Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
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 August 24, 2003
[ ] 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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
--------------------------------------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of common stock outstanding as of October 1, 2003:
164,861,352 (excluding 98,205,338 shares held in our treasury).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DARDEN RESTAURANTS, INC.
TABLE OF CONTENTS
Page
Part I - Financial Information
Item 1. Financial Statements 3
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Changes in
Stockholders' Equity and Accumulated Other
Comprehensive Income 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 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
Item 4. Controls and Procedures 16
Part II - Other Information
Item 1. Legal Proceedings 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Index to Exhibits 19
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
Quarter Ended
--------------------------------------------------------------------------------------------------------------------
August 24, 2003 August 25, 2002
--------------------------------------------------------------------------------------------------------------------
Sales........................................................ $ 1,259,689 $ 1,174,565
Costs and expenses:
Cost of sales:
Food and beverage....................................... 396,713 365,236
Restaurant labor........................................ 392,335 369,362
Restaurant expenses..................................... 190,822 169,504
------------ ------------
Total cost of sales, excluding restaurant depreciation
and amortization of $48,082 and $41,823, respectively. $ 979,870 $ 904,102
Selling, general, and administrative...................... 113,641 106,064
Depreciation and amortization............................. 51,553 45,141
Interest, net............................................. 10,641 10,253
------------ ------------
Total costs and expenses............................ $1,155,705 $1,065,560
------------ ------------
Earnings before income taxes................................. 103,984 109,005
Income taxes................................................. (35,390) (37,119)
------------- ------------
Net earnings................................................. $ 68,594 $ 71,886
============ ============
Net earnings per share:
Basic..................................................... $ 0.42 $ 0.42
============ ============
Diluted................................................... $ 0.40 $ 0.40
============ ============
Average number of common shares outstanding:
Basic..................................................... 164,700 171,600
============ ============
Diluted................................................... 170,500 180,000
============ ============
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3
DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
-------------------------------------------------------------------------------------------------------------------
August 24, 2003 May 25, 2003
-------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 96,522 $ 48,630
Receivables............................................... 41,737 29,023
Inventories............................................... 173,735 173,644
Prepaid expenses and other current assets................. 32,658 25,126
Deferred income taxes..................................... 51,194 49,206
----------- -----------
Total current assets.................................. $ 395,846 $ 325,629
Land, buildings, and equipment............................... 2,191,119 2,157,132
Other assets................................................. 181,929 181,872
----------- -----------
Total assets.......................................... $ 2,768,894 $ 2,664,633
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 195,989 $ 175,991
Accrued payroll........................................... 81,122 85,975
Accrued income taxes...................................... 81,652 67,975
Other accrued taxes....................................... 37,860 35,069
Unearned revenues......................................... 66,687 72,698
Other current liabilities................................. 218,917 202,201
----------- -----------
Total current liabilities............................. $ 682,227 $ 639,909
Long-term debt............................................... 656,874 658,086
Deferred income taxes........................................ 155,832 150,537
Other liabilities............................................ 20,304 19,910
----------- -----------
Total liabilities..................................... $ 1,515,237 $ 1,468,442
----------- -----------
Stockholders' equity:
Common stock and surplus.................................. $ 1,547,582 $ 1,525,957
Retained earnings......................................... 1,048,037 979,443
Treasury stock............................................ (1,280,767) (1,254,293)
Accumulated other comprehensive income.................... (11,638) (10,489)
Unearned compensation..................................... (48,281) (42,848)
Officer notes receivable.................................. (1,276) (1,579)
----------- -----------
Total stockholders' equity............................ $ 1,253,657 $ 1,196,191
----------- -----------
Total liabilities and stockholders' equity............ $ 2,768,894 $ 2,664,633
=========== ===========
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME
For the quarters ended August 24, 2003 and August 25, 2002
(In thousands)
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock Other Officer Total
and Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income Compensation Receivable Equity
- --------------------------------------------------------------------------------------------------------------------------------
Balance at May 25, 2003.......... $1,525,957 $ 979,443 $(1,254,293) $(10,489) $(42,848) $(1,579) $1,196,191
Comprehensive income:
Net earnings.................. -- 68,594 -- -- -- -- 68,594
Other comprehensive income:
Foreign currency
adjustment............... -- -- -- (604) -- -- (604)
Change in fair value of
derivatives, net of tax
of $44................... -- -- -- (545) -- -- (545)
-----------
Total comprehensive
income................ -- -- -- -- -- -- 67,445
Stock option exercises
(997 shares).................... 8,924 -- 444 -- -- -- 9,368
Issuance of restricted stock
(392 shares), net of forfeiture
adjustments..................... 7,559 -- 169 -- (7,728) -- --
Earned compensation.............. -- -- -- -- 1,010 -- 1,010
ESOP note receivable repayments.. -- -- -- -- 1,285 -- 1,285
Income tax benefits credited to
equity.......................... 4,405 -- -- -- -- -- 4,405
Purchases of common stock for
treasury (1,423 shares)......... -- -- (27,578) -- -- -- (27,578)
Issuance of treasury stock under
Employee Stock Purchase and
