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EXCEL - IDEA: XBRL DOCUMENT - DARDEN RESTAURANTS INCFinancial_Report.xls
EX-32.A - SECTION 906 CERTIFICATION OF CEO - DARDEN RESTAURANTS INCex32aq3fy15.htm
EX-32.B - SECTION 906 CERTIFICATION OF CFO - DARDEN RESTAURANTS INCex32bq3fy15.htm
EX-31.B - SECTION 302 CERTIFICATION OF CFO - DARDEN RESTAURANTS INCex31bq3fy15.htm
EX-31.A - SECTION 302 CERTIFICATION OF CEO - DARDEN RESTAURANTS INCex31aq3fy15.htm
EX-12 - COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES - DARDEN RESTAURANTS INCex12q3fy15.htm

UNITED STATES
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 February 22, 2015
or
o
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
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1000 Darden Center Drive
Orlando, Florida
 
32837
(Address of principal executive offices)
 
(Zip Code)
407-245-4000
(Registrant’s telephone number, including area code)
Not applicable (Former name, former address and former fiscal year, if changed since last report)
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    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
x
  
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x  No
Number of shares of common stock outstanding as of March 13, 2015: 125,792,432 (excluding 1,270,694 shares held in our treasury).



TABLE OF CONTENTS
 

2


Cautionary Statement Regarding Forward-Looking Statements
Statements set forth in or incorporated into this report regarding the expected net increase in the number of our restaurants, U.S. same-restaurant sales, total sales growth, food and beverage expenses, restaurant labor expenses, restaurant expenses, selling, general and administrative expenses, depreciation expenses, diluted net earnings per share growth and capital expenditures in fiscal 2015, potential monetization of our real estate and all other statements that are not historical facts, including without limitation statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Darden Restaurants, Inc. and its subsidiaries that are preceded by, followed by or that include words such as “may,” “will,” “expect,” “intend,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan” or similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This statement is included for purposes of complying with the safe harbor provisions of that Act. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements for any reason to reflect events or circumstances arising after such date. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. The most significant of these uncertainties are described in Darden's Form 10-K, Form 10-Q (including this report) and Form 8-K reports.

3


PART I
FINANCIAL INFORMATION
Item  1. Financial Statements (Unaudited)
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Sales
$
1,730.9

 
$
1,618.5

 
$
4,885.7

 
$
4,635.5

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
Food and beverage
530.7

 
485.5

 
1,518.2

 
1,386.6

Restaurant labor
535.6

 
508.9

 
1,550.7

 
1,491.9

Restaurant expenses
276.0

 
271.4

 
825.7

 
795.9

Total cost of sales, excluding restaurant depreciation and amortization of $73.8, $70.8, $219.8 and $209.8, respectively
$
1,342.3

 
$
1,265.8

 
$
3,894.6

 
$
3,674.4

Selling, general and administrative
134.2

 
154.2

 
484.6

 
494.3

Depreciation and amortization
79.6

 
76.3

 
238.4

 
226.0

Interest, net
23.3

 
33.1

 
168.3

 
98.8

Asset impairment, net
4.4

 

 
51.0

 
1.2

Total costs and expenses
$
1,583.8

 
$
1,529.4

 
$
4,836.9

 
$
4,494.7

Earnings before income taxes
147.1

 
89.1

 
48.8

 
140.8

Income tax expense (benefit)
18.7

 
2.5

 
(29.5
)
 
5.9

Earnings from continuing operations
$
128.4

 
$
86.6

 
$
78.3

 
$
134.9

Earnings from discontinued operations, net of tax expense of $3.1, $9.4, $322.4 and $22.6, respectively
5.4

 
23.1

 
525.9

 
64.8

Net earnings
$
133.8

 
$
109.7

 
$
604.2

 
$
199.7

Basic net earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
1.03

 
$
0.66

 
$
0.61

 
$
1.03

Earnings from discontinued operations
0.04

 
0.18

 
4.10

 
0.50

Net earnings
$
1.07

 
$
0.84

 
$
4.71

 
$
1.53

Diluted net earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
1.01

 
$
0.65

 
$
0.60

 
$
1.02

Earnings from discontinued operations
0.04

 
0.17

 
4.04

 
0.48

Net earnings
$
1.05

 
$
0.82

 
$
4.64

 
$
1.50

Average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
124.6

 
131.3

 
128.2

 
130.7

Diluted
126.9

 
133.4

 
130.1

 
132.9

Dividends declared per common share
$
0.55

 
$
0.55

 
$
1.65

 
$
1.65


See accompanying notes to our unaudited consolidated financial statements.

4


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Net earnings
$
133.8

 
$
109.7

 
$
604.2

 
$
199.7

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency adjustment
(2.0
)
 
(1.7
)
 
3.5

 
(3.6
)
Change in fair value of marketable securities, net of taxes of $0.0, $0.0, $0.0 and $(0.1), respectively

 

 

 
(0.1
)
Change in fair value of derivatives and amortization of unrecognized gains and losses on derivatives, net of taxes of $1.0, $1.3, $16.9 and $3.4, respectively
3.0

 

 
30.4

 
3.7

Net unamortized gain arising during period, including amortization of unrecognized net actuarial loss, net of taxes of $0.6, $1.0, $10.4, and $3.0, respectively
1.0

 
1.6

 
16.4

 
4.8

Other comprehensive income (loss)
$
2.0

 
$
(0.1
)
 
$
50.3

 
$
4.8

Total comprehensive income
$
135.8

 
$
109.6

 
$
654.5

 
$
204.5

See accompanying notes to our unaudited consolidated financial statements.


