DARDEN RESTAURANTS INC, 10-Q, 2001-01-09

DARDEN RESTAURANTS INC
10-Q, 2001-01-09
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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

(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 26, 2000

[ ] 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 [ ] N
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APPLICABLE ONLY TO CORPORATE ISSUERS:

Number of shares of common stock outstanding as of December 31, 2000:
120,136,474 (excluding 48,195,861 shares held in treasury).

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<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

Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14

Part II Other Information

Item 4. Submission of Matters to a Vote of Security Holders 15

Item 6. Exhibits and Reports on Form 8-K 16

Signatures 17

Index to Exhibits 18

<PAGE>

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except per Share Data)
(Unaudited)

Thirteen Weeks Ended
--------------------------------------------------------------------------------------------------------------------
November 26, 2000 November 28, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Sales....................................................... $ 931,958 $ 848,231
Costs and Expenses:
Cost of sales:
Food and beverage...................................... 298,361 271,802
Restaurant labor....................................... 302,908 280,310
Restaurant expenses.................................... 135,857 126,910
---------- ----------
Total Cost of Sales.................................. $ 737,126 $ 679,022
Selling, general and administrative...................... 105,955 94,208
Depreciation and amortization............................ 35,789 31,771
Interest, net............................................ 7,777 5,265
---------- ----------
Total Costs and Expenses........................... $ 886,647 $ 810,266
---------- ----------

Earnings before Income Taxes................................ 45,311 37,965
Income Taxes................................................ (15,770) (13,511)
---------- ----------

Net Earnings................................................ $ 29,541 $ 24,454
========== ==========

Net Earnings per Share:
Basic................................................... $ 0.25 $ 0.19
========== ==========
Diluted.................................................. $ 0.24 $ 0.18
========== ==========

Average Number of Common Shares Outstanding:
Basic................................................... 119,800 130,800
========== ==========
Diluted.................................................. 123,700 134,500
========== ==========

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

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except per Share Data)
(Unaudited)

<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
--------------------------------------------------------------------------------------------------------------------
November 26, 2000 November 28, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Sales....................................................... $ 1,950,163 $ 1,777,622
Costs and Expenses:
Cost of sales:
Food and beverage...................................... 629,398 570,630
Restaurant labor....................................... 621,539 575,723
Restaurant expenses.................................... 275,359 258,737
----------- -----------
Total Cost of Sales.................................. $ 1,526,296 $ 1,405,090
Selling, general and administrative...................... 205,242 188,358
Depreciation and amortization............................ 71,425 63,141
Interest, net............................................ 14,051 9,841
----------- -----------
Total Costs and Expenses........................... $ 1,817,014 $ 1,666,430
----------- -----------

Earnings before Income Taxes................................ 133,149 111,192
Income Taxes................................................ (46,687) (39,425)
----------- -----------

Net Earnings................................................ $ 86,462 $ 71,767
=========== ===========

Net Earnings per Share:
Basic................................................... $ 0.72 $ 0.55
=========== ===========
Diluted................................................. $ 0.70 $ 0.53
=========== ===========

Average Number of Common Shares Outstanding:
Basic.................................................... 120,700 131,500
=========== ===========
Diluted.................................................. 124,100 135,500
=========== ===========

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

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>

(Unaudited)
--------------------------------------------------------------------------------------------------------------------
November 26, 2000 May 28, 2000
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

ASSETS
Current Assets:
Cash and cash equivalents................................ $ 7,753 $ 26,102
Receivables.............................................. 35,214 27,962
Inventories.............................................. 207,850 142,187
Net assets held for disposal............................. 12,749 19,614
Prepaid expenses and other current assets................ 17,964 26,525
Deferred income taxes.................................... 49,915 48,070
-------------- -------------
Total Current Assets................................... $ 331,445 $ 290,460
Land, Buildings and Equipment............................... 1,662,370 1,578,541
Other Assets................................................ 104,449 102,422
-------------- -------------

