- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 25, 2001 [ ] 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, 2001: 118,067,688 (excluding 50,597,477 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 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 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 25, 2001 February 27, 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Sales........................................................ $ 988,635 $ 917,505 Costs and Expenses: Cost of sales: Food and beverage....................................... 313,242 295,289 Restaurant labor........................................ 313,930 295,247 Restaurant expenses..................................... 141,897 123,615 ---------- ----------- Total Cost of Sales................................... $769,069 $ 714,151 Selling, general and administrative....................... 98,455 91,003 Depreciation and amortization............................. 37,092 32,990 Interest, net............................................. 8,528 6,646 ---------- ----------- Total Costs and Expenses............................ $913,144 $ 844,790 ----------- ----------- Earnings before Income Taxes................................. 75,491 72,715 Income Taxes................................................. (25,964) (25,823) ----------- ----------- Net Earnings................................................. $ 49,527 $ 46,892 ============ =========== Net Earnings per Share: Basic..................................................... $ 0.41 $ 0.37 ============ =========== Diluted................................................... $ 0.40 $ 0.36 ============ =========== Average Number of Common Shares Outstanding: Basic..................................................... 119,800 127,700 ============ =========== Diluted................................................... 124,000 130,500 ============ =========== - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE> 3
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In Thousands, Except per Share Data) (Unaudited) <TABLE> <CAPTION> Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 25, 2001 February 27, 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Sales........................................................ $ 2,938,798 $ 2,695,127 Costs and Expenses: Cost of sales: Food and beverage....................................... 942,640 865,919 Restaurant labor........................................ 935,469 870,970 Restaurant expenses..................................... 417,198 382,222 ------------ ------------ Total Cost of Sales................................... $ 2,295,307 $ 2,119,111 Selling, general and administrative....................... 303,755 279,491 Depreciation and amortization............................. 108,517 96,131 Interest, net............................................. 22,579 16,487 ------------ ------------ Total Costs and Expenses............................ $2,730,158 $2,511,220 ------------ ------------ Earnings before Income Taxes................................. 208,640 183,907 Income Taxes................................................. (72,651) (65,248) ------------ ------------- Net Earnings................................................. $ 135,989 $ 118,659 ============ ============ Net Earnings per Share: Basic..................................................... $ 1.13 $ 0.91 ============ ============ Diluted................................................... $ 1.10 $ 0.89 ============ ============ Average Number of Common Shares Outstanding: Basic..................................................... 120,400 130,200 ============ ============ Diluted................................................... 124,100 133,800 ============ ============ - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE> 4
DARDEN RESTAURANTS, INC. CONSOLIDATED BALANCE SHEETS (In Thousands) <TABLE> <CAPTION> (Unaudited) - -------------------------------------------------------------------------------------------------------------------- February 25, 2001 May 28, 2000 - -------------------------------------------------------------------------------------------------------------------- ASSETS <S> <C> <C> Current Assets: Cash and cash equivalents................................. $ 29,297 $ 26,102 Receivables............................................... 35,105 27,962 Inventories............................................... 208,041 142,187 Net assets held for disposal.............................. 10,884 19,614 Prepaid expenses and other current assets................. 16,230 26,525 Deferred income taxes..................................... 49,489 48,070 -------------- ------------- Total Current Assets.................................... $ 349,046 $ 290,460 Land, Buildings and Equipment................................ 1,709,729 1,578,541 Other Assets................................................. 107,980 102,422 -------------- ------------- Total Assets........................................ $ 2,166,755 $ 1,971,423 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 144,205 $ 140,487 Short-term debt........................................... 82,000 115,000 Current portion of long-term debt......................... 2,514 2,513 Accrued payroll........................................... 78,069 77,805 Accrued income taxes...................................... 40,969 33,256 Other accrued taxes....................................... 26,534 25,524 Other current liabilities................................. 232,042 212,302 -------------- ------------- Total Current Liabilities............................... $ 606,333 $ 606,887 Long-term Debt............................................... 446,117 304,073 Deferred Income Taxes........................................ 80,274 79,102 Other Liabilities............................................ 20,444 20,891 -------------- ------------- Total Liabilities.................................. $ 1,153,168 $ 1,010,953 -------------- ------------- Stockholders' Equity: Common stock and surplus.................................. $ 1,390,951 $ 1,351,707 Retained earnings......................................... 475,802 344,579 Treasury stock............................................ (789,332) (666,837) Accumulated other comprehensive income.................... (12,974) (12,457) Unearned compensation..................................... (50,860) (56,522) --------------- -------------- Total Stockholders' Equity......................... $ 1,013,587 $ 960,470 --------------- -------------- Total Liabilities and Stockholders' Equity......... $ 2,166,755 $ 1,971,423 ============== ============= - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE> 5
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Thirty-Nine Weeks Ended February 25, 2001 and February 27, 2000 (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 28, 2000.................... $1,351,707 $344,579 $(666,837) $ (12,457) $(56,522) $ 960,470 Comprehensive income: Net earnings............................ 135,989 135,989 Other comprehensive income, foreign currency adjustment..................... (517) (517) --------- Total comprehensive income.......... 135,472 Cash dividends declared.................... (4,766) (4,766) Stock option exercises (2,289 shares)..... 23,758 23,758 Issuance of restricted stock (293 shares), net of forfeiture adjustments.............. 3,941 1,035 (5,040) (64) Earned compensation........................ 3,077 3,077 ESOP note receivable repayments............ 7,625 7,625 Income tax benefit credited to equity...... 10,324 10,324 Purchases of common stock for treasury (6,433 shares) ......................... (125,231) (125,231) Issuance of treasury stock under Employee Stock Purchase and other plans (184 shares) 1,221 1,701 2,922 - ---------------------------------------------------------------------------------------------------------------------------- Balance at February 25, 2001 $1,390,951 $475,802 $ (789,332) $ (12,974) $ (50,860) $1,013,587 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Common Accumulated Stock Other Total and Retained Treasury Comprehensive Unearned Stockholders' Surplus Earnings Stock Income Compensation Equity - ---------------------------------------------------------------------------------------------------------------------------- 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 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE> 6
