior Vice President of Darden in
September of 1995 and has been Executive Vice President and a director of Darden
since September of 1997.
Richard E. Rivera, age 52, was named President of Red Lobster and Executive
Vice President of Darden in December of 1997. Mr. Rivera began his career with
Steak and Ale Restaurants of America and has held many management positions
within the industry over the past 25 years. Prior to joining Red Lobster, from
1994 to 1996, Mr. Rivera served as President and Chief Executive Officer of RARE
Hospitality International, Inc., owner of LongHorn Steakhouse restaurants. Mr.
Rivera has been a director of Darden since joining the Company in December of
1997.
Linda J. Dimopoulos, age 48, is Senior Vice President, Corporate Controller
and Business Information Systems of Darden with overall responsibility for
corporate reporting, accounting, information services and internal
9
<PAGE>
audit. Ms. Dimopoulos joined the Company in 1982. She was named Director,
Corporate Analysis in 1985. In 1986, she was named Vice President, Controller
for Red Lobster, and then Vice President, Information System Services. She was
named Senior Vice President, Financial Operations in August 1993, and assumed
her present position in July 1998.
Gary Heckel, age 46, is President of Bahama Breeze and Senior Vice
President of Darden. Mr. Heckel's career in the restaurant industry includes
employment with several major quick-service and casual dining restaurant
companies, such as Burger King Corporation, Taco Bell Corp., and TGI Friday's,
Inc. Mr. Heckel joined Darden in 1995 as Vice President, Operations in the
Company's New Business Development division. He was named Senior Vice President,
Operations for Bahama Breeze in August of 1997. Mr. Heckel was named President
of Bahama Breeze in July of 1998 and was elected Senior Vice President of Darden
in June of 1999.
Daniel M. Lyons, age 46, is Senior Vice President, Human Resources of the
Company with overall responsibility for human resources, including compensation,
benefits, management development, staffing, corporate security, diversity
management and aviation. Mr. Lyons joined the Company in 1993 as Senior Vice
President of Personnel for Olive Garden. He was elected to his present position
in January of 1997. Prior to joining Olive Garden, Mr. Lyons spent 18 years with
the Quaker Oats Company.
Robert W. Mock, age 47, is Executive Vice President, Operations of Olive
Garden and Senior Vice President of Darden. Mr. Mock joined the Company in 1969
and, through the years, held management positions in various areas of the
Company. In 1992, Mr. Mock was named Executive Vice President and General
Manager of Red Lobster Canada. In 1994, Mr. Mock was named Executive Vice
President, Operations for Olive Garden. He was named to the additional position
of Senior Vice President of Darden in July 1998.
Barry Moullet, age 41, is Senior Vice President, Purchasing, Distribution
and Food Safety for the Company. He joined Darden in July of 1996. Prior to
joining Darden, Mr. Moullet spent 15 years in the purchasing field, most
recently with Restaurant Services, Inc., a Burger King purchasing co-operative.
Prior to Burger King, he gained experience with Kentucky Fried Chicken and the
Pillsbury Company. Mr. Moullet became an executive officer of Darden in June
1999.
Clarence Otis, Jr., age 43, is Senior Vice President, Finance and Treasurer
of the Company. Mr. Otis joined the Company in 1995 as Vice President and
Treasurer. In July of 1997, he assumed responsibility for investor relations and
was named Senior Vice President, Investor Relations and Treasurer. In July 1998,
Mr. Otis assumed additional responsibilities in the area of finance and was
named to his present position. Prior to joining the Company, Mr. Otis was
employed by Chemical Securities, Inc. in New York where he had been Managing
Director and Manager of Public Finance since 1991. Prior to his work at Chemical
Securities, Mr. Otis was employed by Siebert Municipal Capital Group as Managing
Director and Principal.
Paula J. Shives, age 48, was elected Senior Vice President, General Counsel
and Secretary of Darden in June of 1999. In that capacity, Ms. Shives succeeds
Clifford L. Whitehill, who is retiring. Ms. Shives began her legal career in
1979 as Corporate Counsel for Jerrico, Inc., the predecessor to Long John
Silver's Restaurants, Inc. After spending several additional years in private
practice with the law firm of Greenebaum, Doll & McDonald in Lexington,
Kentucky, Ms. Shives rejoined Long John Silver's Restaurants, Inc. in 1985 as
Associate General Counsel, and became its Senior Vice President, General Counsel
and Secretary in 1995. Ms. Shives joined Darden in May of 1999.
James D. Smith, age 56, is Senior Vice President, Real Estate, Design and
Construction of the Company. Mr. Smith joined General Mills in 1982 and was
named Senior Vice President and Controller of the restaurant operations in 1988.
In December 1994, Mr. Smith was named Senior Vice President, Finance.
Subsequently, he assumed increasing responsibilities in connection with the
Company's real estate development activities and was named to his present
position in July of 1998.
Richard J. Walsh, age 47, is Senior Vice President, Corporate Relations,
with responsibility for all corporate communications, environmental relations,
creative and print services, media and government, public and community
relations, including the Darden Restaurants, Inc. Foundation. Mr. Walsh joined
General Mills in 1984 as Manager of Government Affairs for Red Lobster. He was
named Vice President of Government Relations in 1987 and was promoted to his
present position in December of 1994.
10
<PAGE>
Clifford L. Whitehill, age 68, was named Senior Vice President, General
Counsel and Secretary of the Company in December of 1994. Mr. Whitehill joined
General Mills in 1962 as an attorney in the Law Department. He was appointed
Assistant General Counsel in 1968, elected Vice President in 1971, named General
Counsel in 1975, elected Senior Vice President in 1981 and elected Secretary of
General Mills in 1983. In April of 1999, Mr. Whitehill announced his retirement
from Darden, effective June 21, 1999, but continues to serve the Company to
facilitate his successor's transition.
Available Information
Darden is a reporting company under the Securities Exchange Act of 1934, as
amended, and files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The public may read and
copy any Company filings at the Commission's Public Reference Room at 450 Fifth
Street NW, Washington, DC 20549. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330.
Because the Company makes filings to the Commission electronically, this
information may be accessed through the Commission's Internet site
(http://www.sec.gov). The site contains reports, proxies, information statements
and other information regarding issuers that file electronically with the
Commission.
Forward-Looking Statements
Certain information included in this report and other materials filed or to
be filed by the Company with the 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 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 restaurant development and
the Year 2000 readiness of suppliers, banks, vendors and others having a direct
or indirect business relationship with the Company.
11
<PAGE>
Item 2. PROPERTIES
As of May 30, 1999, the Company operated 1,145 restaurants, including 669
Red Lobster, 464 Olive Garden, six Olive Garden Cafe and six Bahama Breeze
restaurants in the following locations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Alabama (18) Arizona (24) Arkansas (10) California (92)
Colorado (21) Connecticut (11) Delaware (4) Florida (113)
Georgia (38) Hawaii (1) Idaho (5) Illinois (48)
Indiana (34) Iowa (15) Kansas (10) Kentucky (13)
Louisiana (8) Maine (3) Maryland (18) Massachusetts (7)
Michigan (42) Minnesota (18) Mississippi (8) Missouri (25)
Montana (2) Nebraska (7) Nevada (9) New Hampshire (3)
New Jersey (27) New Mexico (8) New York (47) North Carolina (25)
North Dakota (4) Ohio (67) Oklahoma (17) Oregon (10)
Pennsylvania (53) Rhode Island (2) South Carolina (17) South Dakota (3)
Tennessee (25) Texas (98) Utah (9) Vermont (2)
Virginia (37) Washington (20) West Virginia (5) Wisconsin (21)
Wyoming (2) Canada (39)
</TABLE>
Of the Company's 1,145 restaurants open on May 30, 1999, 730 were on owned
sites and 415 were on leased sites. The 415 leases are classified as follows:
Land-Only Leases (Darden owns buildings and equipment)........... 283
Ground and Building Leases....................................... 75
Space/In-Line/Other Leases....................................... 57
----
Total....................................................... 415
====
During fiscal year 1999, the Company formed two subsidiary corporations,
each of which elected to be taxed as a Real Estate Investment Trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code. These elections
limit the activities for both corporations to holding certain real estate
assets. The formation of these two REITs is designed primarily to assist the
Company in managing its real estate portfolio and possibly to provide a vehicle
to access future capital markets.