other plans (82 shares)......... 737 -- 491 -- -- -- 1,228
Repayment of officer notes, net.. -- -- -- -- -- 303 303
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Balance at August 24, 2003 $1,547,582 $1,048,037 $(1,280,767) $(11,638) $(48,281) $(1,276) $1,253,657
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Common Accumulated
Stock Other Officer Total
and Retained Treasury Comprehensive Unearned Notes Stockholders'
Surplus Earnings Stock Income Compensation Receivable Equity
- -------------------------------------------------------------------------------------------------------------------------------
Balance at May 26, 2002.......... $1,474,054 $760,684 $(1,044,915) $(12,841) $(46,108) $(1,997) $1,128,877
Comprehensive income:
Net earnings.................. -- 71,886 -- -- -- -- 71,886
Other comprehensive income:
Foreign currency adjustment.. -- -- -- (408) -- -- (408)
Change in fair value of
derivatives,net of tax
of $39...................... -- -- -- (228) -- -- (228)
----------
Total comprehensive
income................... -- -- -- -- -- -- 71,250
Stock option exercises
(598 shares).................... 5,421 -- 82 -- -- -- 5,503
Issuance of restricted stock
(197 shares), net of forfeiture
adjustments..................... 4,694 -- 670 -- (5,364) -- --
Earned compensation.............. -- -- -- -- 945 -- 945
ESOP note receivable repayments.. -- -- -- -- 1,475 -- 1,475
Income tax benefits credited
to equity....................... 4,046 -- -- -- -- -- 4,046
Purchases of common stock for
treasury (2,043 shares)......... -- -- (46,070) -- -- -- (46,070)
Issuance of treasury stock under
Employee Stock Purchase and
other plans (80 shares)......... 772 -- 305 -- -- -- 1,077
Repayment of officer notes, net.. -- -- -- -- -- 268 268
- -------------------------------------------------------------------------------------------------------------------------------
Balance at August 25, 2002 $1,488,987 $832,570 $(1,089,928) $(13,477) $(49,052) $(1,729) $1,167,371
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
5
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Quarter Ended
-------------------------------------------------------------------------------------------------------------------
August 24, 2003 August 25, 2002
-------------------------------------------------------------------------------------------------------------------
Cash flows--operating activities
Net earnings................................................. $ 68,594 $ 71,886
Adjustments to reconcile net earnings to cash flows:..
Depreciation and amortization............................... 51,553 45,141
Asset impairment charge..................................... 502 --
Amortization of unearned compensation and loan costs........ 1,844 1,775
Change in current assets and liabilities.................... 22,325 15,988
Change in other liabilities ................................ 394 (416)
(Gain) loss on disposal of land, buildings, and equipment... (1,559) 937
Change in cash surrender value of trust owned life insurance (2,000) 2,832
Deferred income taxes....................................... 3,307 1,835
Income tax benefits credited to equity...................... 4,405 4,046
Non-cash compensation expense............................... 67 --
Other, net.................................................. (303) (294)
------------ ------------
Net cash provided by operating activities................. $ 149,129 $ 143,730
------------ ------------
Cash flows--investing activities
Purchases of land, buildings, and equipment................... (86,673) (110,245)
Increase in other assets...................................... (413) (4,244)
Purchase of trust owned life insurance........................ -- (6,000)
Proceeds from disposal of land, buildings, and
equipment (including assets held for disposal).............. 2,898 450
------------ ------------
Net cash used in investing activities..................... $ (84,188) $ (120,039)
------------ ------------
Cash flows--financing activities
Proceeds from issuance of common stock........................ 10,529 6,580
Purchases of treasury stock................................... (27,578) (46,070)
ESOP note receivable repayment................................ 1,285 1,475
Repayment of long-term debt................................... (1,285) (1,475)
------------ ------------
Net cash used in financing activities..................... $ (17,049) $ (39,490)
------------ ------------
Increase (decrease) in cash and cash equivalents................. 47,892 (15,799)
Cash and cash equivalents - beginning of period.................. 48,630 152,875
------------ ------------
Cash and cash equivalents - end of period........................ $ 96,522 $ 137,076
============ ============
Cash flow from changes in current assets and liabilities
Receivables................................................... (12,714) 1,736
Inventories................................................... (91) (8,177)
Prepaid expenses and other current assets..................... (7,532) 29
Accounts payable.............................................. 20,342 21,117
Accrued payroll............................................... (4,853) (14,072)
Accrued income taxes.......................................... 13,677 16,691
Other accrued taxes........................................... 2,791 3,476
Unearned revenues............................................. (6,011) (7,806)
Other current liabilities..................................... 16,716 2,994
------------ ------------
Change in current assets and liabilities................. $ 22,325 $ 15,988
============ ============
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
6
DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 1. Background
Darden Restaurants, Inc. owns and operates casual dining restaurants in the
United States and Canada under the trade names Red Lobster(R), Olive Garden(R),
Bahama Breeze(R), Smokey Bones(R) BBQ, and Seasons 52(R). We have prepared these
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. They do not include certain information and
footnotes required by accounting principles generally accepted in the United
States of America 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
quarter ended August 24, 2003, are not necessarily indicative of the results
that may be expected for the fiscal year ending May 30, 2004.
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 fiscal year ended May 25, 2003. The accounting policies used in
preparing these consolidated financial statements are the same as those
described in our Form 10-K. Certain reclassifications have been made to prior
period amounts to conform to current period presentation.
Note 2. Consolidated Statements of Cash Flows
During the quarter ended August 24, 2003, we paid $7,193 for interest (net
of amounts capitalized) and $14,133 for income taxes. During the quarter ended
August 25, 2002, we paid $6,598 for interest (net of amounts capitalized) and
$14,599 for income taxes.
