SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MarkOne)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 27, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............ to ............
1-13666
Commission File Number
DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3305930
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5900 Lake Ellenor Drive,
Orlando, Florida 32809
(Address of principal executive offices) (Zip Code)
407-245-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ]No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of common stock outstanding as of September 28, 2000:
119,436,424 (excluding 47,337,329 shares held in treasury).
<PAGE>
DARDEN RESTAURANTS, INC.
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Changes in Stockholders'
Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Index to Exhibits 14
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------------------------------------------------------------------------------------------------
August 27, 2000 August 29, 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales........................................................ $ 1,018,205 $ 929,391
Costs and Expenses:
Cost of sales:
Food and beverage........................................ 331,037 298,828
Restaurant labor......................................... 318,355 295,119
Restaurant expenses...................................... 139,778 132,121
----------- ----------
Total Cost of Sales.................................... $ 789,170 $ 726,068
Selling, general and administrative........................ 99,287 94,150
Depreciation and amortization.............................. 35,636 31,370
Interest, net.............................................. 6,274 4,576
----------- ----------
Total Costs and Expenses............................. $ 930,367 $ 856,164
----------- ----------
Earnings before Income Taxes................................. 87,838 73,227
Income Taxes................................................. (30,917) (25,914)
----------- ----------
Net Earnings................................................. $ 56,921 $ 47,313
=========== ==========
Net Earnings per Share:
Basic...................................................... $ 0.47 $ 0.36
=========== ==========
Diluted.................................................... $ 0.46 $ 0.35
=========== ==========
Average Number of Common Shares Outstanding:
Basic...................................................... 121,600 132,200
=========== ==========
Diluted.................................................... 124,400 136,400
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
--------------------------------------------------------------------------------------------------------------------
August 27, 2000 May 28, 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 32,381 $ 26,102
Receivables................................................ 27,409 27,962
Inventories................................................ 176,066 142,187
Net assets held for disposal............................... 13,662 19,614
Prepaid expenses and other current assets.................. 18,120 26,525
Deferred income taxes...................................... 49,096 48,070
----------- -----------
Total Current Assets..................................... $ 316,734 $ 290,460
Land, Buildings and Equipment................................ 1,625,616 1,578,541
Other Assets................................................. 103,980 102,422
----------- -----------
Total Assets........................................... $ 2,046,330 $ 1,971,423
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 164,901 $ 140,487
Short-term debt............................................ 152,300 115,000
Current portion of long-term debt.......................... 2,514 2,513
Accrued payroll............................................ 65,407 77,805
Accrued income taxes....................................... 63,182 33,256
Other accrued taxes........................................ 28,279 25,524
Other current liabilities.................................. 196,712 212,302
----------- -----------
Total Current Liabilities................................ $ 673,295 $ 606,887
Long-term Debt............................................... 301,146 304,073
Deferred Income Taxes........................................ 78,871 79,102
Other Liabilities............................................ 20,810 20,891
----------- -----------
Total Liabilities...................................... $ 1,074,122 $ 1,010,953
----------- -----------
Stockholders' Equity:
Common stock and surplus................................... $ 1,362,694 $ 1,351,707
Retained earnings.......................................... 401,500 344,579
Treasury stock............................................. (722,708) (666,837)
Accumulated other comprehensive income..................... (12,219) (12,457)
Unearned compensation...................................... (57,059) (56,522)
----------- -----------
Total Stockholders' Equity............................. $ 972,208 $ 960,470
----------- -----------
Total Liabilities and Stockholders' Equity........... $ 2,046,330 $ 1,971,423
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Thirteen Weeks Ended August 27, 2000 and August 29, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock Other Total
and Retained Treasury Comprehensive Unearned Stockholders'
Surplus Earnings Stock Income Compensation Equity
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 28, 2000.................... $1,351,707 $344,579 $(666,837) $(12,457) $(56,522) $ 960,470
Comprehensive income:
Net earnings............................. 56,921 56,921
Other comprehensive income, foreign
currency adjustment.................... 238 238
---------
Total comprehensive income........... 57,159
Stock option exercises (495 shares)........ 5,143 5,143
Issuance of restricted stock (330 shares),
net of forfeiture adjustments............ 3,430 1,027 (4,493) (36)
Earned compensation........................ 1,006 1,006
ESOP note receivable repayments............ 2,950 2,950
Income tax benefit credited to equity...... 2,116 2,116
