================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended November 28, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .............. to ...............
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1-13666
Commission File Number
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DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3305930
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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 December 31, 1999:
128,142,791 (excluding 37,521,855 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 5
Consolidated Statements of Changes in
Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Index to Exhibits 17
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
- --------------------------------------------------------------------------------------------------------------------
November 28, 1999 November 29, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales....................................................... $ 848,231 $ 791,168
Costs and Expenses:
Cost of sales:
Food and beverages..................................... 271,802 257,616
Restaurant labor....................................... 280,058 265,753
Restaurant expenses.................................... 127,162 120,688
---------- ----------
Total Cost of Sales.................................. $ 679,022 $ 644,057
Selling, general and administrative...................... 94,208 86,357
Depreciation and amortization............................ 31,771 31,311
Interest, net............................................ 5,265 4,786
---------- ----------
Total Costs and Expenses........................... $ 810,266 $ 766,511
---------- ----------
Earnings before Income Taxes................................ 37,965 24,657
Income Taxes................................................ (13,511) (8,738)
---------- ----------
Net Earnings................................................ $ 24,454 $ 15,919
========== ==========
Net Earnings per Share:
Basic ................................................... $ 0.19 $ 0.11
========== ==========
Diluted.................................................. $ 0.18 $ 0.11
========== ==========
Average Number of Common Shares Outstanding:
Basic ................................................... 130,800 138,700
========== ==========
Diluted.................................................. 134,500 144,100
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
- --------------------------------------------------------------------------------------------------------------------
November 28, 1999 November 29, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales....................................................... $ 1,777,622 $ 1,677,225
Costs and Expenses:
Cost of sales:
Food and beverages..................................... 570,630 554,031
Restaurant labor....................................... 575,177 548,304
Restaurant expenses.................................... 259,283 252,675
----------- -----------
Total Cost of Sales ................................. $ 1,405,090 $ 1,355,010
Selling, general and administrative...................... 188,358 171,143
Depreciation and amortization............................ 63,141 62,323
Interest, net............................................ 9,841 10,221
----------- -----------
Total Costs and Expenses........................... $ 1,666,430 $ 1,598,697
----------- -----------
Earnings before Income Taxes................................ 111,192 78,528
Income Taxes................................................ (39,425) (27,430)
----------- -----------
Net Earnings................................................ $ 71,767 $ 51,098
=========== ===========
Net Earnings per Share:
Basic ................................................... $ 0.55 $ 0.37
=========== ===========
Diluted.................................................. $ 0.53 $ 0.35
=========== ===========
Average Number of Common Shares Outstanding:
Basic ................................................... 131,500 139,200
=========== ===========
Diluted.................................................. 135,500 145,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
November 28, 1999 May 30, 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 19,947 $ 40,960
Receivables.............................................. 4,564 20,256
Refundable income taxes, net............................. 4,347
Inventories.............................................. 215,261 144,115
Net assets held for disposal............................. 29,466 35,269
Prepaid expenses and other current assets................ 19,743 21,475
Deferred income taxes.................................... 57,544 65,662
----------- -----------
Total Current Assets................................... $ 350,872 $ 327,737
Land, Buildings and Equipment............................... 1,491,353 1,461,535
Other Assets................................................ 102,909 104,388
----------- -----------
Total Assets......................................... $ 1,945,134 $ 1,893,660
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 120,396 $ 144,725
Short-term debt.......................................... 138,700 23,500
Current portion of long-term debt........................ 2,386 2,386
Accrued payroll.......................................... 64,985 74,265
Accrued income taxes..................................... 16,544
Other accrued taxes...................................... 22,806 25,965
Other current liabilities................................ 222,617 234,830
----------- -----------
Total Current Liabilities.............................. $ 571,890 $ 522,215
Long-term Debt.............................................. 311,370 314,065