5


DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
 
February 22,
2015
 
May 25,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
436.2

 
$
98.3

Receivables, net
64.0

 
83.8

Inventories
172.8

 
196.8

Prepaid income taxes
15.5

 
10.9

Prepaid expenses and other current assets
73.5

 
72.3

Deferred income taxes
174.5

 
124.0

Assets held for sale
45.4

 
1,390.3

Total current assets
$
981.9

 
$
1,976.4

Land, buildings and equipment, net of accumulated depreciation and amortization of $2,258.3 and $2,050.2, respectively
3,288.5

 
3,381.0

Goodwill
872.4

 
872.5

Trademarks
574.6

 
574.6

Other assets
285.5

 
296.2

Total assets
$
6,002.9

 
$
7,100.7

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
186.0

 
$
233.1

Short-term debt

 
207.6

Accrued payroll
125.7

 
125.7

Accrued income taxes
116.3

 

Other accrued taxes
49.1

 
64.5

Unearned revenues
379.8

 
299.7

Current portion of long-term debt
15.0

 
15.0

Other current liabilities
478.9

 
457.4

Liabilities associated with assets held for sale

 
215.5

Total current liabilities
$
1,350.8

 
$
1,618.5

Long-term debt, less current portion
1,461.7

 
2,481.4

Deferred income taxes
321.0

 
286.1

Deferred rent
221.0

 
206.2

Obligations under capital leases, net of current installments
50.1

 
52.0

Other liabilities
360.5

 
299.6

Total liabilities
$
3,765.1

 
$
4,943.8

Stockholders’ equity:
 
 
 
Common stock and surplus
$
1,338.8

 
$
1,302.2

Retained earnings
989.0

 
995.8

Treasury stock
(7.8
)
 
(7.8
)
Accumulated other comprehensive income (loss)
(77.8
)
 
(128.1
)
Unearned compensation
(4.4
)
 
(5.2
)
Total stockholders’ equity
$
2,237.8

 
$
2,156.9

Total liabilities and stockholders’ equity
$
6,002.9

 
$
7,100.7


See accompanying notes to our unaudited consolidated financial statements.

6


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the nine months ended February 22, 2015 and February 23, 2014
(In millions)
(Unaudited)
 
 
Common
Stock
And
Surplus
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Unearned
Compensation
 
Total
Stockholders’
Equity
Balance at May 25, 2014
$
1,302.2

 
$
995.8

 
$
(7.8
)
 
$
(128.1
)
 
$
(5.2
)
 
$
2,156.9

Net earnings

 
604.2

 

 

 

 
604.2

Other comprehensive income

 

 

 
50.3

 

 
50.3

Dividends declared

 
(211.2
)
 

 

 

 
(211.2
)
Stock option exercises (2.8 shares)
103.1

 

 

 

 

 
103.1

Stock-based compensation
21.3

 

 

 

 

 
21.3

ESOP note receivable repayments

 

 

 

 
0.8

 
0.8

Income tax benefits credited to equity
9.1

 

 

 

 

 
9.1

Repurchases of common stock (10.0 shares)
(102.5
)
 
(399.8
)
 

 

 

 
(502.3
)
Issuance of stock under Employee Stock Purchase Plan and other plans (0.1 shares)
5.6

 

 

 

 

 
5.6

Balance at February 22, 2015
$
1,338.8

 
$
989.0

 
$
(7.8
)
 
$
(77.8
)
 
$
(4.4
)
 
$
2,237.8

 
 
 
 
 
 
 
 
 
 
 
 
Balance at May 26, 2013
$
1,207.6

 
$
998.9

 
$
(8.1
)
 
$
(132.8
)
 
$
(6.1
)
 
$
2,059.5

Net earnings

 
199.7

 

 

 

 
199.7

Other comprehensive income

 

 

 
4.8

 

 
4.8

Dividends declared

 
(216.2
)
 

 

 

 
(216.2
)
Stock option exercises (1.4 shares)
38.1

 

 
0.3

 

 

 
38.4

Stock-based compensation
20.4

 

 

 

 

 
20.4

ESOP note receivable repayments

 

 

 

 
0.7

 
0.7

Income tax benefits credited to equity
9.5

 

 

 

 

 
9.5

Repurchases of common stock (0.0 shares)
(0.1
)
 
(0.4
)
 

 

 

 
(0.5
)
Issuance of stock under Employee Stock Purchase Plan and other plans (0.1 shares)
5.4

 

 

 

 

 
5.4

Balance at February 23, 2014
$
1,280.9

 
$
982.0

 
$
(7.8
)
 
$
(128.0
)
 
$
(5.4
)
 
$
2,121.7

See accompanying notes to our unaudited consolidated financial statements.


7


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Nine Months Ended
 
February 22,
2015
 
February 23,
2014
Cash flows—operating activities
 
 
 
Net earnings
$
604.2

 
$
199.7

Earnings from discontinued operations, net of tax
(525.9
)
 
(64.8
)
Adjustments to reconcile net earnings from continuing operations to cash flows:
 
 
 
Depreciation and amortization
238.4

 
226.0

Asset impairment charges
51.0

 
1.2

Amortization of loan costs and losses on interest-rate related derivatives
6.7

 
10.3

Stock-based compensation expense
41.3

 
33.2

Change in current assets and liabilities
34.0

 
87.3

Contributions to pension and postretirement plans
(1.1
)
 
(0.9
)
(Gain) loss on disposal of land, buildings and equipment
(0.6
)
 
5.3

Change in cash surrender value of trust-owned life insurance
(5.8
)
 
(10.7
)
Deferred income taxes
(0.4
)
 
(21.7
)
Change in deferred rent
17.2

 
22.2

Change in other assets and liabilities
6.3

 
15.8

Loss on extinguishment of debt
91.3

 

Income tax benefits from exercise of stock-based compensation credited to goodwill
0.1

 
0.1

Other, net
(0.7
)
 
3.4

Net cash provided by operating activities of continuing operations
$
556.0

 
$
506.4

Cash flows—investing activities
 
 
 
Purchases of land, buildings and equipment
(230.1
)
 