Purchases of common stock for treasury
(3,355 shares)........................... (57,422) (57,422)
Issuance of treasury stock under Employee
Stock Purchase Plan (60 shares) ........... 298 524 822
----------------------------------------------------------------------------------------------------------------------------
Balance at August 27, 2000................. $1,362,694 $401,500 $(722,708) $(12,219) $(57,059) $ 972,208
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Common Accumulated
Stock Other Total
and Retained Treasury Comprehensive Unearned Stockholders'
Surplus Earnings Stock Income Compensation Equity
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 30, 1999.................... $1,328,796 $178,008 $(466,902) $(12,115) $(63,751) $ 964,036
Comprehensive income:
Net earnings............................. 47,313 47,313
Other comprehensive income, foreign
currency adjustment.................... (343) (343)
---------
Total comprehensive income........... 46,970
Stock option exercises (602 shares)........ 5,314 5,314
Issuance of restricted stock (158 shares),
net of forfeiture adjustments............ 2,181 (2,153) 28
Earned compensation........................ 739 739
ESOP note receivable repayments............ 600 600
Income tax benefit credited to equity...... 3,361 3,361
Proceeds from issuance of equity put
options.................................. 1,139 1,139
Purchases of common stock for treasury
(1,367 shares)........................... (27,425) (27,425)
Issuance of treasury stock under Employee
Stock Purchase Plan (52 shares) ......... 483 458 941
----------------------------------------------------------------------------------------------------------------------------
Balance at August 29, 1999................. $1,341,274 $225,321 $(493,869) $(12,458) $(64,565) $ 995,703
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------------------------------------------------------------------------
August 27, 2000 August 29, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows--Operating Activities
Net earnings..................................................... $ 56,921 $ 47,313
Adjustments to reconcile net earnings to cash flow:
Depreciation and amortization.................................. 35,636 31,370
Amortization of unearned compensation and loan costs........... 1,631 1,406
Change in current assets and liabilities....................... 5,249 (50,484)
Change in other liabilities ................................... (81) 76
Loss on disposal of land, buildings and equipment.............. 539 214
Deferred income taxes.......................................... (1,257) 5,075
Income tax benefit credited to equity.......................... 2,116 3,361
Other, net..................................................... (87) 381
---------- ----------
Net Cash Provided by Operating Activities.................... $ 100,667 $ 38,712
---------- ----------
Cash Flows--Investing Activities
Purchases of land, buildings and equipment....................... (82,221) (40,602)
Purchases of intangibles......................................... (917) (583)
(Increase) decrease in other assets.............................. (1,515) 1,271
Proceeds from disposal of land, buildings and equipment
(including net assets held for disposal)....................... 4,575 7,073
---------- ----------
Net Cash Used by Investing Activities........................ $ (80,078) $ (32,841)
---------- ----------
Cash Flows--Financing Activities
Proceeds from issuance of common stock........................... 5,965 6,246
Purchases of treasury stock...................................... (57,422) (27,425)
ESOP note receivable repayment................................... 2,950 600
Increase in short-term debt...................................... 37,300 3,500
Repayment of long-term debt...................................... (2,956) (606)
Payment of loan costs............................................ (147)
Proceeds from issuance of equity put options..................... 1,139
---------- ----------
Net Cash Used by Financing Activities........................ $ (14,310) $ (16,546)
---------- ----------
Increase (decrease) in Cash and Cash Equivalents................... 6,279 (10,675)
Cash and Cash Equivalents - Beginning of Period.................... 26,102 40,960
---------- ----------
Cash and Cash Equivalents - End of Period.......................... $ 32,381 $ 30,285
========== ==========
Cash Flow from Changes in Current Assets and Liabilities
Receivables...................................................... 554 (2,270)
Inventories...................................................... (33,879) (48,377)
Prepaid expenses and other current assets........................ 182 (2,210)
Accounts payable................................................. 24,414 11,477
Accrued payroll.................................................. (12,398) (10,319)
Accrued income taxes............................................. 29,926 2,379
Other accrued taxes.............................................. 2,755 608
Other current liabilities........................................ (6,305) (1,772)
---------- ----------
Change in Current Assets and Liabilities....................... $ 5,249 $ (50,484)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar Amounts in Thousands, Except per Share Data)
Note 1. Background
These consolidated financial statements do not include certain
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, in the opinion of management, all
adjustments considered necessary for a fair presentation have been included and
are of a normal recurring nature. Operating results for the thirteen weeks ended
August 27, 2000 are not necessarily indicative of the results that may be
expected for the fiscal year ending May 27, 2001.
These statements should be read in conjunction with the consolidated
financial statements and footnotes included in our annual report on Form 10-K
for the year ended May 28, 2000. The accounting policies used in preparing these
consolidated financial statements are the same as those described in our annual
report on Form 10-K.