Note 3. Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages the use of a fair-value method of
accounting for stock-based awards under which the fair value of stock options is
determined on the date of grant and expensed over the vesting period. As allowed
by SFAS No. 123, we have elected to account for our stock-based compensation
plans under an intrinsic value method that requires compensation expense to be
recorded only if, on the date of grant, the current market price of our common
stock exceeds the exercise price the employee must pay for the stock. Our policy
is to grant stock options at the fair market value of our underlying stock at
the date of grant. Accordingly, no compensation expense has been recognized for
stock options granted under any of our stock plans because the exercise price of
all options granted was equal to the current market value of our stock on the
grant date. Had we determined compensation expense for our stock options based
on the fair value at the grant date as prescribed under SFAS No. 123, our net
earnings and net earnings per share would have been reduced to the pro forma
amounts indicated below:
Quarter Ended
-------------------------------------------------------------------------------------------------------------------
August 24, 2003 August 25, 2002
-------------------------------------------------------------------------------------------------------------------
Net earnings, as reported $ 68,594 $ 71,886
Add: Stock-based compensation expense included in
reported net earnings, net of related tax effects 662 586
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of related tax effects (4,658) (4,946)
-----------------------------------------------
Pro forma $ 64,598 $ 67,526
===============================================
Basic net earnings per share
As reported $ 0.42 $ 0.42
Pro forma $ 0.39 $ 0.39
Diluted net earnings per share
As reported $ 0.40 $ 0.40
Pro forma $ 0.38 $ 0.38
===================================================================================================================
7
Note 4. Provision for Impaired Assets and Restaurant Closings
During the first quarter of fiscal 2004, we recorded a $1,184 charge for
long-lived asset impairments resulting from the decision to relocate and rebuild
certain restaurants. These impairments were measured based on the amount by
which the carrying amount of the assets exceeded their fair value. Fair value is
generally determined based on appraisals or sales prices of comparable assets.
During the first quarter of fiscal 2004, we also recorded a gain of $682 related
to assets sold that were previously impaired. These amounts are included in
selling, general, and administrative expenses.
Note 5. Net Earnings per Share
Outstanding stock options granted by us represent the only dilutive effect
reflected in diluted weighted average shares outstanding. Options do not impact
the numerator of the diluted net earnings per share computation.
Options to purchase 3,952,422 and 3,078,779 shares of common stock were
excluded from the calculation of diluted net earnings per share for the quarters
ended August 24, 2003 and August 25, 2002, respectively, because their exercise
prices exceeded the average market price of common shares for the period.
Note 6. Stockholders' Equity
Pursuant to our stock repurchase program, under which our Board of
Directors has authorized the repurchase of up to 115,400,000 shares in
accordance with applicable securities regulations, we repurchased 1,423,073
shares of our common stock for $27,578 in the quarter ended August 24, 2003,
resulting in a cumulative repurchase as of August 24, 2003 of 99,915,725 shares.
Note 7. Commitments and Contingencies
We make trade commitments in the course of our normal operations. As of
August 24, 2003 and August 25, 2002, we were contingently liable for
approximately $10,420 and $15,618, respectively, under outstanding trade letters
of credit issued in connection with purchase commitments. These letters of
credit have terms of one month or less and are used to collateralize our
obligations to third parties for the purchase of inventories.
As collateral for performance on other contracts and as credit guarantees
to banks and insurers, we were contingently liable pursuant to guarantees of
subsidiary obligations under standby letters of credit. As of August 24, 2003
and August 25, 2002, we had $68,386 and $41,442, respectively of standby letters
of credit related to workers' compensation and general liabilities accrued in
our consolidated financial statements. As of August 24, 2003 and August 25,
2002, we had $7,505 and $7,798, respectively, of standby letters of credit
related to contractual operating lease obligations and other payments. All
standby letters of credit are renewable annually. As of August 24, 2003 and
August 25, 2002, we had other commercial commitments of $2,250 and $0,
respectively.
As of August 24, 2003 and August 25, 2002, we had $4,057 and $5,149,
respectively, of guarantees associated with third party sublease or assignment
obligations. These amounts represent the maximum potential amount of future
payments under the guarantees. The fair value of these potential payments
discounted at our pre-tax cost of capital at August 24, 2003 and August 25, 2002
amounted to $2,816 and $3,475, respectively. We did not accrue for the
guarantees, as the likelihood of the third parties defaulting on the sublease or
assignment agreements was less than probable. In the event of default by a third
party, the indemnity and/or default clauses in our sublease and assignment
agreements govern our ability to recover from and pursue the third party for
damages incurred as a result of its default. We do not hold any third-party
assets as collateral related to these sublease or assignment agreements, except
to the extent that the sublease or assignment allows us to repossess the
building and personal property. The guarantees expire over their respective
lease terms, which range from fiscal 2004 through fiscal 2012.
We are involved in litigation arising from the normal course of business.
In the opinion of management, this litigation is not expected to materially
impact our consolidated financial statements.
8
Note 8. Accounting Changes
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 establishes accounting standards for the
recognition and measurement of an asset retirement obligation and our associated
asset retirement cost. It also provides accounting guidance for legal
obligations associated with the retirement of tangible long-lived assets. SFAS
No. 143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. We adopted SFAS No. 143 in the first quarter of fiscal
2004. Adoption of SFAS No. 143 did not materially impact our consolidated
financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment to Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies the financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement is effective for hedging relationships
designated and contracts entered into or modified after June 30, 2003, except
for the provisions that relate to SFAS No. 133 implementation issues, which will
continue to be applied in accordance with their respective dates. We adopted
SFAS No. 149 in the first quarter of fiscal 2004. Adoption of SFAS No. 149 did
not materially impact our consolidated financial statements.