(337.5
)
Proceeds from disposal of land, buildings and equipment
24.8

 
1.6

Purchases of marketable securities

 
(3.0
)
Proceeds from sale of marketable securities
9.7

 
8.7

Increase in other assets
(13.2
)
 
(19.7
)
Net cash used in investing activities of continuing operations
$
(208.8
)
 
$
(349.9
)
Cash flows—financing activities
 
 
 
Proceeds from issuance of common stock
107.1

 
43.8

Income tax benefits credited to equity
9.1

 
9.5

Dividends paid
(209.3
)
 
(215.7
)
Repurchases of common stock
(502.3
)
 
(0.5
)
ESOP note receivable repayment
0.8

 
0.7

Proceeds from issuance of short-term debt
397.4

 
1,832.8

Repayments of short-term debt
(605.0
)
 
(1,815.8
)
Repayment of long-term debt
(1,065.9
)
 

Payment of debt issuance costs

 
(1.4
)
Principal payments on capital leases
(1.7
)
 
(1.5
)
Proceeds from financing lease obligation
93.1

 

Net cash used in financing activities of continuing operations
$
(1,776.7
)
 
$
(148.1
)
Cash flows—discontinued operations
 
 
 
Net cash (used in) provided by operating activities of discontinued operations
(216.6
)
 
160.3

Net cash provided by (used in) investing activities of discontinued operations
1,984.0

 
(129.9
)
Net cash provided by discontinued operations
$
1,767.4

 
$
30.4

 
 
 
 
Increase in cash and cash equivalents
337.9

 
38.8

Cash and cash equivalents - beginning of period
98.3

 
88.2

Cash and cash equivalents - end of period
$
436.2

 
$
127.0

 
 
 
 
See accompanying notes to our unaudited consolidated financial statements.











8


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
 
Nine Months Ended
 
February 22,
2015
 
February 23,
2014
Cash flows from changes in current assets and liabilities
 
 
 
Receivables, net
18.7

 
16.7

Inventories
55.6

 
(34.2
)
Prepaid expenses and other current assets
(5.0
)
 
1.5

Accounts payable
(43.5
)
 
23.3

Accrued payroll
8.0

 
3.5

Prepaid/accrued income taxes
(55.7
)
 
(7.3
)
Other accrued taxes
(2.3
)
 
(2.5
)
Unearned revenues
75.0

 
63.1

Other current liabilities
(16.8
)
 
23.2

Change in current assets and liabilities
$
34.0

 
$
87.3

 
 
 
 
 
 
 
 
Supplemental schedule of noncash investing activities:
 
 
 
Increase in land, buildings and equipment through accrued purchases
$
18.9

 
$
34.2


See accompanying notes to our unaudited consolidated financial statements.


9

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)




Note 1.Basis of Presentation
Darden Restaurants, Inc. (we, our, Darden or the Company) owns and operates full-service dining restaurants in the United States and Canada under the trade names Olive Garden®, LongHorn Steakhouse®, The Capital Grille®, Yard House®, Bahama Breeze®, Seasons 52®, Eddie V's Prime Seafood® and Wildfish Seafood Grille®. We have prepared these consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. We operate on a 52/53 week fiscal year, which ends on the last Sunday in May and our fiscal year ending May 31, 2015 will contain 53 weeks of operation. Operating results for the quarter ended February 22, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2015.
These statements should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 25, 2014. The accounting policies used in preparing these consolidated financial statements are the same as those described in our Form 10-K.
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. 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 sales and costs and expenses during the reporting period. Actual results could differ from those estimates.
Red Lobster Sale
On May 15, 2014, we entered into an agreement to sell Red Lobster and certain related assets and associated liabilities and closed on the sale on July 28, 2014. For the quarters and nine months ended February 22, 2015 and February 23, 2014, all gains on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to Red Lobster and two closed synergy locations, have been aggregated in a single caption entitled “Earnings from discontinued operations, net of tax expense” in our consolidated statements of earnings for all periods presented. See Note 2 - Dispositions for additional information.
Note 2.Dispositions
On July 28, 2014, we closed on the sale of 705 Red Lobster restaurants, however, as of February 22, 2015, 17 of the properties remain subject to landlord consents and satisfaction of other contractual requirements, which are expected to be satisfied within the next six months. Therefore, the assets of these remaining restaurants continue to be classified as held for sale and recognition of the gain on the related proceeds was deferred. The proceeds of approximately $53.2 million associated with landlord consents are classified as other current liabilities on our consolidated balance sheet as of February 22, 2015. As the landlord consents and remaining contractual requirements are satisfied, we will derecognize the related assets and record the commensurate gain on the transaction. In conjunction with the sale of Red Lobster, there were 19 locations where Red Lobster shared a land parcel with another Darden brand. The land and related buildings for these 19 Darden locations were included in the sale transaction and simultaneously leased back to Darden. The proceeds associated with the sale of these properties are classified as a financing lease obligation on our consolidated balance sheet as a component of other liabilities and the associated lease payments will amortize the obligation over the life of the properties. Additionally, in the fourth quarter of fiscal 2014, in connection with the expected sale of Red Lobster, we closed two of the six restaurants that housed both a Red Lobster and an Olive Garden in the same building (synergy restaurants). In the first quarter of fiscal 2015, we completed the conversion of the four remaining synergy restaurants to stand-alone Olive Garden restaurants.
As of February 22, 2015, we received $2.08 billion in cash proceeds, net of transaction-related costs of approximately $29.3 million. During the nine months ended February 22, 2015, we recognized a gain on the sale of Red Lobster of $825.9 million, which is included in earnings from discontinued operations in our consolidated statement of earnings.
For the quarters and nine months ended February 22, 2015 and February 23, 2014, all gains on disposition, impairment charges and disposal costs, along with the sales, costs and expenses and income taxes attributable to these restaurants, have been aggregated in a single caption entitled “Earnings from discontinued operations, net of tax expense” in our consolidated statements of earnings for all periods presented. No amounts for shared general and administrative operating support expense or interest expense were allocated to discontinued operations. Assets associated with those restaurants not yet disposed of, that are considered held for sale, have been segregated from continuing operations and presented as assets held for sale on our