Total Assets......................................... $ 2,098,264 $ 1,971,423
============== =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable......................................... $ 144,209 $ 140,487
Short-term debt.......................................... 89,300 115,000
Current portion of long-term debt........................ 2,514 2,513
Accrued payroll.......................................... 66,674 77,805
Accrued income taxes..................................... 18,314 33,256
Other accrued taxes...................................... 26,289 25,524
Other current liabilities................................ 205,946 212,302
-------------- -------------
Total Current Liabilities.............................. $ 553,246 $ 606,887
Long-term Debt.............................................. 447,739 304,073
Deferred Income Taxes....................................... 79,790 79,102
Other Liabilities........................................... 20,849 20,891
-------------- -------------
Total Liabilities................................... $ 1,101,624 $ 1,010,953
-------------- -------------

Stockholders' Equity:
Common stock and surplus................................. $ 1,384,947 $ 1,351,707
Retained earnings........................................ 426,275 344,579
Treasury stock........................................... (747,869) (666,837)
Accumulated other comprehensive income................... (13,136) (12,457)
Unearned compensation.................................... (53,577) (56,522)
-------------- -------------
Total Stockholders' Equity.......................... $ 996,640 $ 960,470
-------------- -------------

Total Liabilities and Stockholders' Equity........... $ 2,098,264 $ 1,971,423
============== =============

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

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the
Twenty-Six Weeks Ended November 26, 2000 and November 28, 1999
(In Thousands)
(Unaudited)

----------------------------------------------------------------------------------------------------------------------------
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............................ 86,462 86,462
Other comprehensive income, foreign
currency adjustment................... (679) (679)
------------
Total comprehensive income.......... 85,783
Cash dividends declared.................... (4,766) (4,766)
Stock option exercises (1,960 shares)...... 19,985 19,985
Issuance of restricted stock (358 shares),
net of forfeiture adjustments.............. 3,941 1,035 (5,040) (64)
Earned compensation........................ 2,035 2,035
ESOP note receivable repayments............ 5,950 5,950
Income tax benefit credited to equity...... 8,625 8,625
Purchases of common stock for treasury
(4,483 shares).......................... (83,223) (83,223)
Issuance of treasury stock under Employee
Stock Purchase and other plans (122 shares) 689 1,156 1,845

----------------------------------------------------------------------------------------------------------------------------
Balance at November 26, 2000 $1,384,947 $426,275 $(747,869) $(13,136) $(53,577) $996,640
----------------------------------------------------------------------------------------------------------------------------

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

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

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

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>

Cash Flows--Operating Activities
Net earnings.............................................. $ 29,541 $ 24,454
Adjustments to reconcile net earnings to cash flow:
Depreciation and amortization........................... 35,789 31,771
Amortization of unearned compensation and loan costs.... 1,773 1,343
Change in current assets and liabilities................ (96,310) (65,972)
Change in other liabilities ............................ 39 (178)
(Gain) loss on disposal of land, buildings and equipment (520) 362
Deferred income taxes................................... 100 5,538
Income tax benefit credited to equity................. 6,509 748
Other, net.............................................. 51 146
----------- ----------
Net Cash Used by Operating Activities................. $ (23,028) $ (1,788)
----------- ----------

Cash Flows--Investing Activities
Purchases of land, buildings and equipment................ (75,970) (66,329)
Purchases of intangibles.................................. (1,860) (778)
Decrease (increase) in other assets....................... 1,613 (265)
Proceeds from disposal of land, buildings and
equipment (including net assets held for disposal)...... 4,237 5,646
----------- ----------
Net Cash Used by Investing Activities................. $ (71,980) $ (61,726)
----------- ----------

Cash Flows--Financing Activities
Proceeds from issuance of common stock.................... 15,712 3,075
Dividends paid............................................ (4,766) (5,227)
Purchases of treasury stock............................... (25,801) (56,048)
ESOP note receivable repayment............................ 3,000 2,150
(Decrease) increase in short-term debt.................... (63,000) 111,700
Proceeds from issuance of long-term debt.................. 149,539
Repayment of long-term debt............................... (3,000) (2,150)
Payment of loan costs..................................... (1,304) (324)
----------- ----------
Net Cash Provided by Financing Activities............. $ 70,380 $ 53,176
----------- ----------