Note 9. Future Application of Accounting Standards
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes accounting standards for the classification and measurement
of certain financial instruments with characteristics of both liabilities and
equity. It requires certain financial instruments that were previously
classified as equity to be classified as assets or liabilities. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted SFAS No. 150 in the second quarter of
fiscal 2004. Adoption of SFAS No. 150 did not materially impact our consolidated
financial statements.
Note 10. Subsequent Events.
On September 24, 2003, the Board of Directors declared a four cents per
share cash dividend to be paid to shareholders on November 1, 2003 for all
shareholders of record as of the close of business on October 10, 2003.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth selected operating data as a percentage of
sales for the periods indicated. All information is derived from the
consolidated statements of earnings for the quarter ended August 24, 2003 and
August 25, 2002.
Quarter Ended
-------------------------------------------------------------------------------------------------------------------
August 24, August 25,
2003 2002
-------------------------------------------------------------------------------------------------------------------
Sales......................................................................... 100.0% 100.0%
Costs and expenses:
Cost of sales:
Food and beverage........................................................ 31.5 31.1
Restaurant labor......................................................... 31.1 31.5
Restaurant expenses...................................................... 15.2 14.4
------- -------
Total cost of sales, excluding restaurant depreciation and amortization
of 3.8% and 3.6%, respectively......................................... 77.8% 77.0%
Selling, general, and administrative....................................... 9.0 9.0
Depreciation and amortization.............................................. 4.1 3.8
Interest, net.............................................................. 0.9 0.9
------- -------
Total costs and expenses............................................. 91.8% 90.7%
------- -------
Earnings before income taxes.................................................. 8.2 9.3
Income taxes.................................................................. (2.8) (3.2)
------- -------
Net earnings.................................................................. 5.4% 6.1%
======= =======
-------------------------------------------------------------------------------------------------------------------
SALES
Sales were $1.26 billion and $1.17 billion for the quarters ended August
24, 2003 and August 25, 2002, respectively. The 7.2 percent increase in sales
for the first quarter of fiscal 2004 as compared to the first quarter of fiscal
2003 was primarily due to increased same-restaurant sales in the U.S. and a net
increase of 66 company-owned restaurants since the first quarter of fiscal 2003.
Red Lobster sales of $634 million were 2.5 percent above last year's first
quarter, driven by seven net additional restaurants in operation versus prior
year and a 1.1 percent increase in U.S. same-restaurant sales, primarily as a
result of a 3.8 percent increase in average check and a 2.7 percent decrease in
guest counts. The increase extended Red Lobster's string of comparable sales
gains to 23 consecutive quarters. However, Red Lobster's total sales were lower
than planned. Olive Garden's sales of $547 million were 9.8 percent above last
year's first quarter, driven primarily by its 31 new restaurants in operation
versus last year. Olive Garden achieved its 36th consecutive quarter of
same-restaurant sales growth with a 3.9 percent increase, primarily as a result
of a 3.3 percent increase in average check and a 0.6 percent increase in
same-restaurant guest counts. Same-restaurant sales for Red Lobster and Olive
Garden were adversely affected by approximately 0.5% by the shift in the
Independence Day holiday from Thursday in 2002 to Friday in 2003 and the power
outage that impacted several states during August 2003. Bahama Breeze continues
to make changes with the anticipation of improving its sales, financial
performance, and overall long-term potential. These changes include implementing
lunch operations, creating a new dinner menu, and slowing new restaurant
development while we reduce the size of future restaurants and our related
capital investment. Four new Bahama Breeze restaurants are expected to open in
fiscal 2004. Smokey Bones opened five new restaurants during the first quarter
of fiscal 2004. During fiscal 2004, 25 to 30 new Smokey Bones restaurants are
expected to open.
COSTS AND EXPENSES
Total costs and expenses were $1.16 billion and $1.07 billion for the
quarters ended August 24, 2003 and August 25, 2002, respectively. As a percent
of sales, total costs and expenses increased from 90.7 percent in the first
quarter of fiscal 2003 to 91.8 percent in the first quarter of fiscal 2004. The
following analysis of the components of total costs and expenses is presented as
a percent of sales.
10
Food and beverage costs as a percent of sales increased in the first
quarter of fiscal 2004 primarily as a result of increased crab usage and
additional plate accompaniments at Red Lobster. Restaurant labor decreased in
the first quarter of fiscal 2004 primarily as a result of lower employee health
insurance claims, improved labor management, and the favorable impact of higher
sales volumes, which were only partially offset by a modest increase in wage
rates. Restaurant expenses, which include lease, property tax, credit card,
utility, workers' compensation, new restaurant pre-opening, and other operating
costs, increased in the first quarter of fiscal 2004 primarily as a result of
increased workers' compensation and insurance expenses, higher utility expenses,
and higher incremental pre-opening expenses due to an increase in new restaurant
openings, which were only partially offset by the favorable impact of higher
sales volumes.