10

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



accompanying consolidated balance sheets. In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update modifies the requirements for reporting discontinued operations. Under the amendments in ASU 2014-08, the definition of discontinued operation has been modified to only include those disposals of an entity that represent a strategic shift that has (or will have) a major effect on an entity's operations and financial results. This update also expands the disclosure requirements for disposals that meet the definition of a discontinued operation and requires entities to disclose information about disposals of individually significant components that do not meet the definition of discontinued operations. We elected to early adopt these provisions in the third quarter of fiscal 2015.
Earnings from discontinued operations, net of taxes in our accompanying consolidated statements of earnings are comprised of the following:
 
Three Months Ended
 
Nine Months Ended
(in millions)
February 22, 2015
 
February 23, 2014
 
February 22, 2015
 
February 23, 2014
Sales
$

 
$
614.5

 
$
400.4

 
$
1,805.9

 
 
 
 
 
 
 
 
Total cost of sales
(0.6
)
 
495.0

 
324.0

 
1,457.8

Selling, general and administrative (1)
(7.9
)
 
54.8

 
(772.1
)
 
164.8

Depreciation and amortization

 
32.2

 
0.2

 
95.9

Earnings before income taxes
8.5

 
32.5

 
848.3

 
87.4

Income tax expense
3.1

 
9.4

 
322.4

 
22.6

Earnings from discontinued operations, net of tax
$
5.4

 
$
23.1

 
$
525.9

 
$
64.8

(1)
Amounts for the quarter and nine months ended February 22, 2015 include the gain recognized on the sale of Red Lobster.

The following table presents the carrying amounts of the major classes of assets and liabilities classified as held for sale on our accompanying consolidated balance sheets:
(in millions)
February 22, 2015
 
May 25,
 2014
Current assets
$

 
$
241.0

Land, buildings and equipment, net
45.4

 
1,084.8

Other assets

 
64.5

Total assets
$
45.4

 
$
1,390.3

 
 
 
 
Current liabilities
$

 
$
130.6

Other liabilities

 
84.9

Total liabilities
$

 
$
215.5

During the quarter ended February 22, 2015, we divested all of our interest in our lobster aquaculture activities and we have no further commitments or obligations with respect to such activities. This divestiture did not represent a strategic shift in our operations, and, accordingly, it did not meet the definition to be reported as a discontinued operation.
Note 3.Supplemental Cash Flow Information
 
 
Nine Months Ended
(in millions)
 
February 22, 2015
 
February 23, 2014
Interest paid, net of amounts capitalized
 
$
107.9

 
$
66.0

Income taxes paid, net of refunds
 
203.7

 
63.5


11

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



For the nine months ended February 22, 2015, interest paid includes payments associated with the retirement of long-term debt (see Note 14 - Long-Term Debt for further information), of $44.0 million in addition to $12.8 million of interest accrued through the date of the retirement. For the nine months ended February 22, 2015, income taxes paid includes tax payments associated with the gain on the sale of Red Lobster.
Note 4.Stock-Based Compensation
We grant stock options for a fixed number of shares to certain employees and directors with an exercise price equal to the fair value of the shares at the date of grant. We also grant restricted stock, restricted stock units, and performance stock units with a fair value determined based on our closing stock price on the date of grant. In addition, we also grant cash settled stock units (Darden Stock Units) and cash settled performance stock units, which are classified as liabilities and are marked to market as of the end of each period.
The weighted-average fair value of non-qualified stock options and the related assumptions used in the Black-Scholes option pricing model were as follows: 
 
Stock Options Granted
 
Nine Months Ended
 
February 22, 2015
 
February 23, 2014
Weighted-average fair value
$
10.59

 
$
12.05

Dividend yield
4.5
%
 
4.4
%
Expected volatility of stock
37.3
%
 
39.6
%
Risk-free interest rate
2.1
%
 
1.9
%
Expected option life (in years)
6.5

 
6.4

 
The following table presents a summary of our stock-based compensation activity for the nine months ended February 22, 2015: 
(in millions)
 
Stock
Options
 
Restricted
Stock/
Restricted
Stock
Units
 
Darden
Stock
Units
 
Performance
Stock Units
Outstanding beginning of period
 
11.2

 
0.2

 
2.1

 
0.3

Awards granted
 
1.2

 

 
0.4

 
0.1

Awards exercised
 
(2.8
)
 
(0.1
)
 
(0.4
)
 
(0.1
)
Awards forfeited
 
(0.4
)
 

 
(0.7
)
 
(0.2
)
Performance unit adjustment
 

 

 

 
0.3

Outstanding end of period
 
9.2

 
0.1

 
1.4

 
0.4

We recognized expense from stock-based compensation as follows: 
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Stock options (1)
 
$
2.4

 
$
3.6

 
$
17.1

 
$
15.1

Restricted stock/restricted stock units (1)
 
0.5

 
(0.3
)
 
1.6

 
0.5

Darden stock units
 
4.1

 
2.2

 
8.9

 
10.1

Performance stock units (1)
 
3.6

 
0.2

 
11.6

 
4.3

Employee stock purchase plan
 
0.3

 
0.5

 
1.0

 
1.4

Director compensation program/other
 
0.5

 
0.1

 
1.1

 
1.8

Total stock-based compensation expense
 
$
11.4

 
$
6.3

 
$
41.3

 
$
33.2

(1)
The increase for the nine months ended February 22, 2015 is primarily attributable to the workforce reduction efforts further discussed in Note 12.