Both REITs are non-public REITs. Through its subsidiary companies, Darden
indirectly owns 100% of all voting stock and greater than 99.5% of the total
value of each REIT. For financial reporting purposes, both REITs are included in
Darden's consolidated group.
The Company owns its executive offices, culinary center and training
facilities in Orlando, Florida. Except in limited instances, the Company's
restaurant sites and other facilities are not subject to mortgages or
encumbrances securing money borrowed by the Company from outside sources.
See also Notes 5 and 13 of Notes to Consolidated Financial Statements on
pages 35 and 37, respectively, of the 1999 Annual Report to Stockholders.
Item 3. LEGAL PROCEEDINGS
The Company is from time to time made a party to legal proceedings arising
in the ordinary course of business. The Company does not believe that the
results of such legal proceedings, even if unfavorable to the Company, will have
a materially adverse impact on its financial condition or the results of its
operations. See the section entitled "Government Regulation" for a discussion of
various federal, state and local regulatory matters.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock (no par value) has been registered and is traded
on the New York Stock Exchange. As of July 26, 1999, the number of record
holders of common stock was 36,168. Trading of the Company's common stock began
on a "when issued" basis on May 9, 1995, at a price per share of $9.375. The
following table sets forth the high and low sales prices for the Company's
common stock for each full quarterly period from the Distribution to the end of
fiscal year 1999.
Per Share Sales Price of Common Stock
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Fiscal Year
1996 First Quarter Second Quarter Third Quarter Fourth Quarter
High $11.50 $12.00 $13.25 $14.00
Low $9.75 $10.00 $10.625 $11.50
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Fiscal Year
1997 First Quarter Second Quarter Third Quarter Fourth Quarter
High $12.125 $9.25 $9.375 $8.50
Low $7.50 $7.75 $6.75 $6.875
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Fiscal Year
1998 First Quarter Second Quarter Third Quarter Fourth Quarter
High $10.5625 $12.00 $13.4375 $18.125
Low $8.125 $9.00 $10.50 $13.00
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Fiscal Year
1999 First Quarter Second Quarter Third Quarter Fourth Quarter
High $18.00 $17.5625 $23.25 $23.375
Low $15.125 $14.1875 $15.75 $19.8125
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
During fiscal year 1999, the Company declared two semi-annual dividends of
four cents per share each. The first semi-annual dividend (four cents per share)
was paid on November 1, 1998, to stockholders of record on October 10, 1998. The
second semi-annual dividend (four cents per share) was paid on May 1, 1999, to
stockholders of record on April 10, 1999.
Item 6. SELECTED FINANCIAL INFORMATION
The information for fiscal years 1995 through 1999, contained in the Five
Year Financial Summary on page 43 of the Company's 1999 Annual Report to
Stockholders, is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth in the section entitled "Management's Discussion
of Results of Operations and Financial Condition" on pages 22 through 25 of the
Company's 1999 Annual Report to Stockholders is incorporated herein by
reference.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of market risks, including fluctuations
in interest rates, foreign currency exchange rates and commodity prices. To
manage this exposure, Darden periodically enters into interest rate, foreign
currency exchange and commodity instruments for other than trading purposes.
13
<PAGE>
The Company uses the variance/covariance method to measure value at risk,
over time horizons ranging from one week to one year, at the 99% confidence
level. As of May 30, 1999, the Company's potential losses in future net earnings
resulting from changes in foreign currency exchange rates, commodity prices and
floating rate debt interest rate exposures were individually not more than $1
million over a period of one year. The value at risk from an increase in the
fair value of long-term fixed rate debt, over a period of one year, was
approximately $48 million. The Company's 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 approved by senior
management.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, Consolidated Statements of Earnings
(Loss), Consolidated Balance Sheets, Consolidated Statements of Changes in
Stockholders' Equity, Consolidated Statements of Cash Flows, and Notes to
Consolidated Financial Statements on pages 26 through 43 of the Company's 1999
Annual Report to Stockholders are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the sections entitled "Information Concerning
Nominees" on pages 4 through 6, "Committees of the Board" on pages 7 through 8,
and "Section 16(a) Beneficial Ownership Reporting Compliance" on page 24 of the
Company's definitive proxy materials dated August 10, 1999, is incorporated
herein by reference. Certain information regarding executive officers is
contained in Part I above.
Item 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Board Compensation and
Benefits" on page 7, "Summary Compensation Table" on pages 16 through 17, and
"Option Grants in Last Fiscal Year" on page 18 of the Company's definitive proxy
materials dated August 10, 1999, is incorporated by reference. The information
appearing in such proxy materials under the heading "Report of Compensation
Committee on Executive Compensation" is not incorporated herein.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the sections entitled "Certain Owners of
Common Stock" on page 3 and "Share Ownership of Directors and Officers" on page
9 of the Company's definitive proxy materials dated August 10, 1999, is
incorporated herein by reference.
Item 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS
The information contained in the section entitled "Certain Relationships
and Related Transactions" on page 10 of the Company's definitive proxy materials
dated August 10, 1999, is incorporated herein by reference.
14
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Consolidated Statements of Earnings (Loss) for the fiscal years ended May
30, 1999, May 31, 1998 and May 25, 1997 (incorporated by reference to page 27 of
the Company's 1999 Annual Report to Stockholders)
Consolidated Balance Sheets at May 30, 1999 and May 31, 1998 (incorporated
by reference to page 28 of the Company's 1999 Annual Report to Stockholders)
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended May 30, 1999, May 31, 1998 and May 25, 1997 (incorporated by
reference to page 29 of the Company's 1999 Annual Report to Stockholders)
Consolidated Statements of Cash Flows for the fiscal years ended May 30,
1999, May 31, 1998 and May 25, 1997 (incorporated by reference to page 30 of the
Company's 1999 Annual Report to Stockholders)
Notes to Consolidated Financial Statements (incorporated by reference to
pages 31 through 43 of the Company's 1999 Annual Report to Stockholders)
2. Financial Statements Schedules:
Not applicable.
3. Exhibits:
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain
instruments defining the rights of holders of certain long-term debt of the
Company are not filed, and in lieu thereof, the Company agrees to furnish copies
thereof to the Securities and Exchange Commission upon request.
Exhibit Number Title
3(a) Articles of Incorporation (incorporated herein by reference
to Exhibit 3(a) to the Company's Registration Statement on
Form 10 effective May 5, 1995)
3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to
the Company's Registration Statement on Form 10 effective
May 5, 1995)
4(a) Rights Agreement dated as of May 28, 1995 between the
Company and Norwest Bank Minnesota, N.A., as amended May 23,
1996, assigned to First Union National Bank, as Rights
Agent, as of September 29, 1997 (incorporated by reference
to Exhibit 4(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1998)
4(b) Indenture dated as of January 1, 1996, between the Company
and Norwest Bank Minnesota, National Association, as Trustee
(incorporated herein by reference to the Company's Current
Report on Form 8-K filed February 9, 1996)
*10(a) Darden Restaurants, Inc. Stock Option and Long-Term
Incentive Plan of 1995, as amended May 23, 1996, June 17,
1997, June 26, 1998, and May 24, 1999
- ------------------------
* Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
15
<PAGE>
*10(b) Darden Restaurants, Inc. FlexComp Plan (incorporated herein
by reference to Exhibit 10(b) to the Company's Registration
Statement on Form 10 effective May 5, 1995)
*10(c) Darden Restaurants, Inc. Stock Option and Long-Term
Incentive Conversion Plan, as amended (incorporated herein
by reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the fiscal year ended May 26, 1996)
*10(d) Supplemental Pension Plan of Darden Restaurants, Inc.
(incorporated herein by reference to Exhibit 10(d) to the
Company's Registration Statement on Form 10 effective May 5,
1995)
*10(e) Executive Health Plan of Darden Restaurants, Inc.