Selling, general, and administrative expenses in the first quarter of
fiscal 2004 were comparable to the first quarter of fiscal 2003 primarily as a
result of decreased travel costs and the favorable impact of higher sales
volumes, which were offset by increased benefit costs and marketing expense
incurred in response to the current challenging economic and competitive
environment.
Depreciation and amortization expense increased in the first quarter of
fiscal 2004 primarily as a result of new restaurant and remodel activity,
partially offset by the favorable impact of higher sales volumes.
Net interest expense in the first quarter of fiscal 2004 was comparable to
the first quarter of fiscal 2003 primarily due to lower interest income in
fiscal 2004, which was offset by the favorable impact of higher sales volumes.
INCOME TAXES
The effective income tax rate for the first quarter of fiscal 2004 was 34.0
percent, which was comparable to 34.1 percent in the first quarter of fiscal
2003.
NET EARNINGS AND NET EARNINGS PER SHARE
Net earnings for the first quarter of fiscal 2004 decreased 4.6 percent to
$69 million (40 cents per diluted share) compared with net earnings for the
first quarter of fiscal 2003 of $72 million (40 cents per diluted share). Due to
lower than expected sales growth, Red Lobster's restaurant expenses and
depreciation expense each increased as a percent of sales. An increase in crab
product usage also resulted in an increase in food and beverage costs. As a
result, its operating profit declined versus the first quarter of 2003.
Increased sales at Olive Garden, combined with lower food and beverage,
restaurant labor, and selling, general, and administrative expenses as a percent
of sales, more than offset increased restaurant and depreciation expenses as a
percent of sales and resulted in record first quarter operating profit for Olive
Garden in fiscal 2004. The decrease in net earnings for the first quarter of
fiscal 2004 was primarily due to the increase in crab product costs at Red
Lobster and increases in restaurant expenses and depreciation expenses as a
percent of sales at both Red Lobster and Olive Garden. Earnings results were
also negatively impacted by higher than expected utility expense and higher
incremental pre-opening expense versus prior year due to an increase in new
restaurant openings. The decrease in net earnings was offset by our repurchase
of 1.4 million shares as part of our share repurchase program, resulting in
comparable diluted net earnings per share. With respect to future earnings
results, we announced on September 24, 2003, that due to sales trends below our
expectations at some of our businesses in fiscal September, we believe that
second quarter diluted net earnings per share will be in the range of 15 to 18
cents. However, we reiterated our expectations for diluted net earnings per
share growth of 8% to 12% in fiscal 2004.
SEASONALITY
Our sales volumes fluctuate seasonally. In fiscal 2003 and 2002, our sales
were highest in the spring, lowest in the fall, and comparable during winter and
summer. Holidays, severe weather, storms, and similar conditions may affect
sales volumes seasonally in some operating regions. Because of the seasonality
of our business, results for any quarter are not necessarily indicative of the
results that may be achieved for the full fiscal year.
11
NUMBER OF RESTAURANTS
The following table details the number of restaurants open at the end of
the first quarter of fiscal 2004, compared with the number open at the end of
fiscal 2003 and the end of the first quarter of fiscal 2003.
-------------------------------------------------------------------------------------------------------------------
August 24, 2003 May 25, 2003 August 25, 2002
-------------------------------------------------------------------------------------------------------------------
Red Lobster - USA.................. 645 642 638
Red Lobster - Canada............... 31 31 31
------ ------ ------
Total......................... 676 673 669
------ ------ ------
Olive Garden - USA................. 521 518 490
Olive Garden - Canada.............. 6 6 6
------ ------ ------
Total......................... 527 524 496
------ ------ ------
Bahama Breeze...................... 34 34 30
Smokey Bones BBQ................... 44 39 21
Seasons 52......................... 1 1 0
------ ------ ------
Total......................... 1,282 1,271 1,216
====== ====== ======
-------------------------------------------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operating activities provide us with a
significant source of liquidity. Since substantially all of our sales are for
cash and cash equivalents, and accounts payable are generally due in five to 30
days, we are able to carry current liabilities in excess of current assets. In
addition to cash flows from operations, we use a combination of long-term and
short-term borrowings to fund our capital needs.
Our commercial paper program serves as our primary source of short-term
financing. As of August 24, 2003, there were no borrowings outstanding under the
program. To support our commercial paper program, we have a credit facility
under a Credit Agreement dated October 29, 1999, as amended, with a consortium
of banks, including Wachovia Bank, N.A., as administrative agent, under which we
can borrow up to $300 million. The credit facility allows us to borrow at
interest rates based on a spread over LIBOR, the prime rate or a competitively
bid rate among the members of the lender consortium, at our option, and on our
credit rating. The credit facility expires on October 29, 2004, and contains
various restrictive covenants, including a leverage test that requires us to
maintain a ratio of consolidated total debt to consolidated total capitalization
of less than 0.55 to 1.00 and a limitation of $25 million on priority debt,
subject to certain exceptions. The credit facility does not, however, contain a
prohibition on borrowing in the event of a ratings downgrade or a material
adverse change. None of these covenants is expected to limit our liquidity or
capital resources. As of August 24, 2003, we were in compliance with all
covenants and no amounts were outstanding under the credit facility.