12

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



As of the effective date of the Red Lobster sale, all outstanding, unvested stock options, restricted stock and Darden stock units held by Darden employees that transferred to Red Lobster were either vested on a pro-rata basis or canceled. Approximately 23.7 thousand performance stock units remain outstanding and are expected to be settled on a pro-rata basis on the scheduled dates in the first quarter of fiscal 2016 and 2017 when the applicable performance factors are determined.
Our stock plan award agreements in place prior to October 2014 contain a change-in-control provision, where, following a change-in-control, the awards fully vest upon a qualifying termination. Following our 2014 annual meeting of shareholders, qualifying terminations during the 24-month period ending October 2016 will require all unvested awards granted prior to the 2014 annual meeting to be immediately vested.
Note 5.Income Taxes
The effective income tax rate for the quarter and nine months ended February 22, 2015 was 12.7 percent and (60.5) percent, respectively, compared to an effective income tax rate of 2.8 percent and 4.2 percent for the quarter and nine months ended February 23, 2014, respectively. The change in the effective income tax rate for the quarter ended February 22, 2015 as compared to the quarter ended February 23, 2014 is primarily attributable to an increase in earnings before income taxes. The change in the effective income tax rate for the nine months ended February 22, 2015 as compared to the nine months ended February 23, 2014 is primarily attributable to an increase in the impact of FICA tax credits for employee reported tips on lower earnings before income taxes resulting from significant charges from debt breakage costs, asset impairments and workforce reduction costs. Excluding the impact of these costs, the related tax benefits and other discrete items, our effective income tax rate for the nine months ended February 22, 2015 would have been approximately 19.5 percent.
Included in our remaining balance of unrecognized tax benefits is $30.0 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations or as a result of the expiration of the statute of limitations for specific jurisdictions.
Note 6.Net Earnings per Share
Outstanding stock options and restricted stock granted by us represent the only dilutive effect reflected in diluted weighted average shares outstanding. Stock options and restricted stock do not impact the numerator of the diluted net earnings per share computation. Stock options and restricted stock excluded from the calculation of diluted net earnings per share because the effect would have been anti-dilutive, are as follows: 
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Anti-dilutive stock options and restricted stock
 

 
4.5

 
1.5

 
4.1


Note 7.Stockholders' Equity
Share Repurchase Program
In July 2014, as part of the previously authorized share repurchase program, we entered into accelerated share repurchase (ASR) agreements with Goldman, Sachs & Co. and Wells Fargo Bank, National Association (Dealers). The ASR program provided for the repurchase of an aggregate of $500.0 million of our common stock.  Under the ASR agreements, we paid an aggregate of $500.0 million to the Dealers in August 2014 and received an initial delivery of approximately 8.6 million shares on October 1, 2014. In December 2014, the ASR program was completed and we received the final delivery of approximately 1.3 million shares. The total number of shares we purchased in connection with the ASR transactions was based on a combined discounted volume-weighted average price (VWAP) of $50.12 per share which was determined based on the average of the daily VWAP of our common stock over the duration of the program, less an agreed discount. Upon receipt, the repurchased shares were retired and restored to authorized but unissued shares of common stock.

13

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)





Accumulated Other Comprehensive Income (Loss) (AOCI)
The components of accumulated other comprehensive income (loss), net of tax, for the quarters ended February 22, 2015 and February 23, 2014 are as follows:

(in millions)
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) on Marketable Securities
 
Unrealized Gains (Losses) on Derivatives
 
Benefit Plan Funding Position
 
Accumulated Other Comprehensive Income (Loss)
Balance at November 23, 2014
$
0.8

 
$
0.1

 
$
(23.0
)
 
$
(57.7
)
 
$
(79.8
)
Gain (loss)
(2.0
)
 

 
1.4

 

 
(0.6
)
Reclassification realized in net earnings

 

 
1.6

 
1.0

 
2.6

Balance at February 22, 2015
$
(1.2
)
 
$
0.1

 
$
(20.0
)
 
$
(56.7
)
 
$
(77.8
)
 
 
 
 
 
 
 
 
 
 
Balance at November 24, 2013
$
(3.7
)
 
$
0.1

 
$
(50.1
)
 
$
(74.2
)
 
$
(127.9
)
Gain (loss)
(1.7
)
 

 
(1.1
)
 

 
(2.8
)
Reclassification realized in net earnings

 

 
1.1

 
1.6

 
2.7

Balance at February 23, 2014
$
(5.4
)
 
$
0.1

 
$
(50.1
)
 
$
(72.6
)
 
$
(128.0
)

The components of accumulated other comprehensive income (loss), net of tax, for the nine months ended February 22, 2015 and February 23, 2014 are as follows:
(in millions)
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) on Marketable Securities
 
Unrealized Gains (Losses) on Derivatives
 
Benefit Plan Funding Position
 
Accumulated Other Comprehensive Income (Loss)
Balance at May 25, 2014
$
(4.7
)
 
$
0.1

 
$
(50.4
)
 
$
(73.1
)
 
$
(128.1
)
Gain (loss)
(3.8
)
 

 
2.1

 
14.6

 
12.9

Reclassification realized in net earnings
7.3

 

 
28.3

 
1.8

 
37.4

Balance at February 22, 2015
$
(1.2
)
 
$
0.1

 
$
(20.0
)
 
$
(56.7
)
 
$
(77.8
)
 
 
 
 
 
 
 
 
 
 
Balance at May 26, 2013
$
(1.8
)
 
$
0.2

 
$
(53.8
)
 
$
(77.4
)
 
$
(132.8
)
Gain (loss)
(3.6
)
 
(0.1
)
 
(1.6
)
 

 
(5.3
)
Reclassification realized in net earnings

 

 
5.3

 
4.8

 
10.1

Balance at February 23, 2014
$
(5.4
)
 
$
0.1

 
$
(50.1
)
 
$
(72.6
)
 
$
(128.0
)


14

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The following table presents the amounts and line items in our consolidated statements of earnings where adjustments reclassified from AOCI into net earnings were recorded:
 