(incorporated herein by reference to Exhibit 10(e) to the
Company's Registration Statement on Form 10 effective May 5,
1995)
*10(f) Stock Plan for Directors of Darden Restaurants, Inc., as
amended December 10, 1996, and June 26, 1998 (incorporated
by reference to Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1998)
*10(g) Compensation Plan for Non-Employee Directors of Darden
Restaurants, Inc., as amended June 17, 1997 (incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1998)
*10(h) Darden Restaurants, Inc. Management Incentive Plan, as
amended to June 21, 1999
*10(i) Benefits Trust Agreement dated as of October 3, 1995,
between the Company and Norwest Bank Minnesota, N.A., as
Trustee (incorporated herein by reference to Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 25, 1997)
*10(j) Form of Management Continuity Agreement, as amended, between
the Company and certain of its executive officers
(incorporated herein by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 25, 1997)
12 Computation of Ratio of Consolidated Earnings to Fixed
Charges
13 Portions of 1999 Annual Report to Stockholders (incorporated
by reference herein)
21 Subsidiaries of Darden Restaurants, Inc.
23 Independent Accountants' Consent
24 Powers of Attorney
27 Financial Data Schedule
- ------------------------
* Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
16
<PAGE>
(b) Reports on Form 8-K. During the last quarter covered by this report, the
Company filed the following three current reports on Form 8-K:
(i) Current report on Form 8-K dated March 25, 1999, reporting certain
financial results for the third quarter of fiscal 1999;
(ii) Current report on Form 8-K dated April 20, 1999, announcing the hiring
of Paula J. Shives and the retirement of Clifford L. Whitehill-Yarza;
and
(iii)Current report on Form 8-K dated May 4, 1999, announcing the
appointment of Gary Heckel to Senior Vice President.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 19, 1999 DARDEN RESTAURANTS, INC.
By: /s/ Paula J. Shives
Paula J. Shives
Senior Vice President, General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ H.B. Atwater, Jr. Director
H.B. Atwater, Jr.*
/s/ Daniel B. Burke Director
Daniel B. Burke*
/s/ Odie C. Donald Director
Odie C. Donald*
/s/ Julius Erving, II Director
Julius Erving, II*
/s/ Michael D. Rose Director
Michael D. Rose*
/s/ Hector de J. Ruiz Director
Hector de J. Ruiz*
/s/ Maria A. Sastre Director
Maria A. Sastre*
/s/ Jack A. Smith Director
Jack A. Smith*
/s/ Bradley D. Blum Director and President,
Bradley D. Blum* Olive Garden
/s/ Joe R. Lee Director, Chairman of the August 23, 1999
Joe R. Lee Board and Chief Executive
Officer (principal executive
officer)
/s/ Richard E. Rivera Director and President,
Richard E. Rivera* Red Lobster
/s/ Blaine Sweatt, III Director and President,
Blaine Sweatt, III* New Business Development
/s/ Linda J. Dimopoulos Senior Vice President - Corporate August 19, 1999
Linda J. Dimopoulos Controller and Business Information
Systems (controller and principal
accounting officer)
/s/ Clarence Otis, Jr. Senior Vice President-Finance and August 19, 1999
Clarence Otis, Jr. Treasurer (principal financial officer)
</TABLE>
*BY: Paula J. Shives, Attorney-In-Fact
August 19, 1999
18
<PAGE>
EXHIBIT INDEX
<PAGE>
EXHIBITS
Exhibit
Number Title
------- -----
3(a) Articles of Incorporation (incorporated herein by reference
to Exhibit 3(a) to the Company's Registration Statement on
Form 10 effective May 5, 1995)
3(b) Bylaws (incorporated herein by reference to Exhibit 3(b) to
the Company's Registration Statement on Form 10 effective
May 5, 1995)
4(a) Rights Agreement dated as of May 28, 1995 between the
Company and Norwest Bank Minnesota, N.A., as amended May 23,
1996, assigned to First Union National Bank, as Rights
Agent, as of September 29, 1997 (incorporated by reference
to Exhibit 4(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1998)
4(b) Indenture dated as of January 1, 1996, between the Company
and Norwest Bank Minnesota, National Association, as Trustee
(incorporated herein by reference to the Company's Current
Report on Form 8-K filed February 9, 1996)
*10(a) Darden Restaurants, Inc. Stock Option and Long-Term
Incentive Plan of 1995, as amended May 23, 1996, June 17,
1997, June 26, 1998, and May 24, 1999
*10(b) Darden Restaurants, Inc. FlexComp Plan (incorporated herein
by reference to Exhibit 10(b) to the Company's Registration
Statement on Form 10 effective May 5, 1995)
*10(c) Darden Restaurants, Inc. Stock Option and Long-Term
Incentive Conversion Plan, as amended (incorporated herein
by reference to Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the fiscal year ended May 26, 1996)
*10(d) Supplemental Pension Plan of Darden Restaurants, Inc.
(incorporated herein by reference to Exhibit 10(d) to the
Company's Registration Statement on Form 10 effective May 5,
1995)
*10(e) Executive Health Plan of Darden Restaurants, Inc.
(incorporated herein by reference to Exhibit 10(e) to the
Company's Registration Statement on Form 10 effective May 5,
1995)
*10(f) Stock Plan for Directors of Darden Restaurants, Inc., as
amended December 10, 1996, and June 26, 1998 (incorporated
by reference to Exhibit 10(f) to the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1998)
- ------------------------
* Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
1
<PAGE>
EXHIBITS
Exhibit
Number Title
------- -----
*10(g) Compensation Plan for Non-Employee Directors of Darden
Restaurants, Inc., as amended June 17, 1997 (incorporated by
reference to Exhibit 10(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended May 31, 1998)
*10(h) Darden Restaurants, Inc. Management Incentive Plan, as
amended to June 21, 1999
*10(i) Benefits Trust Agreement dated as of October 3, 1995,
between the Company and Norwest Bank Minnesota, N.A., as
Trustee (incorporated herein by reference to Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the fiscal
year ended May 25, 1997)
*10(j) Form of Management Continuity Agreement, as amended, between
the Company and certain of its executive officers
(incorporated herein by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 25, 1997)
12 Computation of Ratio of Consolidated Earnings to Fixed
Charges
13 Portions of 1999 Annual Report to Stockholders (incorporated
by reference herein)
21 Subsidiaries of Darden Restaurants, Inc.
23 Independent Accountants' Consent
24 Powers of Attorney
27 Financial Data Schedule
- ------------------------
* Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
2
EXHIBIT 10(a)
STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995
<PAGE>
EXHIBIT 10(a)
DARDEN RESTAURANTS, INC.
STOCK OPTION AND LONG-TERM INCENTIVE PLAN OF 1995
(as amended May 23, 1996, June 17, 1997, June 26, 1998, and May 24, 1999)
1. PURPOSE OF THE PLAN
The purpose of the Darden Restaurants, Inc. Stock Option and Long-Term
Incentive Plan of 1995 (the "Plan") is to attract and retain able employees
by rewarding employees of Darden Restaurants, Inc., its subsidiaries and
affiliates (defined as entities in which Darden Restaurants, Inc. owns an
equity interest of 25% or more) (collectively, the "Company") who are
responsible for the growth and sound development of the business of the
Company, and to align the interests of all employees with those of the
stockholders of the Company and to compensate certain management employees
of the Company by granting stock options in lieu of salary increases or
other compensation or employee benefits.
2. EFFECTIVE DATE, DURATION AND SUMMARY OF PLAN
A. Effective Date and Duration
This Plan shall become effective as of the effective date of the
distribution of Darden Restaurants, Inc. Common Stock to the holders
of General Mills, Inc. common stock. Awards may be made under the Plan
until September 30, 2000.
B. Summary of Option Provisions for Participants
The stock option that will be awarded to employees under this Plan
gives a right to an employee to purchase at a future date shares of
Darden Restaurants, Inc. Common Stock at a fixed price. As an
employee, you will receive an "option agreement" in your own name,
which will contain the term and other conditions of the option grant.
In general, each option agreement will state the number of shares of
Darden Restaurants, Inc. Common Stock that you can purchase from the
Company, the price at which you can purchase the shares, and the last
date you can make your purchase. You will not have any taxable income
when you receive the option agreement.
The price at which you may buy the Darden Restaurants, Inc. shares
will be equal to the market price of the Company shares on the New
York Stock Exchange as of the day the option was awarded to you. If
after the period that you must hold the option before you can exercise
such option the price of Darden Restaurants, Inc. Common Stock has
risen, you will be able to make a gain on exercising the option equal
to the difference between the exercise price of the option and the
market price of Darden Restaurants, Inc. shares on the date you use
your option to buy shares under the terms of the option certificate.