Decrease in Cash and Cash Equivalents........................ (24,628) (10,338)
Cash and Cash Equivalents - Beginning of Period.............. 32,381 30,285
----------- ----------

Cash and Cash Equivalents - End of Period.................... $ 7,753 $ 19,947
=========== ==========

Cash Flow from Changes in Current Assets and Liabilities
Receivables............................................... (7,806) 17,962
Refundable income taxes, net.............................. (4,347)
Inventories............................................... (34,407) (22,769)
Prepaid expenses and other current assets................. 156 (3,416)
Accounts payable.......................................... (20,692) (35,806)
Accrued payroll........................................... 1,267 1,039
Accrued income taxes...................................... (44,868) (18,923)
Other accrued taxes....................................... (1,990) (3,767)
Other current liabilities................................. 12,030 4,055
----------- ----------
Change in Current Assets and Liabilities.............. $ (96,310) $ (65,972)
============ ==========

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

See accompanying notes to consolidated financial statements.
</TABLE>

<PAGE>

DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>

Twenty-Six Weeks Ended
--------------------------------------------------------------------------------------------------------------------
November 26, 2000 November 28, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

Cash Flows--Operating Activities
Net earnings.............................................. $ 86,462 $ 71,767
Adjustments to reconcile net earnings to cash flow:
Depreciation and amortization........................... 71,425 63,141
Amortization of unearned compensation and loan costs.... 3,404 2,749
Change in current assets and liabilities................ (91,061) (116,456)
Change in other liabilities ............................ (42) (102)
Loss on disposal of land, buildings and equipment....... 19 576
Deferred income taxes................................... (1,157) 10,613
Income tax benefit credited to equity................. 8,625 4,109
Other, net.............................................. (36) 527
----------- ----------
Net Cash Provided by Operating Activities............. $ 77,639 $ 36,924
----------- ----------

Cash Flows--Investing Activities
Purchases of land, buildings and equipment................ (158,192) (106,931)
Purchases of intangibles.................................. (2,777) (1,361)
Decrease in other assets.................................. 98 1,006
Proceeds from disposal of land, buildings and
equipment (including net assets held for disposal)...... 8,813 12,719
----------- ----------
Net Cash Used by Investing Activities................. $ (152,058) $ (94,567)
----------- ----------

Cash Flows--Financing Activities
Proceeds from issuance of common stock.................... 21,677 9,321
Dividends paid............................................ (4,766) (5,227)
Purchases of treasury stock............................... (83,223) (83,473)
ESOP note receivable repayment............................ 5,950 2,750
(Decrease) increase in short-term debt.................... (25,700) 115,200
Proceeds from issuance of long-term debt.................. 149,539
Repayment of long-term debt............................... (5,956) (2,756)
Payment of loan costs..................................... (1,451) (324)
Proceeds from issuance of equity put options.............. ________ 1,139
----------
Net Cash Provided by Financing Activities............. $ 56,070 $ 36,630
----------- ----------

Decrease in Cash and Cash Equivalents........................ (18,349) (21,013)
Cash and Cash Equivalents - Beginning of Period.............. 26,102 40,960
----------- ----------

Cash and Cash Equivalents - End of Period.................... $ 7,753 $ 19,947
=========== ==========

Cash Flow from Changes in Current Assets and Liabilities
Receivables............................................... (7,252) 15,692
Refundable income taxes, net.............................. (4,347)
Inventories............................................... (68,286) (71,146)
Prepaid expenses and other current assets................. 338 (5,626)
Accounts payable.......................................... 3,722 (24,329)
Accrued payroll........................................... (11,131) (9,280)
Accrued income taxes...................................... (14,942) (16,544)
Other accrued taxes....................................... 765 (3,159)
Other current liabilities................................. 5,725 2,283
----------- ----------
Change in Current Assets and Liabilities.............. $ (91,061) $ (116,456)
============ ==========

--------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>

<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 26, 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. Certain reclassifications have been made to prior period
amounts to conform with current period presentation.