 
 
Amount Reclassified from AOCI into Net Earnings
 
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
AOCI Components
Location of Gain (Loss) Recognized in Earnings
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Derivatives
 
 
 
 
 
 
 
 
 
Commodity contracts
(1)
 
$

 
$
0.6

 

 
(0.1
)
Equity contracts
(2)
 

 

 
(0.9
)
 
(0.7
)
Interest rate contracts
Interest, net
 
(2.5
)
 
(2.6
)
 
(44.4
)
 
(7.8
)
Foreign currency contracts
(2)
 

 
0.2

 

 
0.5

Total before tax
 
 
$
(2.5
)
 
$
(1.8
)
 
$
(45.3
)
 
$
(8.1
)
Tax benefit
 
 
0.9

 
0.7

 
17.0

 
2.8

Net of tax
 
 
$
(1.6
)
 
$
(1.1
)
 
$
(28.3
)
 
$
(5.3
)
 
 
 
 
 
 
 
 
 
 
Benefit plan funding position
 
 
 
 
 
 
 
 
 
Recognized net actuarial loss - pension/postretirement plans
(3)
 
$
(0.6
)
 
$
(2.2
)
 
$
(1.9
)
 
$
(6.8
)
Recognized net actuarial loss - other plans
(4)
 
(1.0
)
 
(0.4
)
 
(1.3
)
 
(1.0
)
Total before tax
 
 
$
(1.6
)
 
$
(2.6
)
 
$
(3.2
)
 
$
(7.8
)
Tax benefit
 
 
0.6

 
1.0

 
1.4

 
3.0

Net of tax
 
 
$
(1.0
)
 
$
(1.6
)
 
$
(1.8
)
 
$
(4.8
)
(1)
Primarily included in cost of sales. See Note 9 for additional details.
(2)
Primarily included in cost of sales and selling, general and administrative expenses. See Note 9 for additional details.
(3)
Included in the computation of net periodic benefit costs - pension and postretirement plans, which is a component of restaurant labor expenses and selling, general and administrative expenses. See Note 8 for additional details.
(4)
Included in the computation of net periodic benefit costs - other plans, which is a component of selling, general and administrative expenses.
Note 8.Retirement Plans
Components of net periodic benefit cost are as follows:
 
 
Defined Benefit Plans
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Service cost
 
$
0.4

 
$
1.1

 
$
0.9

 
$
3.3

Interest cost
 
2.5

 
2.6

 
7.5

 
7.7

Expected return on plan assets
 
(3.8
)
 
(4.3
)
 
(11.4
)
 
(12.9
)
Recognized net actuarial loss
 
0.6

 
2.2

 
1.9

 
6.8

Net periodic benefit (credit) cost
 
$
(0.3
)
 
$
1.6

 
$
(1.1
)
 
$
4.9

 

15

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



 
 
Postretirement Benefit Plan
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
February 22,
2015
 
February 23,
2014
 
February 22,
2015
 
February 23,
2014
Service cost
 
$
0.1

 
$
0.2

 
$
0.4

 
$
0.6

Interest cost
 

 
0.4

 
0.8

 
1.0

Unrecognized prior service cost
 
(1.6
)
 

 
(1.6
)
 

Recognized net actuarial loss
 
0.3

 

 
0.6

 

Net periodic benefit (credit) cost
 
$
(1.2
)
 
$
0.6

 
$
0.2

 
$
1.6


During the second quarter of fiscal 2015, the retiree health care plan was changed from a self-insured plan to a retiree health exchange with a subsidy to eligible participants through a Health Reimbursement Account (HRA). As a result of these changes, the plan was remeasured resulting in a $23.7 million pre-tax reduction in the accumulated postretirement benefit obligation which is reflected as a prior year service credit. This credit is being amortized into expense over the expected remaining service period of the fully eligible active participant population and is expected to reduce fiscal 2015 expense by $3.4 million.
Note 9.Derivative Instruments and Hedging Activities
We enter into derivative instruments solely for risk management purposes, including derivatives designated as hedging instruments as required by ASC Topic 815, Derivatives and Hedging, and those utilized as economic hedges. We use financial and commodities derivatives to manage interest rate, compensation and commodities pricing and foreign currency exchange rate risks inherent in our business operations. To the extent our cash-flow hedging instruments are effective in offsetting the variability of the hedged cash flows, and otherwise meet the cash flow hedge accounting criteria required by ASC Topic 815, changes in the derivatives’ fair value are not included in current earnings but are included in accumulated other comprehensive income (loss), net of tax. These changes in fair value will be reclassified into earnings at the time of the forecasted transaction. Ineffectiveness measured in the hedging relationship is recorded currently in earnings in the period in which it occurs. To the extent our fair-value hedging instruments are effective in mitigating changes in fair value, and otherwise meet the fair value hedge accounting criteria required by ASC Topic 815, gains and losses in the derivatives’ fair value are included in current earnings, as are the gains and losses of the related hedged item. To the extent the hedge accounting criteria are not met, the derivative contracts are utilized as economic hedges and changes in the fair value of such contracts are recorded currently in earnings in the period in which they occur.
By using these instruments, we expose ourselves, from time to time, to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. We minimize this credit risk by entering into transactions with high quality counterparties. We currently do not have any provisions in our agreements with counterparties that would require either party to hold or post collateral in the event that the market value of the related derivative instrument exceeds a certain limit. As such, the maximum amount of loss due to counterparty credit risk we would incur at February 22, 2015, if counterparties to the derivative instruments failed completely to perform, would approximate the values of derivative instruments currently recognized as assets in our consolidated balance sheet. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices, currency prices, or the market price of our common stock. We minimize this market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
We are currently party to interest-rate swap agreements with $200.0 million of notional value to limit the risk of changes in fair value of $100.0 million of the $121.9 million 4.500 percent senior notes due October 2021 and $100.0 million of the $500.0 million 6.200 percent senior notes due October 2017. The swap agreements effectively swap the fixed-rate obligations for floating-rate obligations, thereby mitigating changes in fair value of the related debt prior to maturity. The swap agreements were designated as fair value hedges of the related debt and met the requirements to be accounted for under the short-cut method, resulting in no ineffectiveness in the hedging relationship. During each of the quarters ended February 22, 2015 and February 23, 2014, $0.5 million was recorded as a reduction to interest expense related to the net swap settlements. During the nine months ended February 22, 2015 and February 23, 2014, $2.3 million and $1.6 million, respectively, was recorded as a reduction to interest expense related to the net swap settlements.