Note 2. Consolidated Statements of Cash Flows
During the thirteen weeks ended August 27, 2000, Darden paid $9,657 for
interest (net of amount capitalized) and $851 for income taxes. During the
thirteen weeks ended August 29, 1999, Darden paid $7,902 for interest (net of
amount capitalized) and $16,274 for income taxes.
Note 3. Net Earnings Per Share
Outstanding stock options issued by the Company represent the only
dilutive effect reflected in diluted weighted average shares outstanding.
Options to purchase 3,858,748 and 2,621,129 shares of common stock were excluded
from the calculation of diluted earnings per share for the thirteen weeks ended
August 27, 2000 and August 29, 1999, respectively, because their exercise prices
exceeded the average market price of common shares for the period.
Note 4. Restructuring Liability
In 1997, the Company recorded restructuring charges of $70,900 in
connection with the closing of certain restaurant properties. The related
liabilities are included in other current liabilities in the accompanying
consolidated balance sheets and were established to accrue for estimated
carrying costs of buildings and equipment prior to disposal, employee severance
costs, lease buy-out provisions and other costs associated with the
restructuring action. All restaurant closings under this restructuring action
have been completed. The remaining restructuring 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.
A summary of restructuring liability activity for the three months ended August
27, 2000 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at May 28, 2000................................................ $ 8,564
Cash Payments:
Carrying costs and employee severance payments....................... (540)
Lease payments including lease buy-outs.............................. (492)
--------
Balance at August 27, 2000............................................. $ 7,532
========
</TABLE>
Note 5. Subsequent Event
On July 13, 2000, the Company filed a registration statement with the
Securities and Exchange Commission. The purpose of the filing was to register
$500,000 of debt securities using a shelf registration process. Under this
process, the Company may offer, from time to time, up to $500,000 of debt
securities. On September 5, 2000, the Company issued $150,000 of unsecured
8.375% senior notes due in September 2005. Proceeds from the issuance were used
to repay short-term debt.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth selected restaurant operating data as a
percentage of sales for the periods indicated. All information is derived from
the consolidated statements of earnings for the thirteen weeks ended August 27,
2000 and August 29, 1999.
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------------------------------------------------------------------------
August 27, 2000 August 29, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales........................................................ 100.0% 100.0%
Costs and Expenses:
Cost of sales:
Food and beverage........................................ 32.5 32.1
Restaurant labor......................................... 31.3 31.8
Restaurant expenses...................................... 13.7 14.2
------ ------
Total Cost of Sales.................................... 77.5% 78.1%
Selling, general and administrative........................ 9.8 10.1
Depreciation and amortization.............................. 3.5 3.4
Interest, net.............................................. 0.6 0.5
------ ------
Total Costs and Expenses............................. 91.4% 92.1%
------ ------
Earnings before Income Taxes................................. 8.6 7.9
Income Taxes................................................. (3.0) (2.8)
------ ------
Net Earnings................................................. 5.6% 5.1%
====== ======
</TABLE>
Results of Operations
For the fiscal 2001 first quarter ended August 27, 2000, earnings after
tax were $56.9 million or 46 cents per diluted share, compared to earnings after
tax of $47.3 million or 35 cents per diluted share in the first quarter of last
year. The increase in first quarter earnings was primarily attributable to
strong same-restaurant sales at both Red Lobster and Olive Garden. Sales of
$1.02 billion for the first quarter were 9.6% higher than last year's first
quarter.
Food and beverage costs for the first quarter were 32.5% of sales,
compared to 32.1% of sales last year primarily attributable to higher product
costs. Restaurant labor costs decreased to 31.3% of sales compared to last
year's 31.8% of sales primarily due to efficiencies resulting from higher sales
volumes. Restaurant expenses decreased to 13.7% of sales compared to 14.2% last
year primarily due to the fixed component of these expenses which are not
impacted by higher sales volumes. The decrease in first quarter selling, general
and administrative expenses to 9.8% of sales compared to 10.1% of sales last
year was primarily attributable reduced marketing expenses as a percentage of
sales. Depreciation and amortization as a percentage of sales increased from
3.4% to 3.5% primarily as a result of new restaurant and remodel activity,
partially offset by the favorable impact of higher sales volumes. Interest
expense increased to 0.6% of sales compared to 0.5% last year due to higher
levels of short-term debt during the first quarter of fiscal 2001 to finance
land, buildings and equipment and share repurchase spending.
The effective tax rate for the first quarter of fiscal 2001 was 35.2%
compared to 35.4% in last year's first quarter. The decrease in the effective
tax rate resulted primarily from increases in annual expected tax credits and
deductions that were not available last year.
