- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (MarkOne) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 27, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ............ to ............ ------------------------ 1-13666 Commission File Number ------------------------ DARDEN RESTAURANTS, INC. (Exact name of registrant as specified in its charter) Florida 59-3305930 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 5900 Lake Ellenor Drive, Orlando, Florida 32809 (Address of principal executive offices) (Zip Code) 407-245-4000 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ----- ----- ------------------------ APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares of common stock outstanding as of March 28, 2000: 123,729,845 (excluding 42,091,805 shares held in treasury). - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
DARDEN RESTAURANTS, INC. TABLE OF CONTENTS Page Part I - Financial Information Item 1. Financial Statements Consolidated Statements of Earnings 3 Consolidated Balance Sheets 5 Consolidated Statements of Changes in Stockholders' Equity 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Index to Exhibits 16 2
PART I FINANCIAL INFORMATION Item 1. Financial Statements DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands, Except per Share Data) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 27, 2000 February 28, 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Sales........................................................ $ 917,505 $ 866,907 Costs and Expenses: Cost of sales: Food and beverages...................................... 295,289 284,272 Restaurant labor........................................ 295,031 280,458 Restaurant expenses..................................... 123,900 119,667 ---------- ---------- Total Cost of sales................................... $ 714,220 $ 684,397 Selling, general and administrative....................... 90,934 88,156 Depreciation and amortization............................. 32,990 31,415 Interest, net............................................. 6,646 4,422 ---------- ---------- Total Costs and Expenses............................ $ 844,790 $ 808,390 ---------- ---------- Earnings before Income Taxes................................. 72,715 58,517 Income Taxes................................................. (25,823) (20,164) ---------- ---------- Net Earnings................................................. $ 46,892 $ 38,353 ========== ========== Net Earnings per Share: Basic .................................................... $ 0.37 $ 0.28 ========== ========== Diluted................................................... $ 0.36 $ 0.27 ========== ========== Average Number of Common Shares Outstanding: Basic .................................................... 127,700 137,100 ========== ========== Diluted................................................... 130,500 141,200 ========== ========== - -------------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes to consolidated financial statements. 3
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands, Except per Share Data) (Unaudited) <TABLE> <CAPTION> Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 27, 2000 February 28, 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Sales........................................................ $ 2,695,127 $ 2,544,132 Costs and Expenses: Cost of sales: Food and beverages...................................... 865,919 838,303 Restaurant labor........................................ 870,208 828,762 Restaurant expenses..................................... 383,183 372,342 ----------- ----------- Total Cost of sales................................... $ 2,119,310 $ 2,039,407 Selling, general and administrative....................... 279,292 259,299 Depreciation and amortization............................. 96,131 93,738 Interest, net............................................. 16,487 14,643 ----------- ----------- Total Costs and Expenses............................ $ 2,511,220 $ 2,407,087 ----------- ----------- Earnings before Income Taxes................................. 183,907 137,045 Income Taxes................................................. (65,248) (47,594) ----------- ----------- Net Earnings................................................. $ 118,659 $ 89,451 =========== =========== Net Earnings per Share: Basic .................................................... $ 0.91 $ 0.65 =========== =========== Diluted................................................... $ 0.89 $ 0.63 =========== =========== Average Number of Common Shares Outstanding: Basic .................................................... 130,200 138,500 =========== =========== Diluted................................................... 133,800 142,300 =========== =========== - -------------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes to consolidated financial statements. 4