Deferred Income Taxes....................................... 74,581 72,086
Other Liabilities........................................... 21,156 21,258
----------- -----------
Total Liabilities...................................... $ 978,997 $ 929,624
----------- -----------
Stockholders' Equity:
Common stock and surplus................................. $ 1,344,990 $ 1,328,796
Retained earnings........................................ 244,548 178,008
Treasury stock........................................... (549,333) (466,902)
Accumulated other comprehensive income................... (11,980) (12,115)
Unearned compensation.................................... (62,088) (63,751)
----------- -----------
Total Stockholders' Equity............................. $ 966,137 $ 964,036
----------- -----------
Total Liabilities and Stockholders' Equity........... $ 1,945,134 $ 1,893,660
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Twenty-Six Weeks Ended November 28, 1999 and November 29, 1998
(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 30, 1999.................... $1,328,796 $178,008 $(466,902) $(12,115) $(63,751) $ 964,036
Comprehensive income:
Net earnings............................ 71,767 71,767
Other comprehensive income, foreign
currency adjustment................... 135 135
----------
Total comprehensive income.......... 71,902
Cash dividends declared.................... (5,227) (5,227)
Stock option exercises (816 shares)........ 7,479 7,479
Issuance of restricted stock (179 shares),
net of forfeiture adjustments........... 2,529 (2,536) (7)
Earned compensation........................ 1,449 1,449
ESOP note receivable repayments............ 2,750 2,750
Income tax benefit credited to equity...... 4,109 4,109
Proceeds from issuance of equity put
options................................. 1,139 1,139
Purchases of common stock for treasury
(4,199 shares).......................... (83,473) (83,473)
Issuance of treasury stock under Employee
Stock Purchase Plan (110 shares)........ 938 1,042 1,980
- ----------------------------------------------------------------------------------------------------------------------------
Balance at November 28, 1999 $1,344,990 $244,548 $(549,333) $(11,980) $(62,088) $ 966,137
- ----------------------------------------------------------------------------------------------------------------------------
<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 31, 1998.................... $1,286,191 $ 48,327 $(239,876) $(11,749) $(63,048) $1,019,845
Comprehensive income:
Net earnings............................ 51,098 51,098
Other comprehensive income, foreign
currency adjustment................... (1,526) (1,526)
----------
Total comprehensive income.......... 49,572
Cash dividends declared.................... (5,531) (5,531)
Stock option exercises (1,710 shares)...... 14,700 14,700
Issuance of restricted stock (303 shares),
net of forfeiture adjustments........... 3,595 (3,567) 28
Earned compensation........................ 934 934
ESOP note receivable repayments............ 250 250
Income tax benefit credited to equity...... 5,158 5,158
Proceeds from issuance of equity put
options................................. 2,184 2,184
Purchases of common stock for treasury
(5,325 shares).......................... (86,695) (86,695)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at November 29, 1998 $1,311,828 $ 93,894 $(326,571) $(13,275) $(65,431) $1,000,445
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
- --------------------------------------------------------------------------------------------------------------------
November 28, 1999 November 29, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows--Operating Activities
Net earnings.............................................. $ 24,454 $ 15,919
Adjustments to reconcile net earnings to cash flow:
Depreciation and amortization........................... 31,771 31,311
Amortization of unearned compensation and loan costs.... 1,343 1,090
Change in current assets and liabilities................ (65,972) 2,102
Change in other liabilities ............................ (178) 297
Loss on disposal of land, buildings and equipment....... 362 264
Deferred income taxes................................... 5,538 7,955
Other, net.............................................. 146 256
---------- ----------
Net Cash Provided by (Used by) Operating Activities... $ (2,536) $ 59,194
---------- ----------
Cash Flows--Investment Activities
Purchases of land, buildings and equipment................ (66,329) (31,091)
Purchases of intangibles.................................. (778) (566)
Increase in other assets.................................. (265) (428)
Proceeds from disposal of land, buildings and
equipment (including net assets held for disposal)...... 5,646 8,863
---------- ----------
Net Cash Used by Investment Activities................ $ (61,726) $ (23,222)
---------- ----------
Cash Flows--Financing Activities
Proceeds from issuance of common stock.................... 3,075 4,819
Income tax benefit credited to equity..................... 748 1,525
Dividends paid............................................ (5,227) (5,531)
Purchases of treasury stock............................... (56,048) (34,069)
ESOP note receivable repayment............................ 2,150 250
Increase (decrease) in short-term debt.................... 111,700 (19,000)
Repayment of long-term debt............................... (2,150) (250)
Proceeds from issuance of equity put options.............. 1,358
Payment of loan costs..................................... (324)
---------- ----------
Net Cash Provided by (Used by) Financing Activities... $ 53,924 $ (50,898)
---------- ----------
Decrease in Cash and Cash Equivalents........................ (10,338) (14,926)