Division Results
Red Lobster sales of $556.8 million were 6.6% above last year's first
quarter. Same-restaurant sales in the United States were up 6.2% for the
quarter, marking the eleventh consecutive quarter of same-restaurant sales
increases. First quarter operating profit improved over the prior year primarily
as a result of the increased sales and lower restaurant labor and restaurant
expenses as a percentage of sales.
Olive Garden continued its positive momentum in the first quarter with
a 10.1% increase in sales to $436.1 million. Same-restaurant sales in the United
States increased 8.7%, representing the twenty-fourth consecutive
8
<PAGE>
quarter of same-restaurant sales increases. First quarter operating profits
improved significantly over the prior year primarily due to increased sales and
lower labor, restaurant and selling, general and administrative expenses as a
percentage of sales.
Bahama Breeze continues to produce strong sales at each of its fourteen
restaurants. Seven additional restaurants are currently under construction, all
of which have expected fiscal 2001 opening dates.
Restaurant sales at Smokey Bones BBQ, Darden's latest test concept,
continue to exceed management's initial expectations. Two restaurants were
operating in Orlando, FL, as of August 27, 2000. A third restaurant opened in
Columbus, OH, in September 2000 and another is currently under construction in
upstate New York.
The table below details the number of restaurants open at the end of
the first quarter of fiscal 2001, compared with the number open at the end of
May 2000 and the end of last fiscal year's first quarter.
NUMBER OF RESTAURANTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
August 27, 2000 May 28, 2000 August 29, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Red Lobster - USA.................. 621 622 617
Red Lobster - Canada............... 32 32 34
------ ------ ------
Total......................... 653 654 651
Olive Garden - USA................. 464 464 459
Olive Garden - Canada.............. 5 5 5
------ ------ ------
Total......................... 469 469 464
Bahama Breeze...................... 14 14 6
Smokey Bones BBQ................... 2 2 0
------ ------ ------
Total......................... 1,138 1,139 1,121
====== ====== ======
</TABLE>
Financial Condition, Liquidity and Capital Resources
Inventories totaled $176.1 million as of August 27, 2000, up from
$142.2 million at May 28, 2000. The increase results from typical first quarter
increases in seafood inventory levels due to availability. Accounts payable of
$164.9 million at August 27, 2000, increased from $140.5 million at May 28,
2000, principally as a result of the increased level of inventories.
Accrued income taxes payable of $63.2 million at August 27, 2000,
increased from $33.3 million at May 28, 2000, principally due to the timing of
income tax payments.
Short-term debt totaled $152.3 million as of August 27, 2000, up from
$115.0 million at May 28, 2000. The increase resulted primarily from continued
share repurchase activity as well as increased spending on land, buildings and
equipment.
Capital expenditures were $82.2 million for the first quarter of fiscal
2001 compared to $40.6 million in last year's first quarter. The increased
expenditures resulted primarily from new restaurant growth as well as remodeling
activity. The Company purchased treasury stock totaling $57.4 million in the
first quarter of fiscal 2001 compared to $27.4 million in last year's first
quarter.
On September 5, 2000, subsequent to the end of the fiscal 2001 first
quarter, the Company issued $150 million of unsecured debt. Proceeds from this
issuance were used to repay short-term debt.
9
<PAGE>
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. This forward-looking information is
based on assumptions concerning important risks and uncertainties that could
significantly affect anticipated results in the future and, accordingly, could
cause the actual results to materially differ from those expressed in the
forward-looking statements. These risks and uncertainties include competition,
economic and market conditions, changes in food and other costs, importance of
locations, effects of government regulations and the Company's ability to
achieve its growth objectives, each of which is more specifically discussed in
Exhibit 99 filed with the Company's annual report on Form 10-K for the fiscal
year ended May 28, 2000, and incorporated into this report.
10
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information provided in
our annual report on Form 10-K for the fiscal year ended May 28, 2000.
11
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 12 Computation of Ratio of Consolidated
Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
(i) On June 26, 2000, the Company filed a current report on
Form 8-K announcing annual and fourth quarter financial
results for fiscal 2000.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DARDEN RESTAURANTS, INC.
Dated: October 9, 2000 By: /s/ Paula J. Shives
-----------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary
Dated: October 9, 2000 By: /s/ Clarence Otis, Jr.
-----------------------------
Clarence Otis, Jr.
Senior Vice President,
Chief Financial Officer
(Principal financial officer)
13
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit Title Page
12 Computation of Ratio of Consolidated Earnings
to Fixed Charges 15
27 Financial Data Schedule 16
14