Note 2. Consolidated Statements of Cash Flows

During the thirteen and twenty-six weeks ended November 26, 2000, Darden
paid $43 and $9,700 respectively, for interest (net of amount capitalized) and
$54,330 and $55,181 respectively, for income taxes. 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.

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 2,503,099 and 2,641,171 shares of common stock were excluded from the
calculation of diluted earnings per share for the thirteen weeks ended November
26, 2000 and November 28, 1999, respectively, because their exercise prices
exceeded the average market price of common shares for the period. Options to
purchase 3,475,132 and 2,629,941 shares of common stock were excluded from the
calculation of diluted earnings per share for the twenty-six weeks ended
November 26, 2000 and November 28, 1999, respectively, for the same reason.

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 six months ended
November 26, 2000 is as follows:

Balance at May 28, 2000..................................... $ 8,564
Cash Payments:
Carrying costs and employee severance payments............ (765)
Lease payments including lease buy-outs................... (853)
--------
Balance at November 26, 2000................................ $ 6,946
========

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(Dollar Amounts in Thousands, Except per Share Data)

Note 5. Long-term Debt

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.

<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 26, 2000 and November 28, 1999.
<TABLE>
<CAPTION>

Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------------------------------------------------------------------------------------------------
November 26, November 28, November 26, November 28,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Sales..................................... 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of sales:
Food and beverage.................... 32.0 32.1 32.3 32.1
Restaurant labor..................... 32.5 33.0 31.9 32.4
Restaurant expenses.................. 14.6 15.0 14.1 14.5
----- ----- ----- -----
Total Cost of Sales................ 79.1% 80.1% 78.3% 79.0%
Selling, general and administrative.... 11.4 11.1 10.5 10.6
Depreciation and amortization.......... 3.8 3.7 3.7 3.6
Interest, net.......................... 0.8 0.6 0.7 0.6
----- ----- ----- -----
Total Costs and Expenses......... 95.1% 95.5% 93.2% 93.8%
----- ----- ----- -----

Earnings before Income Taxes.............. 4.9 4.5 6.8 6.2
Income Taxes.............................. (1.7) (1.6) (2.4) (2.2)
----- ----- ----- -----

Net Earnings.............................. 3.2% 2.9% 4.4% 4.0%
===== ===== ===== =====

--------------------------------------------------------------------------------------------------------------------
</TABLE>

Results of Operations

For the fiscal 2001 second quarter ended November 26, 2000, earnings after
tax were $29.5 million or 24 cents per diluted share, compared to earnings after
tax of $24.5 million or 18 cents per diluted share in the second quarter of
fiscal 2000. The increase in second quarter earnings was primarily attributable
to strong same-restaurant sales growth at both Red Lobster and Olive Garden.
Sales of $932.0 million for the second quarter were 9.9% higher than last year's
second quarter.

For the first six months of fiscal 2001, net earnings were $86.5 million or
70 cents per diluted share, compared to $71.8 million or 53 cents per diluted
share in the same fiscal 2000 period. Sales approximating $1.95 billion for the
first six months of fiscal 2001 were 9.7% higher than last year.

Food and beverage costs for the quarter were 32.0% of sales, which is
comparable to last year's 32.1% of sales. Restaurant labor decreased to 32.5% of
sales compared to last year's 33.0% primarily due to efficiencies resulting from
higher sales volumes. Restaurant expenses decreased to 14.6% of sales compared
to 15.0% last year primarily due to the fixed component of these expenses which
are not impacted by higher sales volumes. The increase in second quarter
selling, general and administrative expense to 11.4% of sales compared to 11.1%
of sales last year was primarily attributable to increased marketing expenses
associated with brand marketing efforts during the Olympics. Depreciation and
amortization expense as a percentage of sales increased from 3.7% to 3.8%
primarily as a result of new restaurant and remodel activity, partially offset
by the favorable impact of higher sales volumes. Interest expense increased to
0.8% of sales compared to 0.6% last year due primarily to higher debt levels.