DARDEN RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (In Thousands) <TABLE> <CAPTION> (Unaudited) - -------------------------------------------------------------------------------------------------------------------- February 27, 2000 May 30, 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents................................. $ 20,345 $ 40,960 Receivables............................................... 29,259 20,256 Inventories............................................... 204,801 144,115 Net assets held for disposal.............................. 25,997 35,269 Prepaid expenses and other current assets................. 17,415 21,475 Deferred income taxes..................................... 52,430 65,662 ----------- ----------- Total Current Assets.................................... $ 350,247 $ 327,737 Land, Buildings and Equipment................................ 1,539,243 1,461,535 Other Assets................................................. 103,498 104,388 ----------- ----------- Total Assets........................................ $ 1,992,988 $ 1,893,660 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 124,599 $ 144,725 Short-term debt........................................... 155,000 23,500 Current portion of long-term debt......................... 2,386 2,386 Accrued payroll........................................... 74,790 74,265 Accrued incomes taxes..................................... 16,683 16,544 Other accrued taxes....................................... 23,180 25,965 Other current liabilities................................. 238,711 234,830 ----------- ----------- Total Current Liabilities............................... $ 635,349 $ 522,215 Long-term Debt............................................... 309,299 314,065 Deferred Income Taxes........................................ 71,988 72,086 Other Liabilities............................................ 21,202 21,258 ----------- ----------- Total Liabilities..................................... $ 1,037,838 $ 929,624 ----------- ----------- Stockholders' Equity: Common stock and surplus.................................. $ 1,349,267 $ 1,328,796 Retained earnings......................................... 291,440 178,008 Treasury stock............................................ (613,593) (466,902) Accumulated other comprehensive income.................... (11,817) (12,115) Unearned compensation..................................... (60,147) (63,751) ----------- ----------- Total Stockholders' Equity............................ $ 955,150 $ 964,036 ----------- ----------- Total Liabilities and Stockholders' Equity.......... $ 1,992,988 $ 1,893,660 =========== =========== - -------------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes to consolidated financial statements. 5
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Thirty-Nine Weeks Ended February 27, 2000 and February 28, 1999 (In Thousands) (Unaudited) <TABLE> <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------- Common Accumulated Stock Other Total and Retained Treasury Comprehensive Unearned Stockholders' Surplus Earnings Stock Income Compensation Equity - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Balance at May 30, 1999.................... $1,328,796 $178,008 $(466,902) $(12,115) $(63,751) $ 964,036 Comprehensive income: Net earnings............................ 118,659 118,659 Other comprehensive income, foreign currency adjustment................... 298 298 ---------- Total comprehensive income.......... 118,957 Cash dividends declared.................... (5,227) (5,227) Stock option exercises (974 shares)........ 8,992 8,992 Issuance of restricted stock (220 shares), net of forfeiture adjustments............ 3,563 (3,590) (27) Earned compensation........................ 2,344 2,344 ESOP note receivable repayments............ 4,850 4,850 Income tax benefit credited to equity...... 4,627 4,627 Proceeds from issuance of equity put options.................................. 1,814 1,814 Purchases of common stock for treasury (8,128 shares)........................... (148,252) (148,252) Issuance of treasury stock under Employee Stock Purchase Plan (180 shares)......... 1,475 1,561 3,036 - ---------------------------------------------------------------------------------------------------------------------------- Balance at February 27, 2000............... $1,349,267 $291,440 $(613,593) $(11,817) $(60,147) $ 955,150 ============================================================================================================================ <CAPTION> - ---------------------------------------------------------------------------------------------------------------------------- Common Accumulated Stock Other Total and Retained Treasury Comprehensive Unearned Stockholders' Surplus Earnings Stock Income Compensation Equity - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Balance at May 31, 1998.................... $1,286,191 $ 48,327 $(239,876) $(11,749) $(63,048) $1,019,845 Comprehensive income: Net earnings............................ 89,451 89,451 Other comprehensive income, foreign currency adjustment................... (843) (843) ---------- Total comprehensive income.......... 88,608 Cash dividends declared.................... (5,531) (5,531) Stock option exercises (2,520 shares)...... 22,321 22,321 Issuance of restricted stock (333 shares), net of forfeiture adjustments............ 4,104 (4,076) 28 Earned compensation........................ 1,461 1,461 ESOP note receivable repayments............ 975 975 Income tax benefit credited to equity...... 8,209 8,209 Proceeds from issuance of equity put options.................................. 2,184 2,184 Purchases of common stock for treasury (8,738 shares)........................... (153,683) (153,683) - ---------------------------------------------------------------------------------------------------------------------------- Balance at February 28, 1999............... $1,323,009 $132,247 $(393,559) $(12,592) $(64,688) $ 984,417 ============================================================================================================================ </TABLE> See accompanying notes to consolidated financial statements. 6