This gain will be taxable to you.
You will never be obligated to buy shares of the Company if you do not
wish to do so. After the required holding period before you can
exercise the option, you can continue to hold the option as an
employee for the remaining years of the option before making the
decision whether or not to buy shares of the Company. Thereafter, the
rights under the option will lapse and cannot be used by the employee.
Generally you cannot sell or assign the option to any other person and
the specific provisions which cover your rights in the option are
covered in the full text of the Plan.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee (the
"Committee"). The Committee shall be comprised solely of non-employee,
independent members of the Board of Directors (the "Board") appointed in
accordance with the Company's Articles of Incorporation. Subject to the
provisions of Section 14, the Committee shall have authority to adopt rules
and regulations for carrying out the purpose of the Plan, select the
employees to whom Awards will be made ("Participants"), determine the
number of shares to be awarded
<PAGE>
and the other terms and conditions of Awards in accordance with the Plan
provisions and interpret, construe and implement the provisions of the
Plan; provided that if at any time Rule 16b-3 or any successor rule ("Rule
16b-3") under the Securities Exchange Act of 1934, as amended (the "1934
Act"), so permits, without adversely affecting the ability of the Plan to
comply with the conditions for exemption from Section 16 of the 1934 Act
(or any successor provisions) provided by Rule 16b-3, the Committee may
delegate its duties under the Plan in whole or in part, on such terms and
conditions, to the Chief Executive Officer and to other senior officers of
the Company; provided further, that only the Committee may select and make
other decisions as to Awards to Participants who are subject to Section 16
of the 1934 Act and to other executives of the Company. The Committee (or
its permitted delegate) may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to any Award under
the Plan in the manner and to the extent it deems necessary. Decisions of
the Committee (or its permitted delegate) shall be final, conclusive and
binding upon all parties, including the Company, stockholders and
Participants.
4. COMMON STOCK SUBJECT TO THE PLAN
The shares of common stock of the Company (without par value) ("Common
Stock") to be issued upon exercise of a Stock Option, awarded as Restricted
Stock, or issued upon expiration of the restricted period for Restricted
Stock Units, may be made available from the authorized but unissued Common
Stock, shares of Common Stock held in the Company's treasury, or Common
Stock purchased by the Company on the open market or otherwise. Approval of
the Plan by the sole shareholder of the Company shall constitute
authorization to use such shares for the Plan.
The Committee, in its discretion, may require as a condition to the grant
of Stock Options, Restricted Stock or Restricted Stock Units (collectively,
"Awards"), the deposit of Common Stock owned by the Participant receiving
such grant, and the forfeiture of such Awards, if such deposit is not made
or maintained during the required holding period or the applicable
restricted period. Such shares of deposited Common Stock may not be
otherwise sold, pledged or disposed of during the applicable holding period
or restricted period. The Committee may also determine whether any shares
issued upon exercise of a Stock Option shall be restricted in any manner.
The maximum aggregate number of shares of Common Stock authorized under the
Plan for which Awards may be granted under the Plan is 15,000,000. Upon the
expiration, forfeiture, termination or cancellation, in whole or in part,
of unexercised Stock Options, or forfeiture of Restricted Stock or
Restricted Stock Units on which no dividends or dividend equivalents have
been paid, the shares of Common Stock subject thereto shall again be
available for Awards under the Plan.
The number of shares subject to the Plan, the outstanding Awards and the
exercise price per share of outstanding Stock Options may be appropriately
adjusted by the Committee in the event that:
(i) the number of outstanding shares of Common Stock shall be changed by
reason of split-ups, spin-offs, combinations or reclassifications of
shares;
(ii) any stock dividends are distributed to the holders of Common Stock;
(iii)the Common Stock is converted into or exchanged for other shares as a
result of any merger or consolidation (including a sale of assets) or
other recapitalization, or other similar events occur which affect the
value of the Common Stock; or
(iv) the Committee determines such adjustments are appropriate to prevent
dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
<PAGE>
5. ELIGIBLE PERSONS
Only persons who are employees of the Company shall be eligible to receive
Awards under the Plan ("Participants"). No Award shall be made to any
member of the Committee or any other non-employee director of the Company.
6. PURCHASE PRICE OF STOCK OPTIONS
The purchase price for each share of Common Stock issuable under a Stock
Option shall not be less than 100% of the Fair Market Value of the shares
of Common Stock on the date of grant. "Fair Market Value" as used in the
Plan shall equal the mean of the high and low price of the Common Stock on
the New York Stock Exchange on the applicable date.
7. STOCK OPTION TERM AND TYPE
The term of any Stock Option as determined by the Committee shall not
exceed 10 years from the date of grant and shall expire as of the close of
business on the last day of the designated term, unless terminated earlier
under the provisions of the Plan. All Stock Option grants under the Plan
shall be non-qualified stock options governed by Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code") .
8. EXERCISE OF STOCK OPTIONS
A. Of the 15,000,000 shares of Common Stock authorized for issuance
hereunder, not less than 3,000,000 shall be issued only as salary
replacement Stock Options ("SRO's") in lieu of salary increases,
compensation or other employee benefits, subject that SRO's granted to
directors pursuant to the Stock Plan for Directors (as amended) shall
also be included within such 3,000,000 shares of Common Stock. Except
as provided in Sections 12 and 13, each Stock Option issued as an SRO
may be exercised as determined by the Committee in its discretion.
B. Except as provided in Sections 12 and 13 (Change of Control and
Termination of Employment), each Stock Option, other than an SRO, may
be exercised from the date of grant no sooner than in increments of
one-third after two years, one-third after three years and one-third
after four years, subject to the Participant's continued employment
with the Company and in accordance with other terms and conditions
prescribed by the Committee which may specify a longer period before
an option may be exercised.
C. The number of shares of Common Stock subject to Stock Options granted
under the Plan to any single Participant shall not exceed 10% of the
total number of shares of Common Stock which may be issued under this
Plan.
D. A Participant exercising a Stock Option shall give notice to the
Company of such exercise and of the number of shares elected to be
purchased prior to 5:00 P.M. EST/EDT on the day of exercise, which
must be a business day at the executive offices of the Company. At the
time of purchase, the Participant shall tender the full purchase price
of the shares purchased. Until such payment has been made and a
certificate or certificates for the shares purchased has been issued
in the Participant's name, the Participant shall possess no
stockholder rights with respect to such shares. Payment of such
purchase price shall be made to the Company, subject to any applicable
rule or regulation adopted by the Committee:
(i) in cash (including check, draft, money order or wire transfer
made payable to the order of the Company);
(ii) through the delivery of shares of Common Stock owned by the
Participant; or
(iii) by a combination of (i) and (ii) above.
For determining the amount of the payment, Common Stock delivered pursuant
to (ii) or (iii) shall have a value equal to the Fair Market Value of the
Common Stock on the date of exercise.
<PAGE>
9. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
With respect to Awards of Restricted Stock and Restricted Stock Units, the
Committee shall:
(i) select Participants to whom Awards will be made, provided that
Restricted Stock Units may only be awarded to those employees of the
Company who are employed in a country other than the United States;
(ii) determine the number of shares of Restricted Stock or the number of
Restricted Stock Units to be awarded;
(iii)determine the length of the restricted period, which shall be no less
than one year;
(iv) determine the purchase price, if any, to be paid by the Participant
for Restricted Stock or Restricted Stock Units; and
(v) determine any restrictions other than those set forth in this Section
9.
Any shares of Restricted Stock granted under the Plan may be evidenced in
such manner as the Committee deems appropriate, including, without
limitation, book-entry registration or issuance of stock certificates, and
may be held in escrow.
Subject to the restrictions set forth in this Section 9, each Participant
who receives Restricted Stock shall have all rights as a stockholder with
respect to such shares, including the right to vote the shares and receive
dividends and other distributions.