At August 24, 2003, our long-term debt consisted principally of: (1) $150
million of unsecured 8.375 percent senior notes due in September 2005, (2) $150
million of unsecured 6.375 percent notes due in February 2006, (3) $150 million
of unsecured 5.75 percent medium-term notes due in March 2007, (4) $75 million
of unsecured 7.45 percent medium-term notes due in April 2011, (5) $100 million
of unsecured 7.125 percent debentures due in February 2016, and (6) an
unsecured, variable rate $33 million commercial bank loan due in December 2018
that is used to support two loans from us to the Employee Stock Ownership Plan
portion of the Darden Savings Plan. Through a shelf registration on file with
the Securities and Exchange Commission (SEC), we have the ability to issue an
additional $125 million of unsecured debt securities from time to time. The debt
securities may bear interest at either fixed or floating rates, and may have
maturity dates of nine months or more after issuance.
12
A summary of our contractual obligations and commercial commitments as of
August 24, 2003 is as follows (in thousands):
- -------------------------- -------------------------------------------------------------------------------------------
Payments Due by Period
- -------------------------- -------------------------------------------------------------------------------------------
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Contractual Less than 2-3 4-5 After 5
Obligations Total 1 Year Years Years Years
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Long-term debt (1) $ 658,145 $ -- $300,000 $150,000 $208,145
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Operating leases 354,038 58,420 102,987 76,185 116,446
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Total contractual cash
obligations $1,012,183 $ 58,420 $402,987 $226,185 $324,591
- -------------------------- --------------- ------------------ ----------------- ------------------- ------------------
- -------------------------- --------------- ---------------------------------------------------------------------------
Amount of Commitment Expiration per Period
- -------------------------- --------------- ---------------------------------------------------------------------------
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Total Amounts
Other Commercial Committed Less than 2-3 4-5 Over 5
Commitments 1 Year Years Years Years
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Trade letters of credit $ 10,420 $ 10,420 $ -- $ -- $ --
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Standby letters of
credit (2) 75,891 75,891 -- -- --
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Guarantees (3) 4,057 637 1,165 1,121 1,134
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Other 2,250 1,000 1,250 -- --
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Total commercial
commitments $ 92,618 $ 87,948 $ 2,415 $ 1,121 $ 1,134
- -------------------------- --------------- ------------------ ------------------ ----------------- -------------------
(1) Excludes issuance discount of $1,271.
(2) Includes letters of credit for $68,386 associated with workers'
compensation and general liabilities accrued in our consolidated financial
statements; also includes letters of credit for $6,091 associated with
lease payments included in contractual operating lease obligation payments
noted above.
(3) Consists solely of guarantees associated with properties that have been
subleased or assigned. We are not aware of any non-performance under these
arrangements that would result in our having to perform in accordance with
the terms of the guarantees.
Our Board of Directors has approved a stock repurchase program that
authorizes us to repurchase up to 115.4 million shares of our common stock. Net
cash flows used by financing activities included our repurchase of 1.4 million
shares of our common stock for $28 million in the first quarter of fiscal 2004,
compared to 2.0 million shares for $46 million in the first quarter of fiscal
2003. As of August 24, 2003, a total of 99.9 million shares have been purchased
under the program. The repurchased common stock is reflected as a reduction of
stockholders' equity.
Net cash flows used by investing activities included capital expenditures
incurred principally for building new restaurants, replacing equipment, and
remodeling existing restaurants. Capital expenditures were $87 million in the
first quarter of fiscal 2004, compared to $110 million in the first quarter of
fiscal 2003. The decreased expenditures in fiscal 2004 resulted primarily from
the timing of expenditures associated with building new restaurants and
replacing equipment.
We are not aware of any trends or events that would materially affect our
capital requirements or liquidity. We believe that our internal cash generating
capabilities and borrowings available under our shelf registration for unsecured
debt securities and short-term commercial paper program should be sufficient to
finance our capital expenditures, stock repurchase program, and other operating
activities through fiscal 2004.
FINANCIAL CONDITION
Our current assets totaled $396 million at August 24, 2003, compared to
$326 million at May 25, 2003. The increase resulted primarily from increases in
cash and cash equivalents of $48 million and receivables of $13 million. The
increase in cash and cash equivalents is due principally to a decrease in the
number of shares of
13
common stock repurchased during the first quarter of fiscal 2004 and the timing
of payments on our accounts payable. The increase in receivables is due to an
increase in inventory product conveyed to storage and distribution companies.
Our current liabilities totaled $682 million at August 24, 2003, up from
$640 million at May 25, 2003. Accounts payable of $196 million at August 24,
2003, increased from $176 million at May 25, 2003, principally due to the timing
and terms of inventory purchases. Accrued income taxes of $82 million at August
24, 2003, increased from $68 million at May 25, 2003, principally due to the
timing of income tax payments. Other current liabilities of $219 million at
August 24, 2003, increased from $202 million at May 25, 2003, principally due to
increases in sales tax, employment tax and accrued interest payables, and
insurance and employee benefit-related accruals.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period (see Note 1 to our consolidated financial statements included
in our fiscal 2003 Annual Report on Form 10-K). Actual results could differ from
those estimates.
Critical accounting policies are those that we believe are both most
important to the portrayal of our financial condition and operating results, and
require our most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. Judgments affecting the application of these policies may result in
materially different amounts being reported under different conditions or using
different assumptions. We consider the following policies to be most critical in
understanding the judgments that are involved in preparing our consolidated
financial statements.