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 27, 2000 February 28, 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows--Operating Activities Net earnings.................................................... $ 46,892 $ 38,353 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization................................. 32,990 31,415 Amortization of unearned compensation and loan costs.......... 1,540 1,155 Change in current assets and liabilities...................... 45,844 28,499 Change in other liabilities .................................. 46 22 Loss on disposal of land, buildings and equipment............. 549 381 Deferred income taxes......................................... 2,521 1,850 Other, net.................................................... (379) 496 ---------- ---------- Net Cash Provided by Operating Activities................... $ 130,003 $ 102,171 ---------- ---------- Cash Flows--Investment Activities Purchases of land, buildings and equipment...................... (85,419) (28,938) Purchases of intangibles........................................ (485) (568) Increase in other assets........................................ (2,953) (1,405) Proceeds from disposal of land, buildings and equipment (including net assets held for disposal)...................... 4,014 7,799 ---------- ---------- Net Cash Used by Investment Activities...................... $ (84,843) $ (23,112) ---------- ---------- Cash Flows--Financing Activities Proceeds from issuance of common stock.......................... 2,549 7,621 Income tax benefit credited to equity........................... 518 3,051 Purchases of treasury stock..................................... (64,779) (66,988) ESOP note receivable repayment.................................. 2,100 725 Increase in short-term debt..................................... 16,300 4,500 Repayment of long-term debt..................................... (2,100) (726) Proceeds from issuance of equity put options.................... 675 Payment of loan costs........................................... (25) ---------- Net Cash Used by Financing Activities....................... $ (44,762) $ (51,817) ---------- ---------- Increase in Cash and Cash Equivalents.............................. 398 27,242 Cash and Cash Equivalents - Beginning of Period.................... 19,947 13,064 ---------- ---------- Cash and Cash Equivalents - End of Period.......................... $ 20,345 $ 40,306 ========== ========== Cash Flow from Changes in Current Assets and Liabilities Receivables..................................................... (24,695) (1,384) Refundable income taxes, net.................................... 4,347 Inventories..................................................... 10,460 (13,772) Prepaid expenses and other current assets....................... 2,328 1,162 Accounts payable................................................ 4,203 16,130 Accrued payroll................................................. 9,805 11,151 Accrued income taxes............................................ 16,683 369 Other accrued taxes............................................. 374 (400) Other current liabilities....................................... 22,339 15,243 ---------- ---------- Change in Current Assets and Liabilities...................... $ 45,844 $ 28,499 ========== ========== - -------------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes to consolidated financial statements. 7
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) <TABLE> <CAPTION> Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 27, 2000 February 28, 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows--Operating Activities Net earnings.................................................... $ 118,659 $ 89,451 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization................................. 96,131 93,738 Amortization of unearned compensation and loan costs.......... 4,289 3,344 Change in current assets and liabilities...................... (70,612) 50,591 Change in other liabilities .................................. (56) 585 (Gain) loss on disposal of land, buildings and equipment...... 1,125 (221) Deferred income taxes......................................... 13,134 14,329 Other, net.................................................... 148 178 ---------- ---------- Net Cash Provided by Operating Activities................... $ 162,818 $ 251,995 ---------- ---------- Cash Flows--Investment Activities Purchases of land, buildings and equipment...................... (192,350) (84,393) Purchases of intangibles........................................ (1,846) (1,642) Increase in other assets........................................ (1,947) (2,040) Proceeds from disposal of land, buildings and equipment (including net assets held for disposal)...................... 16,733 29,487 ---------- ---------- Net Cash Used by Investment Activities...................... $ (179,410) $ (58,588) ---------- ---------- Cash Flows--Financing Activities Proceeds from issuance of common stock.......................... 11,870 22,321 Income tax benefit credited to equity........................... 4,627 8,209 Dividends paid.................................................. (5,227) (5,531) Purchases of treasury stock..................................... (148,252) (153,683) ESOP note receivable repayments................................. 4,850 975 Increase (decrease) in short-term debt.......................... 131,500 (60,100) Repayment of long-term debt..................................... (4,856) (981) Proceeds from issuance of equity put options.................... 1,814 2,184 Payment of loan costs........................................... (349) ---------- Net Cash Used by Financing Activities....................... $ (4,023) $ (186,606) ---------- ---------- (Decrease) Increase in Cash and Cash Equivalents................... (20,615) 6,801 Cash and Cash Equivalents - Beginning of Period.................... 