Cash and Cash Equivalents - Beginning of Period.............. 30,285 27,990
---------- ----------
Cash and Cash Equivalents - End of Period.................... $ 19,947 $ 13,064
========== ==========
Cash Flow from Changes in Current Assets and Liabilities
Receivables............................................... 17,962 (3,123)
Refundable income taxes, net.............................. (4,347)
Inventories............................................... (22,769) 8,065
Prepaid expenses and other current assets................. (3,416) 847
Accounts payable.......................................... (35,806) 17,365
Accrued payroll........................................... 1,039 (1,024)
Accrued income taxes...................................... (18,923) (22,776)
Other accrued taxes....................................... (3,767) (2,471)
Other current liabilities................................. 4,055 5,219
---------- ----------
Change in Current Assets and Liabilities.............. $ (65,972) $ 2,102
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
- --------------------------------------------------------------------------------------------------------------------
November 28, 1999 November 29, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows--Operating Activities
Net earnings.............................................. $ 71,767 $ 51,098
Adjustments to reconcile net earnings to cash flow:
Depreciation and amortization........................... 63,141 62,323
Amortization of unearned compensation and loan costs.... 2,749 2,189
Change in current assets and liabilities................ (116,456) 22,092
Change in other liabilities ............................ (102) 563
(Gain) loss on disposal of land, buildings and equipment..... 576 (602)
Deferred income taxes................................... 10,613 12,479
Other, net.............................................. 527 (318)
---------- ----------
Net Cash Provided by Operating Activities............. $ 32,815 $ 149,824
---------- ----------
Cash Flows--Investment Activities
Purchases of land, buildings and equipment................ (106,931) (55,455)
Purchases of intangibles.................................. (1,361) (1,074)
Decrease (increase) in other assets....................... 1,006 (635)
Proceeds from disposal of land, buildings and
equipment (including net assets held for disposal)...... 12,719 21,688
---------- ----------
Net Cash Used by Investment Activities................ $ (94,567) $ (35,476)
---------- ----------
Cash Flows--Financing Activities
Proceeds from issuance of common stock.................... 9,321 14,700
Income tax benefit credited to equity..................... 4,109 5,158
Dividends paid............................................ (5,227) (5,531)
Purchases of treasury stock............................... (83,473) (86,695)
ESOP note receivable repayment............................ 2,750 250
Increase (decrease) in short-term debt.................... 115,200 (64,600)
Repayment of long-term debt............................... (2,756) (255)
Proceeds from issuance of equity put options.............. 1,139 2,184
Payment of loan costs..................................... (324)
---------- ----------
Net Cash Provided By (Used by) Financing Activities... $ 40,739 $ (134,789)
---------- ----------
Decrease in Cash and Cash Equivalents........................ (21,013) (20,441)
Cash and Cash Equivalents - Beginning of Period.............. 40,960 33,505
---------- ----------
Cash and Cash Equivalents - End of Period.................... $ 19,947 $ 13,064
========== ==========
Cash Flow from Changes in Current Assets and Liabilities
Receivables............................................... 15,692 1,088
Refundable income taxes, net.............................. (4,347)
Inventories............................................... (71,146) 45,287
Prepaid expenses and other current assets................. (5,626) 1,231
Accounts payable.......................................... (24,329) (11,169)
Accrued payroll........................................... (9,280) (14,035)
Accrued income taxes...................................... (16,544) (693)
Other accrued taxes....................................... (3,159) (1,129)
Other current liabilities................................. 2,283 1,512
---------- ----------
Change in Current Assets and Liabilities.............. $ (116,456) $ 22,092
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<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 and
twenty-six weeks ended November 28, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ended May 28, 2000.
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 30, 1999. See Note 5 related to reclassification made to
May 30, 1999 balance sheet. 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 and twenty-six weeks ended November 28, 1999,
Darden paid $1,263 and $9,165 respectively, for interest (net of amount
capitalized) and $30,265 and $46,539 respectively, for income taxes. During the
thirteen and twenty-six weeks ended November 29, 1998, Darden paid $0 and
$8,673, respectively, for interest (net of amount capitalized) and $20,545 and
$10,494, respectively, 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 2,641,171 and 64,032 shares of common stock were excluded
from the calculation of diluted EPS for the thirteen weeks ended November 28,
1999 and November 29, 1998, respectively, because their exercise prices exceeded
the average market price of common shares for the period. Options to purchase
2,629,941 and 29,109 shares of common stock were excluded from the calculation
of diluted EPS for the twenty-six weeks ended November 28, 1999 and November 29,
1998, respectively, for the same reason.