Land, Buildings, and Equipment
Land, buildings, and equipment are recorded at cost less accumulated
depreciation. Building components are depreciated over estimated useful lives
ranging from seven to 40 years using the straight-line method. Leasehold
improvements, which are a component of buildings, are amortized over the lesser
of the lease term or the estimated useful lives of the related assets using the
straight-line method. Equipment is depreciated over estimated useful lives
ranging from three to ten years also using the straight-line method. Accelerated
depreciation methods are generally used for income tax purposes.
Our accounting policies regarding land, buildings, and equipment, including
leasehold improvements, include our judgments regarding the estimated useful
lives of these assets, the residual values to which the assets are depreciated
or amortized, and the determination as to what constitutes enhancing the value
of, or increasing the life of, existing assets. These judgments and estimates
may produce materially different amounts of reported depreciation and
amortization expense if different assumptions were used. As discussed further
below, these judgments may also impact our need to recognize an impairment
charge on the carrying amount of these assets as the cash flows associated with
the assets are realized.
Impairment of Long-Lived Assets
Land, buildings, and equipment and certain other assets, including
capitalized software costs and liquor licenses, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of the assets to the future net
cash flows expected to be generated by the assets. If these assets are
determined to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds their fair value. Fair
value is generally determined based on appraisals or sales prices of comparable
assets. Restaurant sites and certain other assets to be disposed of are reported
at the lower of their carrying amount or fair value, less estimated costs to
sell. Restaurant sites and certain other assets to be disposed of are included
in assets held for disposal when certain criteria are met. These criteria
include the requirement that the likelihood of disposing of these assets within
one year is probable. Those assets whose disposal is not probable within one
year remain in land, buildings, and equipment until their disposal is probable
within one year.
14
The judgments we make related to the expected useful lives of long-lived
assets and our ability to realize undiscounted cash flows in excess of the
carrying amounts of these assets are affected by factors such as the ongoing
maintenance and improvements of the assets, changes in economic conditions, and
changes in usage or operating performance. As we assess the ongoing expected
cash flows and carrying amounts of our long-lived assets, significant adverse
changes in these factors could cause us to realize a material impairment charge.
Self-Insurance Reserves
We self-insure a significant portion of expected losses under our workers'
compensation, employee medical, and general liability programs. Accrued
liabilities have been recorded based on our estimates of the ultimate costs to
settle incurred claims, both reported and not yet reported.
Our accounting policies regarding self-insurance programs include our
judgments and independent actuarial assumptions regarding economic conditions,
the frequency or severity of claims and claim development patterns, and claim
reserve, management, and settlement practices. Unanticipated changes in these
factors may produce materially different amounts of reported expense under these
programs.
Income Taxes
We estimate certain components of our provision for income taxes. These
estimates include, among other items, effective rates for state and local income
taxes, allowable tax credits for items such as taxes paid on reported tip
income, estimates related to depreciation and amortization expense allowable for
tax purposes, and the tax deductibility of certain other items.
Our estimates are based on the best available information at the time that
we prepare the provision. We generally file our annual income tax returns
several months after our fiscal year-end. Income tax returns are subject to
audit by federal, state, and local governments, generally years after the
returns are filed. These returns could be subject to material adjustments or
differing interpretations of the tax laws.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes accounting standards for the classification and measurement
of certain financial instruments with characteristics of both liabilities and
equity. It requires certain financial instruments that were previously
classified as equity to be classified as assets or liabilities. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. We adopted SFAS No. 150 in the second quarter of
fiscal 2004. Adoption of SFAS No. 150 did not materially impact our consolidated
financial statements.
FORWARD-LOOKING STATEMENTS
Certain statements included in this report and other materials filed or to
be filed by us with the SEC (as well as information included in oral or written
statements made or to be made by us) 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.
Words or phrases such as "believe", "plan", "will", "expect", "intend",
"estimate", and "project", and similar expressions are intended to identify
forward-looking statements. All of these statements, and any other statements in
this report that are not historical facts, are forward-looking. Examples of
forward-looking statements include, but are not limited to, projections
regarding expected casual dining sales growth; the ability of the casual dining
segment to weather economic downturns; demographic trends; our expansion plans,
capital expenditures, and business development activities; and our long-term
goals of increasing market share, expanding margins on incremental sales, and
earnings growth. These forward-looking statements are based on assumptions
concerning important factors, risks, and uncertainties that could significantly
affect anticipated results in the future and, accordingly, could cause the
actual results to differ materially from those expressed in the forward-looking
statements. These factors, risks, and uncertainties include, but are not limited
to the following factors (each of which is discussed in greater detail in our
Annual Report on Form 10-K for the fiscal year ended May 23, 2003):
15
o the highly competitive nature of the restaurant industry, especially
pricing, service, location, personnel, and type and quality of food;
o economic, market, and other conditions, including a protracted economic
slowdown or worsening economy, industry-wide cost pressures, weak consumer
demand, changes in consumer preferences, demographic trends, weather
conditions, construction costs, and the cost and availability of borrowed
funds;
o the price and availability of food, labor, utilities, insurance and media,
and other costs, including seafood costs, employee benefits, workers'
compensation insurance, and the general impact of inflation;
o unfavorable publicity relating to food safety or other concerns, including
litigation alleging poor food quality, food-borne illness, or personal
injury;
o the availability of desirable restaurant locations;
o government regulations, including those relating to zoning, land use,
environmental matters, and liquor licenses; and
o growth plans, including real estate development and construction
activities, the issuance and renewal of licenses and permits for restaurant
development, and the availability of funds to finance growth.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety of market risks, including fluctuations in
interest rates, foreign currency exchange rates, and commodity prices. To manage
this exposure, we periodically enter into interest rate, foreign currency
exchange, and commodity instruments for other than trading purposes.