40,960 33,505 ---------- ---------- Cash and Cash Equivalents - End of Period.......................... $ 20,345 $ 40,306 ========== ========== Cash Flow from Changes in Current Assets and Liabilities Receivables..................................................... (9,003) (296) Inventories..................................................... (60,686) 31,515 Prepaid expenses and other current assets....................... (3,298) 2,393 Accounts payable................................................ (20,126) 4,961 Accrued payroll................................................. 525 (2,884) Accrued income taxes............................................ 139 (324) Other accrued taxes............................................. (2,785) (1,529) Other current liabilities....................................... 24,622 16,755 ---------- ---------- Change in Current Assets and Liabilities...................... $ (70,612) $ 50,591 ========== ========== - -------------------------------------------------------------------------------------------------------------------- </TABLE> See accompanying notes to consolidated financial statements. 8
DARDEN RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar Amounts in Thousands, Except per Share Data) Note 1. Background ---------- These consolidated financial statements do not include certain information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the thirteen and thirty-nine weeks ended February 27, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending May 28, 2000. These statements should be read in conjunction with the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended May 30, 1999. See Note 4 related to a reclassification made to the May 30, 1999 consolidated balance sheet. The accounting policies used in preparing these consolidated financial statements are the same as those described in our annual report on Form 10-K. Note 2. Consolidated Statements of Cash Flows ------------------------------------- During the thirteen and thirty-nine weeks ended February 27, 2000, Darden paid $9,323 and $18,488, respectively, for interest (net of amount capitalized) and $1,671 and $48,210, respectively, for income taxes. During the thirteen and thirty-nine weeks ended February 28, 1999, Darden paid $7,896 and $16,439, respectively, for interest (net of amount capitalized) and $6,678 and $10,749, respectively, for income taxes. Note 3. Net Earnings Per Share ---------------------- Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares outstanding. Options to purchase 3,725,249 shares of common stock were excluded from the calculation of diluted EPS for the thirteen weeks ended February 27, 2000 because their exercise prices exceeded the average market price of common shares for the period. No options were excluded from the calculation of diluted EPS for the thirteen weeks ended February 28, 1999. Options to purchase 3,597,926 and 58,700 shares of common stock were excluded from the calculation of diluted EPS for the thirty-nine weeks ended February 27, 2000 and February 28, 1999, respectively, because their exercise prices exceeded the average market price of common shares for the period. Note 4. Restructuring Liability ----------------------- In 1997, the Company recorded restructuring charges of $70,900 in connection with the closing of certain restaurant properties. The related liabilities are included in other current liabilities in the accompanying consolidated balance sheets and were established to accrue for estimated carrying costs of buildings and equipment prior to disposal, employee severance costs, lease buy-out provisions and other costs associated with the restructuring action. All restaurant closings under this restructuring action have been completed. The remaining restructuring actions, including disposal of the closed owned properties and the lease buy-outs related to the closed leased properties, are expected to be substantially completed during 2001. 9
DARDEN RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (Dollar Amounts in Thousands, Except per Share Data) Note 4. Restructuring Liability - continued ----------------------------------- A summary of restructuring liability activity for the nine months ended February 27, 2000 is as follows: Balance at May 30, 1999................................... $ 37,139 Non-cash Adjustment Reclassification of asset impairment (described below).................................. (12,000) Cash Payments Carrying costs and employee severance payments....... (2,247) Lease payments including lease buy-outs.............. (4,875) --------- Balance at February 27, 2000.............................. $ 18,017 ========= Asset impairment charges of $12 million included in the May 30, 1999 restructuring liability have been reclassified to reduce the carrying value of land for all periods presented. This reclassification related to asset impairment charges recorded in 1997 for long-lived assets associated with Canadian restaurants. 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth selected restaurant operating data as a percentage of sales for the periods indicated. All information is derived from the consolidated statements of earnings for the thirteen and thirty-nine weeks ended February 27, 2000 and February 28, 1999. <TABLE> <CAPTION> Thirteen Weeks Ended Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 27, February 28, February 27, February 28, 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Sales...................................... 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Cost of sales: Food and beverages.................... 32.2 32.8 32.1 32.9 Restaurant labor...................... 