The effective tax rate for the second quarter of fiscal 2001 was 34.8%
compared to 35.6% in last year's second 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.
11
<PAGE>

Food and beverage costs for the first six months of fiscal 2001 were 32.3%
of sales, compared to 32.1% of sales last year primarily attributable to higher
product costs. Restaurant labor decreased to 31.9% of sales compared to last
year's 32.4% primarily due to efficiencies resulting from higher sales volumes.
Restaurant expenses decreased to 14.1% of sales compared to 14.5% 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. Selling, general and
administrative expense amounting to 10.5% of sales was comparable to last year's
10.6% of sales. Depreciation and amortization expense as a percentage of sales
increased to 3.7% from 3.6% last year primarily as a result of new restaurant
and remodel activity, partially offset by the favorable impact of higher sales
volumes. Interest expense increased to 0.7% of sales compared to 0.6% last year
primarily due to higher debt levels.

The effective tax rate for the first six months of fiscal 2001 was 35.1%
compared to 35.5% last year. 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 $503.1 million were 8.9% above last year's second
quarter. Same-restaurant sales in the United States were up 8.4% for the
quarter, marking the twelfth consecutive quarter of same-restaurant sales
increases. Second quarter operating profits 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. Through the first six months of
fiscal 2001, Red Lobster's sales increased 7.7% to $1.1 billion and
same-restaurant sales in the United States increased by 7.2%.

Olive Garden continued its positive momentum in the second quarter of
fiscal 2001 with a 8.4% increase in sales to $407.4 million. Same-restaurant
sales in the United States increased 7.2%, representing the twenty-fifth
consecutive quarter of same-restaurant sales increases. Second quarter operating
profits improved over the prior year primarily as a result of increased sales
and lower restaurant labor and restaurant expenses as a percentage of sales.
Through the first six months of fiscal 2001, Olive Garden sales increased 9.3%
to $843.4 million and same-restaurant sales in the United States increased by
8.0%.

Bahama Breeze continues to produce strong sales at each of its fifteen
restaurants. Two additional restaurants have opened since the end of the second
quarter. At least seven more openings are planned for fiscal 2001.

Restaurant sales at Smokey Bones BBQ, Darden's latest test concept,
continue to exceed management's initial expectations. Two new restaurants opened
in Columbus, OH and Albany, NY, bringing the total number of restaurants in
operation to four. Five additional restaurant openings are planned for fiscal
2001.
12

<PAGE>

The table below details the number of restaurants open at the end of the
second quarter of fiscal 2001, compared with the number open at the end of May
2000 and the end of last fiscal year's second quarter.

NUMBER OF RESTAURANTS
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
November 26, 2000 May 28, 2000 November 28, 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Red Lobster - USA........................... 620 622 618
Red Lobster - Canada........................ 32 32 32
------ ----- -----
Total.................................. 652 654 650

Olive Garden - USA.......................... 463 464 458
Olive Garden - Canada....................... 5 5 5
------ ----- -----
Total.................................. 468 469 463

Bahama Breeze............................... 15 14 8

Smokey Bones BBQ............................ 4 2 1
------ ----- -----

Total.................................. 1,139 1,139 1,122
====== ===== =====

--------------------------------------------------------------------------------------------------------------------
</TABLE>

Financial Condition, Liquidity and Capital Resources

Cash and cash equivalents totaled $7.8 million as of November 26, 2000,
down from $26.1 million at May 28, 2000. The decrease is principally a result of
Company restaurants being closed for the Thanksgiving holiday as well as the
timing of checks being issued as of the end of the current quarter in comparison
to May 28, 2000.

Inventories totaled $207.9 million as of November 26, 2000, up from $142.2
million at May 28, 2000. The increase results from typical increases in seafood
inventory levels during the first half of the year due to availability and
upcoming promotions. The additional seafood is expected to be used during the
current fiscal year.

Short-term debt totaled $89.3 million as of November 26, 2000, down from
$115.0 million at May 28, 2000. Long-term debt, including its current portion,
totaled $450.3 million as of November 26, 2000, up from $306.6 million at May
28, 2000. The increase in long-term debt is a result of the Company issuing
$150.0 million of unsecured debt in the second quarter of fiscal 2001. This
issuance was used to repay short-term debt which has since increased primarily
as a result of continued share repurchase activity and increased spending on
land, buildings and equipment.