Note 4. Accounts Receivable
In the second quarter of fiscal 2000, the Company changed its
contractual terms with a national storage and distribution company. Under the
new contractual terms, Darden inventory items are no longer sold to and
repurchased from the distribution company.
Note 5. 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
balance sheet 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.
9
<PAGE>
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(Dollar Amounts in Thousands, Except per Share Data)
Note 5. Restructuring Liability - Continued
A summary of restructuring liability activity for the six months ended
November 28, 1999 is as follows:
Balance at May 30, 1999............................. $ 37,139
Non-cash Adjustment
-------------------
Reclassification of asset impairment
(described below)............................... (12,000)
Cash Payments
-------------
Carrying costs and employee severance payments.... (1,746)
Lease payments including lease buy-outs........... (3,663)
--------
Balance at November 28, 1999........................ $ 19,730
========
Asset impairment charges of $12 million included in the May 30, 1999
restructuring liability have been reclassified to reduce the carrying value of
land for all periods presented. This reclassification relates to asset
impairment charges recorded in 1997 for long-lived assets associated with
Canadian restaurants.
10
<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 and twenty-six weeks
ended November 28, 1999 and November 29, 1998.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
- --------------------------------------------------------------------------------------------------------------------
November 28, November 29, November 28, November 29,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales..................................... 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of sales:
Food and beverages................... 32.1 32.6 32.1 33.0
Restaurant labor..................... 33.0 33.6 32.3 32.7
Restaurant expenses.................. 15.0 15.2 14.6 15.1
------ ------ ------ ------
Total Cost of Sales................ 80.1% 81.4% 79.0% 80.8%
Selling, general and administrative.... 11.1 10.9 10.6 10.2
Depreciation and amortization.......... 3.7 4.0 3.6 3.7
Interest, net.......................... 0.6 0.6 0.6 0.6
------ ------ ------ ------
Total Costs and Expenses......... 95.5% 96.9% 93.8% 95.3%
------ ------ ------ ------
Earnings before Income Taxes.............. 4.5 3.1 6.2 4.7
Income Taxes.............................. (1.6) (1.1) (2.2) (1.7)
------ ------ ------ ------
Net Earnings.............................. 2.9% 2.0% 4.0% 3.0%
====== ====== ====== ======
</TABLE>
Financial Condition and Results of Operations
For the fiscal 2000 second quarter ended November 28, 1999, earnings
after tax were $24.5 million or 18 cents per diluted share, compared to earnings
after tax of $15.9 million or 11 cents per diluted share in the second quarter
of fiscal 1999. The increase in second quarter earnings was primarily
attributable to strong same-restaurant sales at both Red Lobster and Olive
Garden. Sales of $848.2 million for the second quarter were 7.2% higher than
last year's second quarter.
For the first six months of fiscal 2000, net earnings were $71.8
million or 53 cents per diluted share, compared to $51.1 million or 35 cents per
diluted share in the same fiscal 1999 period. Sales approximating $1.78 billion
for the first six months of fiscal 2000 were 6.0% higher than last year.
Food and beverage costs for the quarter were 32.1% of sales, compared
to 32.6% of sales last year primarily attributable to reduced product costs.
Restaurant labor decreased to 33.0% of sales compared to last year's 33.6% due
primarily to efficiencies resulting from higher sales volumes. Restaurant
expenses, also benefiting from higher sales volumes, decreased to 15.0% of sales
compared to 15.2% last year. The increase in second quarter selling, general and
administrative expense to 11.1% of sales compared to 10.9% of sales last year
was primarily attributable to increased marketing expenses and additional labor
costs associated with new concept expansion and development. Depreciation and
amortization expense as a percentage of sales decreased to 3.7% from 4.0% last
year primarily as a result of higher sales volumes.
The effective tax rate for the second quarter of fiscal 2000 was
35.6% compared to 35.4% in last year's second quarter. The increase in the
effective tax rate reflects a higher level of expected pre-tax income for fiscal
2000.