16

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



We enter into equity forward contracts to hedge the risk of changes in future cash flows associated with the unvested, unrecognized Darden stock units. The equity forward contracts will be settled at the end of the vesting periods of their underlying Darden stock units, which range between four and five years. The contracts were initially designated as cash flow hedges to the extent the Darden stock units are unvested and, therefore, unrecognized as a liability in our financial statements. As of February 22, 2015, we were party to equity forward contracts that were indexed to 0.8 million shares of our common stock, at varying forward rates between $31.19 per share and $52.66 per share, extending through August 2018. The forward contracts can only be net settled in cash. As the Darden stock units vest, we will de-designate that portion of the equity forward contract that no longer qualifies for hedge accounting and changes in fair value associated with that portion of the equity forward contract will be recognized in current earnings. We periodically incur interest on the notional value of the contracts and receive dividends on the underlying shares. These amounts are recognized currently in earnings as they are incurred.
We entered into equity forward contracts to hedge the risk of changes in future cash flows associated with cash-settled performance stock units and employee-directed investments in Darden stock within the non-qualified deferred compensation plan. The equity forward contracts are indexed to 0.2 million shares of our common stock at forward rates between $46.17 and $51.95 per share, can only be net settled in cash and expire between fiscal 2016 and 2019. We did not elect hedge accounting with the expectation that changes in the fair value of the equity forward contracts would offset changes in the fair value of the performance stock units and Darden stock investments in the non-qualified deferred compensation plan within selling, general and administrative expenses in our consolidated statements of earnings.
The notional values and fair value of our derivative contracts are as follows: 
  
Notional Values
 
Balance
Sheet
Location
 
Derivative Assets
 
Derivative Liabilities
(in millions)
February 22,
2015
 
May 25,
2014
 
February 22,
2015
 
May 25,
2014
 
February 22,
2015
 
May 25,
2014
Derivative contracts designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$

 
$
0.9

 
(1)
 
$

 
$

 
$

 
$

Equity forwards
13.6

 
20.6

 
(1)
 
0.2

 

 

 
(0.5
)
Interest rate related
200.0

 
200.0

 
(1)
 
2.2

 
1.6

 

 

Foreign currency forwards

 
0.3

 
(1)
 

 
0.1

 

 

 
 
 
 
 
 
 
$
2.4

 
$
1.7

 
$

 
$
(0.5
)
Derivative contracts not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Equity forwards
$
49.6

 
$
47.4

 
(1)
 
0.6

 

 

 
(1.2
)
 
 
 
 
 
 
 
$
0.6

 
$

 
$

 
$
(1.2
)
Total derivative contracts
 
$
3.0

 
$
1.7

 
$

 
$
(1.7
)
 
(1)
Derivative assets and liabilities are included in receivables, net, prepaid expenses and other current assets and other current liabilities, as applicable, on our consolidated balance sheets.


17

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The effects of derivative instruments in cash flow hedging relationships in the consolidated statements of earnings are as follows:
(in millions)
 
Amount of Gain (Loss)
Recognized in AOCI
(effective portion)
 
Location of
Gain (Loss)
Reclassified
from AOCI to
Earnings
 
Amount of Gain (Loss)
Reclassified from AOCI to
Earnings (effective portion)
 
Location of
Gain (Loss)
Recognized
in Earnings
(ineffective
portion)
 
(1) Amount of Gain (Loss)
Recognized in Earnings
(ineffective portion)
 
 
Three Months Ended
 
 
 
Three Months Ended
 
 
 
Three Months Ended
Type of Derivative
 
February 22,
2015
 
February 23,
2014
 
 
 
February 22,
2015
 
February 23,
2014
 
 
 
February 22,
2015
 
February 23,
2014
Commodity
 
$

 
$
1.2

 
(2)
 
$

 
$
0.6

 
(2)
 
$

 
$

Equity
 
1.4

 
(2.1
)
 
(3)
 

 

 
(3)
 
0.2

 
0.4

Interest rate
 

 

 
Interest, net
 
(2.5
)
 
(2.6
)
 
Interest, net
 

 

Foreign currency
 

 
0.4

 
(4)
 

 
0.2

 
(4)
 

 

 
 
$
1.4

 
$
(0.5
)
 
 
 
$
(2.5
)
 
$
(1.8
)
 
 
 
$
0.2

 
$
0.4


(in millions)
 
Amount of Gain (Loss)
Recognized in AOCI
(effective portion)
 
Location of
Gain (Loss)
Reclassified
from AOCI to
Earnings
 
Amount of Gain (Loss)
Reclassified from AOCI to
Earnings (effective portion)
 
Location of
Gain (Loss)
Recognized
in Earnings
(ineffective
portion)
 
(1) Amount of Gain (Loss)
Recognized in Earnings
(ineffective portion)
 
 
Nine Months Ended
 
 
 
Nine Months Ended
 
 
 
Nine Months Ended
Type of Derivative
 
February 22,
2015
 
February 23,
2014
 
 
 
February 22,
2015
 
February 23,
2014
 
 
 
February 22,
2015
 
February 23,
2014
Commodity
 
$

 
$
0.9

 
(2)
 
$

 
$
(0.1
)
 