Each Participant who receives Restricted Stock Units shall be eligible to
receive, at the expiration of the applicable restricted period, one share
of Common Stock for each Restricted Stock Unit awarded, and the Company
shall issue to and register in the name of each such Participant a
certificate for that number of shares of Common Stock. Participants who
receive Restricted Stock Units shall have no rights as stockholders with
respect to such Restricted Stock Units until such time as share
certificates for Common Stock are issued to the Participants; provided,
however, that quarterly during the applicable restricted period for all
Restricted Stock Units awarded hereunder, the Company shall pay to each
such Participant an amount equal to the sum of all dividends and other
distributions paid by the Company during the prior quarter on that
equivalent number of shares of Common Stock.
Subject to the provisions of Section 12, for awards of Restricted Stock or
Restricted Stock Units which have a deposit requirement, a Participant will
be eligible to vest only in those shares of Restricted Stock or Restricted
Stock Units for which personally-owned shares are on deposit with the
Company as of the date the Participant's employment with the Company
terminates.
The total number of shares of Common Stock issued upon vesting of
Restricted Stock or Restricted Stock Units granted under the Plan shall not
exceed 10% of the total number of shares of Common Stock which may be
issued under this Plan, and no single Participant shall receive under the
Plan Restricted Stock or Restricted Stock Units which, upon vesting, would
exceed 2% of the total number of shares of Common Stock which may be issued
under the Plan.
10. NON-TRANSFERABILITY
Except as otherwise provided in Section 9, no shares of Restricted Stock
and no Restricted Stock Units shall be sold, exchanged, transferred,
pledged, or otherwise disposed of during the restricted period. No Stock
Options granted under this Plan shall be transferable by a Participant
otherwise than (i) by the Participant's last will and testament or (ii) by
the applicable laws of descent and distribution, or (iii) by gift by a
Participant who is subject to Section 16 of the 1934 Act and is eligible
for retirement (age 55 with 10 years of service) to a "family member"
defined by the Committee. Such Stock Options shall be exercised during the
Participant's lifetime only by the Participant or his or her guardian or
legal representative or the donee family member.
<PAGE>
After death, such Stock Option may be exercised in accordance with Section
13B. Other than as set forth herein, no Award under the Plan shall be
subject to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and any attempt to do so shall be void.
11. WITHHOLDING TAXES
It shall be a condition to the obligation of the Company to deliver shares
upon the exercise of a Stock Option, the vesting of Restricted Stock or
Restricted Stock Units and the corresponding issuance of shares of
unrestricted Common Stock, that the Participant pay to the Company cash in
an amount equal to all federal, state, local and foreign withholding taxes
required to be collected in respect thereof.
Notwithstanding the foregoing, to the extent permitted by law and pursuant
to such rules as the Committee may adopt, a Participant may authorize the
Company to satisfy any such withholding requirement by directing the
Company to withhold from any shares of Common Stock to be issued, all or a
portion of such number of shares as shall be sufficient to satisfy the
withholding obligation.
12. CHANGE OF CONTROL
Each outstanding Stock Option shall become immediately and fully
exercisable for a period of 6 months following the date of the following
occurrences, each constituting a "Change of Control":
(i) if any person (including a group as defined in Section 13(d)(3) of the
1934 Act) becomes, directly or indirectly, the beneficial owner of 20%
or more of the shares of the Company entitled to vote for the election
of directors;
(ii) as a result of or in connection with any cash tender offer, exchange
offer, merger or other business combination, sale of assets or
contested election, or combination of the foregoing, the persons who
were directors of the Company just prior to such event cease to
constitute a majority of the Company's Board of Directors; or
(iii)the stockholders of the Company approve an agreement providing for a
transaction in which the Company will cease to be an independent
publicly-owned corporation or a sale or other disposition of all or
substantially all of the assets of the Company occurs.
After such 6-month period the normal option exercise provisions of the Plan
shall govern. In the event a Participant is terminated as an employee of
the Company within 2 years after any of the events specified in (i), (ii)
or (iii), his or her outstanding Stock Options at that date of termination
shall become immediately exercisable for a period of 3 months.
With respect to Stock Option grants outstanding as of the date of any such
Change of Control which require the deposit of owned Common Stock as a
condition to obtaining rights: (a) said deposit requirement shall be
terminated as of the date of the Change of Control and any such deposited
stock shall be promptly returned to the Participant; and (b) any
restrictions on the sale of shares issued in respect of any such Stock
Option shall lapse.
In the event of a Change of Control, a Participant shall vest in all shares
of Restricted Stock and Restricted Stock Units, effective as of the date of
such Change of Control, and any deposited shares of Common Stock shall be
promptly returned to the Participant.
13. TERMINATION OF EMPLOYMENT
A. Termination of Employment
If the Participant's employment by the Company terminates for any
reason other than as specified herein or in subsections B, C or D, the
Participant's Stock Options shall terminate 3 months after such
termination and all shares of Restricted Stock and all Restricted
Stock Units which are subject to restriction as of said
<PAGE>
termination date shall be forfeited by the Participant to the Company.
In the event a Participant's employment with the Company is terminated
for the convenience of the Company, as determined by the Committee,
the Committee, in its sole discretion, may vest such Participant in
all or any portion of outstanding Stock Options (which shall become
exercisable) and/or shares of Restricted Stock or Restricted Stock
Units awarded to such Participant, effective as of the date of such
termination.
B. Death
If a Participant should die while employed by the Company, any Stock
Option previously granted under this Plan may be exercised (i) by the
person designated in such Participant's last will and testament or,
(ii) in the absence of such designation, by the Participant's estate,
or (iii) by the donee of a Stock Option made pursuant to Section 10
(iii), to the full extent that such Stock Option could have been
exercised by such Participant immediately prior to death. Further,
with respect to outstanding Stock Option grants which, as of the date
of death, are not yet exercisable, any such option grant shall vest
and become exercisable in a pro-rata amount, based on the full months
of employment completed during the full vesting period of the Stock
Option from the date of grant to the date of death.
With respect to Stock Option grants which require the deposit of owned
Common Stock as a condition to obtaining exercise rights, in the event
a Participant should die while employed by the Company, said Stock
Options may be exercised as provided in the first paragraph of this
Section 13B, subject to the following special conditions:
(i) any restrictions on the sale of shares issued in respect of any
such Stock Option shall cease; and
(ii) any owned Common Stock deposited by the Participant pursuant to
said grant shall be promptly returned to the person designated in
such Participant's last will and testament or, in the absence of
such designation, to the Participant's estate, and all
requirements regarding deposit by the Participant shall be
terminated.
A Participant who dies during any applicable restricted period shall
vest in a proportionate number of shares of Restricted Stock or
Restricted Stock Units, effective as of the date of death. Such
proportionate vesting shall be pro-rata, based on the number of full
months of employment completed during the restricted period prior to
the date of death, as a percentage of the applicable restricted
period.
C. Retirement
The Committee shall determine, at the time of grant, the treatment of
the Stock Option upon the retirement of the Participant. Unless other
terms are specified in the original Stock Option grant, if the
termination of employment is due to a Participant's retirement on or
after age 55 with 10 years of service with the Company, the
Participant may exercise a Stock Option, subject to the original terms
and conditions of the Stock Option. With respect to Stock Option
grants which require the deposit of owned Common Stock as a condition
to obtaining rights, any restrictions on the sale of shares issued in
respect of any such Stock Option shall lapse at the date of any such
retirement.
A Participant who retires on or after the date he or she attains age
65 shall fully vest in all shares of Restricted Stock or Restricted
Stock Units, effective as of the date of retirement (unless any such
award specifically provides otherwise).
A Participant who takes early retirement (after age 55, but prior to
age 65) during any applicable restricted period may elect either of
the following alternatives with respect to Restricted Stock or
Restricted Stock Units (unless any such award specifically provides
otherwise):
(a) Leave owned shares on deposit with the Company and vest in all
shares of Restricted Stock or Restricted Stock Units, effective
as of the earlier of the date the Participant attains age 65 or
the termination date of the applicable restricted period; or
<PAGE>
(b) Withdraw owned shares and vest in a proportionate number of
shares of Restricted Stock or Restricted Stock Units, effective
as of the date the shares on deposit are withdrawn. Such
proportionate vesting shall be pro-rata, based on the number of
full months of employment completed during the restricted period
prior to the date of early retirement, as a percentage of the
applicable restricted period.