32.2 32.4 32.3 32.6 Restaurant expenses................... 13.5 13.8 14.2 14.6 ------ ------ ------ ------ Total Cost of Sales................. 77.9% 79.0% 78.6% 80.1% Selling, general and administrative..... 9.9 10.2 10.4 10.2 Depreciation and amortization........... 3.6 3.6 3.6 3.7 Interest, net........................... 0.7 0.5 0.6 0.6 ------ ------ ------ ------ Total Costs and Expenses ......... 92.1% 93.3% 93.2% 94.6% ------ ------ ------ ------ Earnings before Income Taxes............... 7.9 6.7 6.8 5.4 Income Taxes............................... (2.8) (2.3) (2.4) (1.9) ------ ------ ------ ------ Net Earnings............................... 5.1% 4.4% 4.4% 3.5% ====== ====== ====== ====== - -------------------------------------------------------------------------------------------------------------------- </TABLE> Financial Condition and Results of Operations - --------------------------------------------- For the fiscal 2000 third quarter ended February 27, 2000, earnings after tax were $46.9 million or 36 cents per diluted share, compared to earnings after tax of $38.4 million or 27 cents per diluted share in the third quarter of fiscal 1999. The increase in third quarter earnings was primarily attributable to strong same-restaurant sales at both Red Lobster and Olive Garden. Sales of $917.5 million for the third quarter were 5.8% higher than last year's third quarter. For the first nine months of fiscal 2000, net earnings were $118.7 million or 89 cents per diluted share, compared to $89.5 million or 63 cents per diluted share in the same fiscal 1999 period. Sales approximating $2.7 billion for the first nine months of fiscal 2000 were 5.9% higher than last year. Food and beverage costs for the quarter were 32.2% of sales, compared to 32.8% of sales last year, primarily attributable to reduced product costs. Restaurant labor decreased to 32.2% of sales compared to last year's 32.4% due primarily to efficiencies resulting from higher sales volumes. Restaurant expenses, also benefiting from higher sales volumes, decreased to 13.5% of sales compared to 13.8% last year. The decrease in third quarter selling, general and administrative expenses to 9.9% of sales compared to 10.2% of sales last year was mainly attributable to reduced marketing expenses offset by additional labor costs associated with new concept expansion and development. Depreciation and amortization expense remained constant at 3.6% of sales. Interest expense increased to 0.7% of sales compared to 0.5% last year due to higher levels of short-term debt outstanding during the third quarter of fiscal 2000. The effective tax rate for the third quarter of fiscal 2000 was 35.5% compared to 34.5% in last year's second quarter. The increase in the effective tax rate reflects a higher level of expected pre-tax income for fiscal 2000. Food and beverage costs for the first nine months of fiscal 2000 were 32.1% of sales, down from last year's 32.9% primarily attributable to reduced product costs, pricing, and a lower margin promotion run by Red Lobster during the first quarter last year. Restaurant labor decreased to 32.3% of sales compared to last year's 32.6% primarily due to efficiencies resulting from higher sales volumes. Restaurant expenses decreased to 14.2% of sales compared to 14.6% last year primarily as a result of higher sales volumes and the fixed component of these 11
expenses which are not impacted by higher sales volumes. Selling, general and administrative expenses increased to 10.4% of sales compared to 10.2% in the prior year, primarily attributable to additional labor costs associated with new concept expansion and development. Depreciation and amortization expense as a percentage of sales decreased to 3.6% from 3.7% last year. The effective tax rate for the first nine months of fiscal 2000 was 35.5% compared to 34.7% last year due to a higher level of expected pre-tax income for the year. Inventories totaled $204.8 million as of February 27, 2000, up from $144.1 million at May 30, 1999. The increase resulted primarily from increased lobster inventory related to Red Lobster's fourth quarter Lobsterfest promotion. Accounts payable decreased primarily due to temporary changes made to supplier terms in connection with the Company's recent change in distributors. Short-term debt totaled $155.0 million as of February 27, 2000, up from $23.5 million at May 30, 1999. The increase resulted primarily from increased share repurchase activity due to favorable Company stock prices over the first three quarters of fiscal 2000, as well as increased land, buildings and equipment spending and the increased inventory levels discussed above. Division Results - ---------------- Red Lobster sales of $508.5 million were 3.1% above last year's third quarter. Same-restaurant sales in the United States were up 5.0% for the quarter, marking the ninth consecutive quarter of same-restaurant sales increases. Third quarter operating profits were substantially improved over the prior year due primarily to favorable food and beverage costs and restaurant expenses as a percentage of sales. Through the first nine months of fiscal 2000, Red Lobster's sales increased 3.6% to $1.5 billion and same-restaurant sales in the United States increased by 5.6%. These results were achieved even though Red Lobster operated 17 fewer restaurants at the end of the third quarter compared to last year and did not repeat its high volume "Bottomless Crab" promotion that helped generate high sales and traffic volumes in the first quarter of last year. Olive Garden continued its positive momentum in the third quarter of fiscal 2000 with a 7.7% increase in sales to $395.7 million. Same-restaurant sales