We use the variance/covariance method to measure value at risk, over time
horizons ranging from one week to one year, at the 95 percent confidence level.
As of August 24, 2003, our potential losses in future net earnings resulting
from changes in foreign currency exchange rate instruments, commodity
instruments, and floating rate debt interest rate exposures were approximately
$1.2 million over a period of one year. The value at risk from an increase in
the fair value of all of our long-term fixed rate debt, over a period of one
year, was approximately $26 million. The fair value of our long-term fixed rate
debt during the first quarter of fiscal 2004 averaged $697 million, with a high
of $714 million and a low of $680 million. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows by targeting an appropriate mix of variable and fixed rate debt.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")) as of August 24, 2003, the end of the
period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of August 24, 2003.
During the fiscal quarter ended August 24, 2003, there was no change in our
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are made a party to legal proceedings arising in the
ordinary course of business. We do not believe that the results of these legal
proceedings, even if unfavorable to us, will have a materially adverse impact on
our financial position, results of operations, or cash flows.
16
Item 5. Other Information
On September 24, 2003, our Board of Directors declared a regular
semi-annual cash dividend of four cents per share on the Company's outstanding
common stock. The dividend is payable on November 1, 2003 to shareholders of
record as of the close of business on October 10, 2003. Also on September 24,
2003, we announced that Dick Rivera, our President and Chief Operating Officer,
had assumed additional responsibility as the President of Red Lobster effective
immediately. Edna Morris, formerly President of Red Lobster, left to pursue new
career opportunities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 12 Computation of Ratio of Consolidated Earnings to
Fixed Charges.
Exhibit 31(a) Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated
October 7, 2003.
Exhibit 31(b) Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, dated
October 7, 2003.
Exhibit 32(a) Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, dated
October 7, 2003.
Exhibit 32(b) Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, dated
October 7, 2003.
(b) Reports on Form 8-K.
During the first quarter, we filed or furnished the following reports
on Form 8-K:
A current report on Form 8-K dated June 19, 2003, announcing
annual and fourth quarter financial results for fiscal 2003.
In addition, we filed or furnished the following reports on Form 8-K
subsequent to the close of the first quarter of fiscal 2004:
A current report on Form 8-K dated September 24, 2003, announcing
first quarter financial results.
A current report on Form 8-K dated September 25, 2003, announcing
the results of our annual meeting of shareholders.
17
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 7, 2003 By: /s/ Paula J. Shives
-----------------------------------
Paula J. Shives
Senior Vice President,
General Counsel and Secretary
Dated: October 7, 2003 By: /s/ Linda J. Dimopoulos
-----------------------------------
Linda J. Dimopoulos
Senior Vice President and Chief
Financial Officer
(Principal financial officer)
18
INDEX TO EXHIBITS
Exhibit
Number Exhibit Title
12 Computation of Ratio of Consolidated Earnings to Fixed Charges.
31(a) Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, dated October 7, 2003.
31(b) Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, dated October 7, 2003.
32(a) Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, dated October 7, 2003.
32(b) Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, dated October 7, 2003.
19
Exhibit 12
DARDEN RESTAURANTS, INC.
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
(Dollar amounts in thousands)
Quarter Ended
-------------------------------------------------------------------------------------------------------------------
August 24, 2003 August 25, 2002
-------------------------------------------------------------------------------------------------------------------
Consolidated earnings from operations before income taxes.............. $ 103,984 $ 109,005
Plus fixed charges:
Gross interest expense.............................................. 11,904 11,926
40% of restaurant and equipment minimum rent expense................ 5,288 5,288
---------- ----------
Total fixed charges................................................. 17,192 17,214
Less capitalized interest.............................................. (1,066) (970)
---------- ----------
Consolidated earnings from operations before income taxes
available to cover fixed charges ................................. $ 120,110 $ 125,249
========== =========
Ratio of consolidated earnings to fixed charges........................ 6.99 7.28
========== ==========
-------------------------------------------------------------------------------------------------------------------
20
Exhibit 31(a)
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Joe R. Lee, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Darden Restaurants,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
October 7, 2003
/s/ Joe R. Lee
- --------------------------------------
Joe R. Lee
Chairman and Chief Executive Officer
21
Exhibit 31(b)
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Linda J. Dimopoulos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Darden Restaurants,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
October 7, 2003
/s/ Linda J. Dimopoulos
- -----------------------
Linda J. Dimopoulos
Senior Vice President and
Chief Financial Officer
22
Exhibit 32(a)
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Darden Restaurants, Inc. ("Company")
on Form 10-Q for the quarter ended August 24, 2003, as filed with the Securities
and Exchange Commission on the date hereof ("Report"), I, Joe R. Lee, Chairman
and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Joe R. Lee
-----------------------------------
Joe R. Lee
Chairman and Chief Executive Officer
October 7, 2003
23
Exhibit 32(b)
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Darden Restaurants, Inc. ("Company")
on Form 10-Q for the quarter ended August 24, 2003, as filed with the Securities
and Exchange Commission on the date hereof ("Report"), I, Linda J. Dimopoulos,
Senior Vice President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Linda J. Dimopoulos
--------------------------
Linda J. Dimopoulos
Senior Vice President and
Chief Financial Officer
October 7, 2003
24