D. Spin-offs
If the termination of employment is due to the cessation, transfer, or
spin-off of a complete line of business of the Company, the Committee,
in its sole discretion, shall determine the treatment of all
outstanding Awards under the Plan.
14. AMENDMENTS OF THE PLAN
The Plan may be terminated, modified, or amended by the Board of Directors
of the Company. The Committee may from time to time prescribe, amend and
rescind rules and regulations relating to the Plan. Subject to the approval
of the Board of Directors, the Committee may at any time terminate, modify,
or suspend the operation of the Plan, provided that no action shall be
taken by the Board of Directors or the Committee without the approval of
the stockholders of the Company which would:
(i) materially increase the number of shares which may be issued under the
Plan;
(ii) materially increase the benefits accruing to Participants under the
Plan; or
(iii)materially modify the requirements as to eligibility for
participating in the Plan.
The Board of Directors shall have authority to cause the Company to take
any action related to the Plan which may be required to comply with the
provisions of the Securities Act of 1933, as amended, the 1934 Act, and the
rules and regulations prescribed by the Securities and Exchange Commission.
Any such action shall be at the expense of the Company.
No termination, modification, suspension, or amendment of the Plan shall
alter or impair the rights of any Participant pursuant to a prior Award
without the consent of the Participant. There is no obligation for
uniformity of treatment of Participants under the Plan.
15. FOREIGN JURISDICTIONS
The Committee may adopt, amend, and terminate such arrangements, not
inconsistent with the intent of the Plan, as it may deem necessary or
desirable to make available tax or other benefits of the laws of any
foreign jurisdiction, to employees of the Company who are subject to such
laws and who receive Awards under the Plan.
16. NOTICE
All notices to the Company regarding the Plan shall be in writing,
effective as of actual receipt by the Company, and shall be sent to:
Darden Restaurants, Inc.
5900 Lake Ellenor Dr.
Orlando, FL 32809
Attn: General Counsel
Effective May 28, 1995
EXHIBIT 10(h)
MANAGEMENT INCENTIVE PLAN
<PAGE>
EXHIBIT 10(h)
DARDEN RESTAURANTS, INC.
MANAGEMENT INCENTIVE PLAN
(as amended to June 21, 1999)
PART I
GENERAL PROVISIONS
A. OBJECTIVE OF THE PLAN
It is the intent of Darden Restaurants, Inc. (the "Company") to provide
financial rewards to key executives in recognition of individual
contributions to the success of the Company under the provisions of this
Management Incentive Plan (the "Plan").
Participant awards shall be based on the comparative impact of the position
to the overall corporate results as measured by the position level, salary
of the Participant, and the degree to which the individual is able to
affect division/subsidiary, group and corporate results.
B. ELIGIBILITY
Any active key management employee of the Company or any of its
subsidiaries, including such members of the Board and the Chairman as are
actively employed by the Company or its subsidiaries, shall be eligible to
participate in the Plan. Eligibility shall not carry any rights to
participation nor to any fixed awards under the Plan.
Employees on a commission basis, those who are members of any other company
incentive compensation plan, except the Stock Option and Long-Term
Incentive Plans of the Company, and persons acting in a consulting capacity
shall not be eligible.
C. PARTICIPATION
As early as possible in each fiscal year (the "Plan Year"), management
shall recommend from those eligible a list of proposed Participants in the
Plan, and the Compensation Committee of the Board of Directors (the
"Committee") thereupon shall determine and cause to be notified those who
have been selected as Participants for the current Plan Year. Participants
shall be those persons holding positions which most significantly affect
operating results and provide the greatest opportunity to contribute to
current earnings and the future success of the Company. During the year,
other Participants may be added because of promotion or for other reasons
warranting their inclusion, or Participants may be excluded from active
participation because of demotion or other reasons warranting their
exclusion.
PART II
BASE CASH AWARDS
The size of a Participant's base cash incentive award ("Base Cash Award")
under this Plan shall be preliminarily determined by the following formula:
(Eligible Base Salary Earnings) x (Target Incentive Percent) x
(Individual Performance Rating) x (Corporate/Unit Composite Rating) =
(Base Cash Award)
<PAGE>
A. ELIGIBLE BASE SALARY EARNINGS
The Eligible Base Salary Earnings is the total amount of regular base pay
actually paid to a Plan Participant during the portion of the year the
Participant is covered by the Plan.
B. TARGET INCENTIVE PERCENT
The Target Incentive Percent shall be determined by the Senior Vice
President-Human Resources using the following guidelines:
The Target Incentive Percent will be determined based on job level at the
time participation in the Plan commences. Persons transferred to a higher
or lower job level during a Plan Year will have their Target Incentive
Percent revised as of the effective date of the change in position.
C. INDIVIDUAL PERFORMANCE RATING
Individual performance for the Plan Year will be determined as follows:
1. At the beginning of each Plan Year, each Participant will develop
written objectives for the year which are directly related to specific
job accountabilities.
2. The individual objectives will be reviewed with each Participant's
supervisor for acceptance and will become the primary basis for
establishing the Individual Performance Rating for the year. For the
Chief Executive Officer, such objectives will be reviewed and approved
by the Committee.
3. Near the end of each Plan Year, each Participant will submit to his or
her supervisor, a Summary of Accomplishments related to individual
performance during the year. Based on this information and other
information related to individual performance or job accountabilities,
the supervisor will assign an individual rating from the following
range:
0.00 - .55 Unsatisfactory Performance
.60 - .85 Needs Improvement
.90 - 1.15 Successful Performance
1.20 - 1.45 Highly Successful Performance
- 1.50 Exceptional Performance
D. UNIT/CORPORATE PERFORMANCE RATING
1. Unit Rating
Near the end of the Plan Year, each Participant will submit to his or
her supervisor, a Unit Achievement Summary, which outlines the
performance of his or her respective unit during the Plan Year and
relates directly to annual program, the Company's long-range plans and
other key operating objectives. This Unit Achievement Summary will be
used, along with other information related to unit performance, in
establishing a unit rating with a range of .0 (Unsatisfactory) to 2.0
(Outstanding and Exceptional Performance) in the same manner or
ratings for Individual Performance Ratings.
<PAGE>
2. Corporate Rating
At the beginning of each Plan Year, the Committee shall establish a
rating schedule based upon the Company's growth in Earnings Per Share
(Pre-LIFO) and the Company's Return on Capital for the Plan Year.
Based on this schedule, the Committee will, at the end of each Plan
Year, establish a corporate rating for the year. Individual and unit
ratings will be recommended by the Participant's manager and reviewed
by one additional level of management. All individual and unit ratings
for Plan Participants will be submitted to the Company's Incentive
Committee for review and approval.
3. Special Projects
The Committee, pursuant to the provision of this Plan, may also
designate a Participant as a member of a Special Project and the
minimum and maximum ratings for such a Special Project. If so
designated, such a Participant may be allowed or required to defer up
to 100% of each Plan Year's incentive award during the term of the
Special Project, such deferred percentage being within a range set by
management. This deferred amount shall be increased or decreased at
the completion or termination of the project by a final Special
Project multiplier of between 0.0 and 4.0 as determined by the
Committee.
4. Unit/Corporate Weightings
The ratings established in 1., 2. and 3. above shall be weighted based
on job level according to the following schedule:
Corporate Unit
Portion Portion
Senior Corporate Officers 100% 0%
Vice Chairman 100% 0%
Restaurant Concept Presidents 20% 80%
Restaurant Senior Officer 10% 90%
Restaurant Concept Officers 0% 100%
Corporate Staff Officers 100% 0%
Special Projects 0% (to*) 100%
* Percentage to be set by Committee action for each project.
E. REVIEW AND APPROVAL OF RATINGS
All individual and unit ratings will be determined by the Participant's
manager and reviewed and approved by one additional level of management. In
addition, the Incentive Committee shall review and approve all ratings
prior to their submissions to the Committee.
The final ratings and incentive award amounts shall be reviewed and
approved by the Committee which shall have full authority and discretion to
set all final Base Cash Awards.