in the United States increased 8.3%, marking the twenty-second consecutive quarter of same-restaurant sales increases. Third quarter operating profits were substantially improved over the prior year primarily due to increased sales and lower restaurant labor expenses as a percentage of sales. Through the first nine months of fiscal 2000, Olive Garden sales increased by 7.4% to 1.2 billion and same-restaurant sales in the United States increased by 7.8%. Bahama Breeze continues to produce strong sales at each of its ten restaurants. Three additional restaurants are currently under construction, all of which have expected fiscal 2000 opening dates. Darden's latest test concept, Smokey Bones BBQ and Sports Bar, opened its first restaurant on September 13, 1999 in Orlando, FL. This restaurant's sales have exceeded management's initial expectations. Two additional restaurants are currently under construction. The table below details the number of restaurants open at the end of the third quarter of fiscal 2000, compared with the number open at the end of May 1999 and the end of last fiscal year's third quarter. 12
NUMBER OF RESTAURANTS <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- February 27, 2000 May 30, 1999 February 28, 1999 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Red Lobster - USA............................... 619 635 634 Red Lobster - Canada............................ 32 34 34 ------- ------- ------- Total...................................... 651 669 668 Olive Garden - USA.............................. 459 459 459 Olive Garden - Canada........................... 5 5 5 ------- ------- ------- Total...................................... 464 464 464 Bahama Breeze................................... 10 6 4 ------- ------- ------- Smokey Bones.................................... 1 0 0 ------- ------- ------- Total.................................. 1,126 1,139 1,136 ======= ======= ======= - -------------------------------------------------------------------------------------------------------------------- </TABLE> Year 2000 - --------- The total cost to the Company of Year 2000 activities has not been and is not anticipated to be material to its financial position or results of operations in any given year. As of February 27, 2000, the Company had spent approximately $3.4 million on Year 2000 issues. This amount does not include the costs incurred to develop and install new systems resulting from the Company's seafood inventory accounting system project which was already contemplated for replacement. The total cost to the Company of addressing Year 2000 issues had been estimated to be less than $5 million. This amount was based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. While there can be no guarantee that these estimates will be achieved, and actual results could differ from those estimates, management now anticipates that the total cost to the Company of addressing Year 2000 issues will be well under $5 million. As of the filing date of this report, the Company's business and operations have not been materially impacted by Year 2000 matters. For a more in-depth discussion of Year 2000, reference is made to the Company's Annual Report on Form 10-K for the fiscal year ended May 30, 1999. Forward-Looking Statements - -------------------------- Certain information included in this report and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or written statements made or to be made by the Company) may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include information relating to current expansion plans, business development activities, and Year 2000 compliance. Such forward-looking information is based on assumptions concerning important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to real estate development and construction activities, the issuance and renewal of licenses and permits for restaurant development and operation, economic conditions, changes in federal or state laws or the administration of such laws, and the Year 2000 readiness of suppliers, banks, vendors and others having a direct or indirect business relationship with the Company. Additional discussion of potential risks and uncertainties appears in this report in Exhibit 99. 13
PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit 12 Computation of Ratio of Consolidated Earnings to Fixed Charges Exhibit 27 Financial Data Schedule Exhibit 99 Cautionary Statements Under the Private Securities Litigation Reform Act of 1995 (b) Reports on Form 8-K. (i) On December 15, 1999, the Company filed a current report on Form 8-K announcing second quarter earnings for fiscal 2000 and certain officer promotions. (ii) On January 19, 2000, the Company filed a current report on Form 8-K announcing food and product distribution relationships with MBM Corporation and Marriott Distribution Services. (iii) On February 28, 2000, the Company filed a current report on Form 8-K reporting on certain issues addressed during its conference for investors and restaurant analysts. 14
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: April 10, 2000 By: /s/ Paula J. Shives ---------------------------------------------- Paula J. Shives Senior Vice President, General Counsel and Secretary Dated: April 10, 2000 By: /s/ Clarence Otis, Jr. ---------------------------------------------- Clarence Otis, Jr. Senior Vice President, Chief Financial Officer (Principal financial officer) 15
INDEX TO EXHIBITS Exhibit Number Exhibit Title Page - ------- ------------- ---- 12 Computation of Ratio of Consolidated Earnings to Fixed Charges 17 27 Financial Data Schedule 18 99 Cautionary Statements Under the Private Securities Litigation Reform Act of 1995 19 16