Food and beverage costs for the first six months of fiscal 2000 were
32.1% of sales, down from last year's 33.0% primarily attributable to reduced
product costs, pricing, and a lower margin promotion run by Red Lobster during
the first quarter last year. Restaurant labor decreased to 32.3% of sales
compared to last year's 32.7% primarily due to efficiencies resulting from
higher sales volumes. Restaurant expenses decreased to 14.6% of sales compared
to 15.1% last year primarily as a result of higher sales volumes and the fixed
component of these expenses which are not impacted by higher sales volumes. The
increase in first half selling, general and
11
<PAGE>
administrative expense to 10.6% of sales compared to 10.2% of sales last year
was attributable to increased marketing expenses and additional labor costs
associated with new concept expansion and development. Depreciation and
amortization expense as a percentage of sales decreased to 3.6% from 3.7% last
year.
The effective tax rate for the first six months of fiscal 2000 was
35.5% compared to 34.9% last year due to a higher level of expected pre-tax
income for the year.
Inventories totaled $215.3 million as of November 28, 1999, up from
$144.1 million at May 30, 1999. The increase resulted primarily from purchases
of seafood during the first quarter of fiscal 2000 at prices which the Company
believes were favorable. This additional seafood is expected to be used during
the current fiscal year. Inventories also increased, and accounts receivable and
accounts payable decreased, due to changes made in the second quarter of fiscal
2000 to contractual terms with our national storage and distribution company.
Short-term debt totaled $138.7 million as of November 28, 1999, up
from $23.5 million at May 30, 1999. The increase resulted primarily from
increased share repurchase activity due to favorable Company stock prices over
the first half of fiscal 2000 as well as the increased inventory levels
discussed above.
Division Results
Red Lobster sales of $461.9 million were 6.3% above last year's
second quarter. Same-restaurant sales in the United States were up 8.2% for the
quarter, marking the eighth consecutive quarter of same-restaurant sales
increases. Second quarter operating profits were substantially improved over the
prior year due primarily to favorable food and beverage costs and restaurant
expenses as a percentage of sales. Through the first six months of fiscal 2000,
Red Lobster's sales increased 3.9% to $984.4 million and same-restaurant sales
in the United States increased by 5.9%. These results were achieved even though
Red Lobster operated 26 fewer restaurants at the end of the second quarter
compared to last year and did not repeat its high volume "Bottomless Crab"
promotion that helped generate high sales and traffic volumes in the first
quarter of last year.
Olive Garden continued its positive momentum in the second quarter of
fiscal 2000 with a 6.8% increase in sales to $376.0 million. Same-restaurant
sales in the United States increased 6.8%, marking the twenty-first consecutive
quarter of same-restaurant sales increases. Second quarter operating profits
were substantially improved over the prior year primarily due to increased sales
and lower restaurant labor expenses as a percentage of sales. Through the first
six months of fiscal 2000, Olive Garden sales increased 7.3% to $772.0 million
and same-restaurant sales in the United States increased by 7.5%.
Bahama Breeze continues to produce strong sales at each of its eight
restaurants. Four additional restaurants are currently under construction, all
of which have expected fiscal 2000 opening dates.
Darden's latest test concept, Smokey Bones BBQ and Hometown Sports
Bar, opened its first restaurant on September 13, 1999 in Orlando, FL. This
restaurant's sales have exceeded management's initial expectations.
12
<PAGE>
The table below details the number of restaurants open at the end of
the second quarter of fiscal 2000, compared with the number open at the end of
May 1999 and the end of last fiscal year's second quarter.
NUMBER OF RESTAURANTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
November 28, 1999 May 30, 1999 November 29, 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Red Lobster - USA........................... 618 635 642
Red Lobster - Canada........................ 32 34 34
----- ----- -----
Total.................................. 650 669 676
Olive Garden - USA.......................... 458 459 459
Olive Garden - Canada....................... 5 5 5
----- ----- -----
Total.................................. 463 464 464
Bahama Breeze............................... 8 6 3
----- ----- -----
Smokey Bones................................ 1 0 0
----- ----- -----
Total.................................. 1,122 1,139 1,143
===== ===== =====
</TABLE>
Year 2000
The total cost 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 November 28, 1999, the Company had spent
approximately $3.3 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 cost to the Company of addressing Year 2000 issues has been
estimated to be less than $5 million. This amount was 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. While there can be no guarantee that these
estimates will be achieved, and actual results could differ from these
estimates, management now anticipates that the total cost to the Company of
addressing Year 2000 issues will be well under $5 million.
As of the filing date of this report, the Company's business and
operations have not been materially impacted by Year 2000 matters. For a more
in-depth discussion of Year 2000, reference is made to the Company's Annual
Report on Form 10-K for the fiscal year ended May 30, 1999.