<PAGE>
PART III
STOCK MATCHING PROVISIONS
A. ALTERNATIVES FOR PARTICIPATION IN STOCK MATCHING
Subject to the provisions set forth below (the "Stock Matching
Provisions"), Participants under age 55 are eligible to receive additional
incentive compensation in the form of common stock of the Company ("Common
Stock") contributed by the Company ("Stock Matching") under the terms of
the Company's Stock Option and Long-Term Incentive Plans, and Participants
age 55 or over may elect to receive all or a portion of their additional
incentive compensation in the form of Stock Matching and/or an "Additional
Cash Award."
1. Participants under age 55 as of the last day of the Plan Year are
eligible to participate in the Stock Matching Provisions of the Plan
by depositing shares of Common Stock with a Fair Market Value equal to
either 15% or 25% of their Base Cash Award, depending on job level.
2. Participants age 55 or over as of the last day of the Plan Year may
elect full, partial, or no participation in the Stock Matching
Provisions according to the following schedule:
<TABLE>
<CAPTION>
25% Match 15% Match
------------------------------------- ------------------------------------
Fair Market Value of Fair Market Value of
Level of Stock Shares to be Shares to be
Matching Deposited as % of Additional Deposited as % of Additional
Participation Base Cash Award Cash Award Base Cash Award Cash Award
------------- -------------------- ---------- -------------------- ----------
<S> <C> <C> <C> <C>
Full Participation 25% 0% 15% 0%
Partial 15% 6% 9% 3%
Participation 10% 9% 6% 5%
5% 12% 3% 7%
No Participation
in Stock Matching 0% 15% 0% 9%
</TABLE>
3. On or before the December 31 immediately preceding the end of the Plan
Year, Participants must notify the Company in writing of the
applicable participation alternatives elected under the Stock Matching
Provisions. Elections regarding Stock Matching participation are
effective for the current Plan Year.
<PAGE>
B. PARTICIPATION IN STOCK MATCHING
1. The Company shall notify each Participant who participates in the
Stock Matching Provisions of the maximum number of shares of Common
Stock which they are permitted to deposit under the Plan, and
Participants may choose to deposit all or any portion of the number of
shares so permitted to be deposited (the "Original Deposit").
Participants can make their Original Deposit at any time after they
receive their Base Cash Award, but Participants must deposit such
shares with the Company (the "Agent") no later than the December 31
immediately following the end of the Plan Year.
2. Any Participant who dies, retires on or after age 65, elects early
retirement after age 55, or is permanently disabled and unable to work
as determined by the Committee, either during a Plan Year or prior to
the final date for depositing the Original Deposit shares for such
Plan Year (December 31), shall not be eligible to participate in the
Stock Matching Provisions, but instead, such Participant, or the
Participant's legal representative, shall receive an Additional Cash
Award for the Plan Year in an amount equal to fifteen percent (15%) or
twenty-five percent (25%) of any Base Cash Award paid or payable for
that Plan Year.
C. DISTRIBUTIONS AND WITHDRAWALS
1. Restricted Stock
As soon as practical following the Original Deposit by a Participant,
the Company shall, under the terms of the Company's Stock Option and
Long Term Incentive Plans, match these shares and either deposit with
the Agent for the Participant's account one share of Common Stock for
each share of the Original Deposit or evidence issuance of one share
of Common Stock for each share of the Original Deposit in book entry
form as reflected on the master stockholder records of the Company.
The Company matching shares (the "Restricted Stock") shall vest and be
delivered to the Participant in accordance with the terms of the plan
under which they are issued and as determined by the Committee.
2. Temporary Withdrawal for Option Exercise
A Participant may temporarily withdraw all or a portion of the shares
on deposit for all Plan Years (other than Restricted Stock) in order
to exercise Company stock options, subject to an equal number of
shares of Common Stock being promptly redeposited with the Agent after
such exercise.
D. DEFINITION OF PLAN YEAR
For stock matching purposes, the Plan Year shall be defined as the
Company's fiscal year.
<PAGE>
PART IV
DEFERRAL OF PAYMENT OF CASH INCENTIVE AWARDS
Subject to rules adopted by the Committee, a Participant may elect to defer all
or a portion of a Base Cash Award and any additional cash award received
(collectively "Cash Award") during each calendar year in accordance with the
terms and conditions of the Company's FlexComp Plan.
In order to defer all or a portion of the Cash Award for a particular calendar
year, a Participant must make a valid election by executing and filing a
Deferral Election Form with the Company on or before the December 31 immediately
preceding the end of the Plan Year.
PART V
PLAN ADMINISTRATION
This Plan shall be effective in each fiscal year of the Company and shall be
administered by the Committee and the Committee shall have full authority to
interpret the Plan. Such interpretations of the Committee shall be final and
binding on all parties, including the Participants, survivors of the
Participant, and the Company.
The Committee shall have the authority to delegate the duties and
responsibilities of administering the Plan, maintaining records, issuing such
rules and regulations as it deems appropriate, and making the payments hereunder
to such employees or agents of the Company as it deems proper.
The Board, or if specifically delegated, its delegate, may amend, modify or
terminate the Plan at any time, provided, however, that no such amendment,
modification or termination shall adversely affect any accrued benefit under the
Plan to which a Participant, or the Participant's beneficiary, is entitled prior
to the date of such amendment or termination, unless the Participant, or the
Participant's beneficiary, becomes entitled to an amount equal to the value of
such benefit under another plan, program or practice adopted by the Company.
Notwithstanding the above, no amendment, modification, or termination which
would affect benefits accrued under this Plan prior to such amendment,
modification or termination may occur after a Change of Control without the
written consent of a majority of the Participants determined as of the day
before such Change of Control.
A Change of Control shall mean the occurrence of any of the following events:
(a) any person (including a group as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934) becoming, directly or indirectly, the
beneficial owner of twenty percent (20%) or more of the shares of
stock of the Company entitled to vote for the election of directors;
(b) as a result of or in connection with any cash tender offer, exchange
offer, merger or other business combination, sale of assets or
contested election, or combination of the foregoing, the persons who
were directors of the Company just prior to such event shall cease to
constitute a majority of the Company's Board of Directors; or
(c) the stockholders of the Company approve an agreement providing for a
transaction in which the Company will cease to be an independent
publicly-owned corporation or a sale or other disposition of all or
substantially all of the assets of the Company occurs.
<PAGE>
In the event the Company shall effect one or more changes, split-ups or
combinations of shares of Common Stock or one or more other like transactions,
the Board or the Committee may make such adjustment, upward or downward, in the
number of shares of Common Stock to be deposited by the Participants as shall
appropriately reflect the effect of such transactions.
In the event the Company shall distribute shares of a subsidiary of the Company
to its stockholders in a spin-off transaction, the shares of stock of the
subsidiary distributed to Participants which are attributable to Restricted
Stock shall be vested and delivered to the Participants subject to any specific
instructions of the Committee.
Neither any benefit payable hereunder nor the right to receive any future
benefit under the Plan may be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or legal process, and
if any attempt is made to do so, or a person eligible for any benefits becomes
bankrupt, the interest under the Plan of the person affected may be terminated
by the Committee which, in its sole discretion, may cause the same to be held or
applied for the benefit of one or more of the dependents of such person or make
any other disposition of such benefits that it deems appropriate.
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and the
laws of the State of Florida.
Effective as of June 21, 1999.
EXHIBIT 12
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
<PAGE>
EXHIBIT 12
DARDEN RESTAURANTS, INC.
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
(Historical and Pro Forma)
Computation of Ratio of Historical Consolidated Earnings to Fixed Charges
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------------------------------------------
May 30, May 31, May 25, May 26, May 28,
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
($ Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Earnings from Operations before
Restructuring and Asset Impairment Expense or
Credit, Cumulative Effect of Accounting
Changes and Income Taxes.......................... $ 207,414 $ 153,672 $ 75,401 $ 188,718 $ 164,446
Plus Fixed Charges.................................. 39,929 38,569 39,582 40,822 42,685
Less Capitalized Interest........................... (593) (1,018) (739) (2,007) (4,327)
--------- --------- --------- --------- ---------
Consolidated Earnings from Operations before
Restructuring and Asset Impairment Expense or
Credit, Cumulative Effect of Accounting
Changes and Income Taxes Available to Cover
Fixed Charges..................................... $ 246,750 $ 191,223 $ 114,244 $ 227,533 $ 202,804
========= ========= ========= ========= =========
Ratio of Consolidated Earnings to Fixed Charges..... 6.18 4.96 2.89 5.57 4.75
========= ========= ========= ========= =========
Computation of Ratio of Pro Forma Consolidated Earnings to Fixed Charges
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------------------------------------------------------------
May 30, May 31, May 25, May 26, May 28,
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
($ Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Pro Forma Consolidated Earnings from Operations
before Restructuring and Asset Impairment
Expense or Credit, Cumulative Effect of
Accounting Changes and Income Taxes...............