Capital expenditures were $76.0 million for the second quarter of fiscal
2001 compared to $66.3 million in last year's second quarter. For the first six
months of fiscal 2001, capital expenditures were $158.2 million, compared to
$106.9 million in the same period last year. The increased expenditures resulted
primarily from new restaurant growth as well as remodeling activity.

Treasury stock purchases totaled $25.8 million in the second quarter of
fiscal 2001 compared to $56.0 million in last year's second quarter. For the
first six months of fiscal 2001, treasury stock purchases totaled $83.2 million,
compared to $83.5 million in the same period last year.

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. 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
13
<PAGE>

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 10K for the fiscal year ended May 28,
2000, and incorporated into this report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information provided in our
annual report or Form 10-K for the fiscal year ended May 28, 2000.

<PAGE>

PART II
OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders
Information contained on pages 4 through 13 of the Company's Proxy
Statement dated August 8, 2000, filed with the Securities and Exchange
Commission as of August 8, 2000, describing matters submitted to a vote at the
Annual Meeting of Shareholders on September 20, 2000, is incorporated by
reference in this report.

(a) The Annual Meeting of Shareholders was held on September 20,
2000.

(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.

(i) Elected the following twelve directors:

Bradley D. Blum For 109,464,481
Withheld 598,524

Daniel B. Burke For 109,433,053
Withheld 629,952

Odie C. Donald For 109,506,064
Withheld 556,941

Julius Erving, II For 109,408,130
Withheld 654,875

Joe R. Lee For 109,499,686
Withheld 563,319

Richard E. Rivera For 109,518,458
Withheld 544,547

Michael D. Rose For 109,356,309
Withheld 706,696

Hector de J. Ruiz For 109,526,289
Withheld 536,716

Maria A. Sastre For 109,521,578
Withheld 541,427

Jack A. Smith For 109,405,979
Withheld 657,026

Blaine Sweatt, III For 109,504,178
Withheld 558,827

Rita Wilson For 108,618,767
Withheld 1,444,238
15

<PAGE>

(ii) Approved appointment of KPMG LLP as independent
auditor.

For 109,193,339
Against 229,633
Abstain 640,033

(iii) Approved the Darden Restaurants, Inc. Management
and Professional Incentive Plan, as further
described in that portion of the Proxy Statement
referenced above.

For 103,670,372
Against 4,908,723
Abstain 1,483,910

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit 12 Computation of Ratio of Consolidated Earnings to
Fixed Charges

(b) Reports on Form 8-K.

On August 31, 2000, the Company filed a current report on Form
8-K to announce the agreement of Registrant to sell
$150,000,000 principal amount of its 8.375% Senior Notes due
2005, which are subject to a Registration Statement on Form
S-3 filed by the Registrant with the Securities and Exchange
Commission.

On September 22, 2000, the Company filed a current report on
Form 8-K to announce record quarter sales and earnings per
share, the declaration of a semi-annual dividend of 4 cents,
the appointment of Alan Palmieri as Executive Vice President
of Operations for Bahama Breeze, and the promotion of Laurie
Burns to Senior Vice President, Development of Darden
Restaurants, Inc.

On November 13, 2000, the Company filed a current report on
Form 8-K to announce the establishment of a program for the
issue and sale from time to time of up to $350,000,000
aggregate initial offering price (or the equivalent thereof if
denominated in one or more foreign currencies or foreign
composite currency units) of its Medium-Term Notes, Series A
(the Notes).

<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 8, 2001 By: /s/ Paula J. Shives
---------------------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary

Dated: January 8, 2001 By: /s/ Clarence Otis, Jr.
---------------------------------------
Clarence Otis, Jr.
Senior Vice President,
Chief Financial Officer
(Principal financial officer)

<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Exhibit Title Page

12 Computation of Ratio of Consolidated Earnings to
Fixed Charges 19