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.
13
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Information contained on pages 4 through 15 of the Company's Proxy
Statement dated August 10, 1999, filed with the Securities and Exchange
Commission as of August 13, 1999, describing matters submitted to a vote at the
Annual Meeting of Shareholders on September 23, 1999, is incorporated by
reference in this report.
(a) The Annual Meeting of Shareholders was held on September 23,
1999.
(b) The name of each director elected at the meeting is provided in
Item 4(c) of this report. There are no other directors with a
term of office that continued after the Annual Meeting. All
nominees described in the Proxy Statement, referenced above, were
elected.
(c) At the Annual Meeting, the Shareholders took the following
actions:
(i) Elected the following eleven directors:
Bradley D. Blum For 120,413,476
Withheld 621,431
Daniel B. Burke For 120,381,876
Withheld 653,031
Odie C. Donald For 120,398,466
Withheld 636,441
Julius Erving, II For 120,300,698
Withheld 734,209
Joe R. Lee For 120,407,911
Withheld 626,996
Richard E. Rivera For 120,398,224
Withheld 636,683
Michael D. Rose For 120,381,383
Withheld 653,524
Hector de J. Ruiz For 120,382,402
Withheld 652,505
Maria A. Sastre For 120,354,113
Withheld 680,793
Jack A. Smith For 120,348,963
Withheld 685,944
Blaine Sweatt, III For 120,406,374
Withheld 628,532
(ii) Approved appointment of KPMG LLP as independent auditor.
For 119,993,008
Against 313,346
Abstain 728,553
14
<PAGE>
(iii) Approved the Darden Restaurants, Inc. Amended and
Restated Stock Option and Long-Term Incentive Plan of
1995, as further described in that portion of the Proxy
Statement referenced above.
For 103,083,739
Against 10,329,040
Abstain 1,159,965
Broker Non-Vote 6,642,163
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.
On September 24, 1999, the Company filed a current report on
Form 8-K to announce first quarter financial results for
fiscal year 2000, the appointment of Bob Mock to President of
Smokey Bones BBQ and Hometown Sports Bar, and the appointment
of Dave Pickens to Executive Vice President of Operations of
Olive Garden.
15
<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: January 11, 2000 By: /s/ Paula J. Shives
-----------------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary
Dated: January 11, 2000 By: /s/ Clarence Otis, Jr.
-----------------------------------
Clarence Otis, Jr.
Senior Vice President,
Chief Financial Officer
(Principal financial officer)
16
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit Title Page
12 Computation of Ratio of Consolidated Earnings
to Fixed Charges 18
27 Financial Data Schedule 19
17
Exhibit 12
DARDEN RESTAURANTS, INC.
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
- --------------------------------------------------------------------------------------------------------------------
November 28, November 29, November 28, November 29,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated Earnings from Operations
Before Income Taxes..................... $ 37,965 $ 24,657 $ 111,192 $ 78,528
Plus Fixed Charges......................... 10,488 9,921 20,353 20,447
Less Capitalized Interest.................. (458) (260) (899) (520)
---------- ---------- ---------- ----------
Consolidated Earnings from Operations
Before Income Taxes Available to
Cover Fixed Charges..................... $ 47,995 $ 34,318 $ 130,646 $ 98,455
========== ========== ========== ==========
Ratio of Consolidated Earnings to Fixed
Charges................................. 4.58 3.46 6.42 4.82
========== ========== ========== ==========
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-28-2000
<PERIOD-END> NOV-28-1999
<CASH> 19,947
<SECURITIES> 0
<RECEIVABLES> 4,914
<ALLOWANCES> (350)
<INVENTORY> 215,261
<CURRENT-ASSETS> 350,872
<PP&E> 2,459,692
<DEPRECIATION> (968,339)
<TOTAL-ASSETS> 1,945,134
<CURRENT-LIABILITIES> 571,890
<BONDS> 313,756
0
0
<COMMON> 1,344,990
<OTHER-SE> (378,853)
<TOTAL-LIABILITY-AND-EQUITY> 1,945,134
<SALES> 1,777,622
<TOTAL-REVENUES> 1,777,622
<CGS> 570,630
<TOTAL-COSTS> 1,405,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 62
<INTEREST-EXPENSE> 9,841
<INCOME-PRETAX> 111,192
<INCOME-TAX> 39,425
<INCOME-CONTINUING> 71,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,767
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.53
</TABLE>