$ 207,414 $ 153,672 $ 75,401 $ 188,718 $ 159,076
Plus Fixed Charges.................................. 39,929 38,569 39,582 40,822 42,685
Less Capitalized Interest........................... (593) (1,018) (739) (2,007) (4,327)
--------- --------- --------- --------- ---------
Pro Forma Consolidated Earnings from Operations
before Restructuring and Asset Impairment
Expense or Credit, Cumulative Effect of
Accounting Changes and Income Taxes Available
to Cover Fixed Charges............................ $ 246,750 $ 191,223 $ 114,244 $ 227,533 $ 197,434
========= ========= ========= ========= =========
Ratio of Pro Forma Consolidated Earnings to
Fixed Charges..................................... 6.18 4.96 2.89 5.57 4.63
========= ========= ========= ========= =========
</TABLE>
For purposes of computing the ratio of consolidated earnings to fixed charges,
earnings represent consolidated pretax earnings from continuing operations plus
fixed charges (net of capitalized interest). Fixed charges represent interest
(whether expensed or capitalized) and 40 percent (the percent deemed
representative of the interest factor) of minimum restaurant and equipment lease
payments for continuing operations.
The pro forma adjustments to the historical consolidated statement of earnings
for the fiscal year ended May 28, 1995 consist of (a) additional annual general
and administrative expenses of $5,370 which would have been incurred by Darden
as a separate publicly-held company, based on estimates by the management of
Darden and General Mills, and (b) the estimated income tax benefit associated
with the pro forma adjustment described in clause (a) above at an assumed
combined state and federal income tax rate of 39.8 percent.
EXHIBIT 13
PORTIONS OF 1999 ANNUAL REPORT TO STOCKHOLDERS
(incorporated by reference herein)
<PAGE>
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).
<PAGE>
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%
================================================================================
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 27
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
- ------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) May 30, 1999 May 31, 1998 May 25, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 28
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
(In thousands) May 30, 1999 May 31, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 29
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
<TABLE>
<CAPTION>
Common Retained Accumulated
Stock Earnings Other Total
and (Accumulated Treasury Comprehensive Unearned Stockholders'
(In thousands) Surplus Deficit) Stock Income Compensation Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 30
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
Fiscal Year Ended
- --------------------------------------------------------------------------------------------------------------------
(In thousands) May 30, 1999 May 31, 1998 May 25, 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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:
<TABLE>
<CAPTION>
Fiscal Year
- -------------------------------------------------------------------------------------------------
1999 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
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
=================================================================================================
</TABLE>
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)%
================================================================================
<PAGE>
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
<PAGE>
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.
<PAGE>
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
================================================================================
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)
=======================================================================================================
</TABLE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 41
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
Exercisable Per Share Outstanding Per Share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
==========================================================================================================
</TABLE>
The following table provides information regarding exercisable and outstanding
options as of May 30, 1999:
<TABLE>
<CAPTION>
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)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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
=============================================================================================================
</TABLE>
<PAGE>
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:
<TABLE>
<CAPTION>
Fiscal 1999 - Quarters Ended
- --------------------------------------------------------------------------------------------------------------------
Aug. 30 Nov. 29 Feb. 28 May 30 Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
====================================================================================================================
</TABLE>
<PAGE>
DARDEN RESTAURANTS, INC.
1999 Annual Report to Stockholders
PAGE 43
Five Year Financial Summary
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended
- --------------------------------------------------------------------------------------------------------------------
Pro Forma
Operating Results May 30, 1999 May 31, 1998 May 25, 1997 May 26, 1996 May 28, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
====================================================================================================================
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF DARDEN RESTAURANTS, INC.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF DARDEN RESTAURANTS, INC.
As of May 30, 1999, the Registrant had one "significant subsidiary", as defined
in Regulation S-X, Rule 1-02(w), identified as follows:
GMRI,Inc., a Florida corporation, doing business as Red Lobster, Olive
Garden and Bahama Breeze.
In addition to GMRI, Inc., the Registrant, directly or indirectly, had the
following other operating subsidiaries as of May 30, 1999:
GMR Restaurants of Pennsylvania, Inc., a Pennsylvania corporation, doing
business as Red Lobster and Olive Garden;
GMRI Canada, Inc., a Florida corporation, doing business as Red Lobster,
Red Lobster Canada, Olive Garden, and Olive Garden Canada; and
GMRI Texas L.P., a Texas limited partnership, doing business as Red Lobster
and Olive Garden.
In order to comply with certain state laws, the Registrant, directly or
indirectly, had 65 other subsidiaries as of May 30, 1999. If considered in the
aggregate as a single subsidiary as of May 30, 1999, the 65 other subsidiaries
would not constitute a "significant subsidiary" as defined in Regulation S-X,
Rule 1-02(w).
EXHIBIT 23
INDEPENDENT ACCOUNTANTS' CONSENT
<PAGE>
EXHIBIT 23
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Darden Restaurants, Inc.:
We consent to incorporation by reference in the Registration Statement
(No. 33-93854) on Form S-3 and Registration Statements (Nos. 33-92702 and
33-92704) on Form S-8 of Darden Restaurants, Inc. of our report dated June 18,
1999, relating to the 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 fiscal years in the three-year period ended May 30,
1999, which report is incorporated by reference to page 26 of the Registrant's
1999 Annual Report to Stockholders in the May 30, 1999 Annual Report on Form
10-K of Darden Restaurants, Inc.
/s/ KPMG LLP
Orlando, Florida
August 19, 1999
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ H. Brewster Atwater, Jr.
-----------------------------------------
H. Brewster Atwater, Jr.
Date: August 17, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Daniel B. Burke
-----------------------------------------
Daniel B. Burke
Date: August 14, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Odie C. Donald
-----------------------------------------
Odie C. Donald
Date: August 13, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Julius Erving, II
-----------------------------------------
Julius Erving, II
Date: August 12, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Michael D. Rose
-----------------------------------------
Michael D. Rose
Date: August 16, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Hector de J. Ruiz
-----------------------------------------
Hector de J. Ruiz
Date: August 14, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Maria A. Sastre
-----------------------------------------
Maria A. Sastre
Date: August 17, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Jack A. Smith
-----------------------------------------
Jack A. Smith
Date: August 12, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Bradley D. Blum
-----------------------------------------
Bradley D. Blum
Date: August 12, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Richard E. Rivera
-----------------------------------------
Richard E. Rivera
Date: August 13, 1999
<PAGE>
EXHIBIT 24 (cont.)
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints
Paula J. Shives, Joe R. Lee and Clarence Otis, Jr., and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May
30, 1999, and any and all amendments thereto and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as might or could be done in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
/s/ Blaine Sweatt, III
-----------------------------------------
Blaine Sweatt, III
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Darden Restaurants, Inc. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-30-1999
<PERIOD-END> MAY-30-1999
<CASH> 40,960
<SECURITIES> 0
<RECEIVABLES> 20,588
<ALLOWANCES> (332)
<INVENTORY> 144,115
<CURRENT-ASSETS> 327,737
<PP&E> 2,418,221
<DEPRECIATION> (944,686)
<TOTAL-ASSETS> 1,905,660
<CURRENT-LIABILITIES> 534,215
<BONDS> 316,451
0
0
<COMMON> 1,328,796
<OTHER-SE> (364,760)
<TOTAL-LIABILITY-AND-EQUITY> 1,905,660
<SALES> 3,458,107
<TOTAL-REVENUES> 3,458,107
<CGS> 1,133,705
<TOTAL-COSTS> 2,744,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,540
<INCOME-PRETAX> 215,875
<INCOME-TAX> 75,337
<INCOME-CONTINUING> 140,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140,538
<EPS-BASIC> 1.02
<EPS-DILUTED> 0.99
</TABLE>