(2)
 
$

 
$

Equity
 
2.1

 
(2.5
)
 
(3)
 
(0.9
)
 
(0.7
)
 
(3)
 
0.8

 
1.0

Interest rate
 

 

 
Interest, net
 
(44.4
)
 
(7.8
)
 
Interest, net
 

 

Foreign currency
 

 
0.6

 
(4)
 

 
0.5

 
(4)
 

 

 
 
$
2.1

 
$
(1.0
)
 
 
 
$
(45.3
)
 
$
(8.1
)
 
 
 
$
0.8

 
$
1.0


 
(1)
Generally, all of our derivative instruments designated as cash flow hedges have some level of ineffectiveness, which is recognized currently in earnings. However, as these amounts are generally nominal and our consolidated financial statements are presented “in millions,” these amounts may appear as zero in this tabular presentation.
(2)
Location of the gain (loss) reclassified from AOCI to earnings as well as the gain (loss) recognized in earnings for the ineffective portion of the hedge is food and beverage costs and restaurant expenses, which are components of cost of sales.
(3)
Location of the gain (loss) reclassified from AOCI to earnings as well as the gain (loss) recognized in earnings for the ineffective portion of the hedge is restaurant labor expenses, which is a component of cost of sales, and selling, general and administrative expenses.
(4)
Location of the gain (loss) reclassified from AOCI to earnings as well as the gain (loss) recognized in earnings for the ineffective portion of the hedge is food and beverage costs, which is a component of cost of sales, and selling, general and administrative expenses.
 

18

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



The effects of derivative instruments in fair value hedging relationships in the consolidated statements of earnings are as follows:
(in millions)
 
Amount of Gain (Loss)
Recognized in Earnings on
Derivatives
 
Location of
Gain (Loss)
Recognized in
Earnings on
Derivatives
 
Hedged Item in
Fair Value Hedge
Relationship
 
Amount of Gain (Loss)
Recognized in Earnings on
Related Hedged Item
 
Location of
Gain (Loss)
Recognized in
Earnings on
Related
Hedged Item
 
 
Three Months Ended
 
 
 
 
 
Three Months Ended
 
 
 
 
February 22,
2015
 
February 23,
2014
 
 
 
 
 
February 22,
2015
 
February 23,
2014
 
 
Interest rate
 
$
0.1

 
$
0.7

 
Interest, net
 
Fixed-rate debt
 
$
(0.1
)
 
$
(0.7
)
 
Interest, net

(in millions)
 
Amount of Gain (Loss)
Recognized in Earnings on
Derivatives
 
Location of
Gain (Loss)
Recognized in
Earnings on
Derivatives
 
Hedged Item in
Fair Value Hedge
Relationship
 
Amount of Gain (Loss)
Recognized in Earnings on
Related Hedged Item
 
Location of
Gain (Loss)
Recognized in
Earnings on
Related
Hedged Item
 
 
Nine Months Ended
 
 
 
 
 
Nine Months Ended
 
 
 
 
February 22,
2015
 
February 23,
2014
 
 
 
 
 
February 22,
2015
 
February 23,
2014
 
 
Interest rate
 
$
0.6

 
$
(0.7
)
 
Interest, net
 
Fixed-rate debt
 
$
(0.6
)
 
$
0.7

 
Interest, net

The effects of derivatives not designated as hedging instruments in the consolidated statements of earnings are as follows:
  
 
Location of Gain (Loss) Recognized
 in Earnings on Derivatives
 
Amount of Gain (Loss) Recognized in Earnings
 
 
Three Months Ended
 
Nine Months Ended
 
 
February 22, 2015
 
February 23, 2014
 
February 22, 2015
 
February 23, 2014
(in millions)
 
 
 
 
Commodity contracts
 
Cost of Sales (1)
 
$

 
$
0.5

 
$

 
$
0.1

Equity forwards
 
Cost of Sales (2)
 
1.7

 
(0.6
)
 
2.9

 
(0.3
)
Equity forwards
 
Selling, General and Administrative
 
3.9

 
(1.6
)
 
6.7

 
(0.6
)
 
 
 
 
$
5.6

 
$
(1.7
)
 
$
9.6

 
$
(0.8
)
 
(1)
Location of the gain (loss) recognized in earnings is food and beverage costs and restaurant expenses, which are components of cost of sales.
(2)
Location of the gain (loss) recognized in earnings is restaurant labor expenses, which is a component of cost of sales.
Based on the fair value of our derivative instruments designated as cash flow hedges as of February 22, 2015, we expect to reclassify $4.7 million of net losses on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next 12 months based on the maturity of our equity forward contracts and amortization of deferred losses on settled interest-rate related instruments. However, the amounts ultimately realized in earnings will be dependent on the fair value of the contracts on the settlement dates.

19

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



Note 10. Fair Value Measurements
The fair values of cash equivalents, accounts receivable, accounts payable and short-term debt approximate their carrying amounts due to their short duration.
The following tables summarize the fair values of financial instruments measured at fair value on a recurring basis as reflected on our consolidated balance sheets as of February 22, 2015 and May 25, 2014: 
Items Measured at Fair Value at February 22, 2015
(in millions)
 
 
Fair value
of assets
(liabilities)
 
Quoted prices
in active
market for
identical assets
(liabilities)
(Level 1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Fixed-income securities:
 
 
 
 
 
 
 
 
 
Corporate bonds
(1
)
 
$
2.3

 
$

 
$
2.3

 
$

U.S. Treasury securities
(2
)
 
5.0

 
5.0

 

 

Mortgage-backed securities
(1
)
 
1.5

 

 
1.5

 

Derivatives:
 
 
 
 
 
 
 
 
 
Equity forwards
(3
)
 
0.8

 

 
0.8

 

Interest rate swaps
(4
)
 
2.2

 

 
2.2

 

Total
 
 
$
11.8

 
$
5.0