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) <TABLE> <CAPTION> Thirteen Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 25, 2001 February 27, 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows--Operating Activities Net earnings.................................................... $ 49,527 $ 46,892 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization................................. 37,092 32,990 Amortization of unearned compensation and loan costs.......... 1,785 1,540 Change in current assets and liabilities...................... 62,175 45,844 Change in other liabilities .................................. (405) 46 Loss on disposal of land, buildings and equipment............. 1,327 549 Deferred income taxes......................................... 910 2,521 Income tax benefit credited to equity....................... 1,699 518 Other, net.................................................... 49 (379) --------- -------- Net Cash Provided by Operating Activities................... $ 154,159 $130,521 --------- -------- Cash Flows--Investing Activities Purchases of land, buildings and equipment...................... (86,736) (85,419) Purchases of intangibles........................................ (4,279) (485) Increase in other assets........................................ (242) (2,953) Proceeds from disposal of land, buildings and equipment (including net assets held for disposal)...................... 3,324 4,014 --------- -------- Net Cash Used by Investing Activities....................... $ (87,933) $(84,843) ---------- --------- Cash Flows--Financing Activities Proceeds from issuance of common stock.......................... 4,827 2,549 Purchases of treasury stock..................................... (42,008) (64,779) ESOP note receivable repayment.................................. 1,675 2,100 (Decrease) increase in short-term debt.......................... (7,300) 16,300 Repayment of long-term debt..................................... (1,675) (2,100) Proceeds from issuance of equity put options.................... 675 Payment of loan costs........................................... (201) (25) --------- -------- Net Cash Used by Financing Activities....................... $ (44,682) $(45,280) --------- -------- Increase in Cash and Cash Equivalents.............................. 21,544 398 Cash and Cash Equivalents - Beginning of Period.................... 7,753 19,947 ----------- --------- Cash and Cash Equivalents - End of Period.......................... $ 29,297 $ 20,345 ========= ========= Cash Flow from Changes in Current Assets and Liabilities Receivables..................................................... 109 (24,695) Refundable income taxes, net.................................... 4,347 Inventories..................................................... 125 10,460 Prepaid expenses and other current assets....................... 1,734 2,328 Accounts payable................................................ (4) 4,203 Accrued payroll................................................. 11,395 9,805 Accrued income taxes............................................ 22,655 16,683 Other accrued taxes............................................. 245 374 Other current liabilities....................................... 25,916 22,339 --------- --------- Change in Current Assets and Liabilities...................... $ 62,175 $ 45,844 ========= ========= - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE> 7
DARDEN RESTAURANTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) <TABLE> <CAPTION> Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 25, 2001 February 27, 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Cash Flows--Operating Activities Net earnings.................................................... $135,989 $118,659 Adjustments to reconcile net earnings to cash flow: Depreciation and amortization................................. 108,517 96,131 Amortization of unearned compensation and loan costs.......... 5,189 4,289 Change in current assets and liabilities...................... (28,886) (70,612) Change in other liabilities .................................. (447) (56) Loss on disposal of land, buildings and equipment............. 1,346 1,125 Deferred income taxes......................................... (247) 13,134 Income tax benefit credited to equity....................... 10,324 4,627 Other, net.................................................... 13 148 -------- -------- Net Cash Provided by Operating Activities................... $231,798 $167,445 -------- -------- Cash Flows--Investing Activities Purchases of land, buildings and equipment...................... (244,714) (192,350) Purchases of intangibles........................................ (7,056) (1,846) Increase in other assets........................................ (144) (1,947) Proceeds from disposal of land, buildings and equipment (including net assets held for disposal)...................... 11,923 16,733 -------- -------- Net Cash Used by Investing Activities....................... $(239,991) $(179,410) ========== ========= Cash Flows--Financing Activities Proceeds from issuance of common stock.......................... 26,504 11,870 Dividends paid.................................................. (4,766) (5,227) Purchases of treasury stock..................................... (125,231) (148,252) ESOP note receivable repayments................................. 7,625 4,850 (Decrease) increase in short-term debt.......................... (33,000) 131,500 Proceeds from issuance of long-term debt....................... 149,539 Repayment of long-term debt..................................... (7,631) (4,856) Payment of loan costs........................................... (1,652) (349) Proceeds from issuance of equity put options.................... ________ 1,814 ---------- Net Cash Provided by (Used by) Financing Activities......... $ 11,388 $ (8,650) --------- ---------- Increase (Decrease) in Cash and Cash Equivalents................... 3,195 (20,615) Cash and Cash Equivalents - Beginning of Period.................... 26,102 40,960 --------- --------- Cash and Cash Equivalents - End of Period.......................... $ 29,297 $ 20,345 ========= ========= Cash Flow from Changes in Current Assets and Liabilities Receivables..................................................... (7,143) (9,003) Inventories..................................................... (68,161) (60,686) Prepaid expenses and other current assets....................... 2,072 (3,298) Accounts payable................................................ 3,718 (20,126) Accrued payroll................................................. 264 525 Accrued income taxes............................................ 7,713 139 Other accrued taxes............................................. 1,010 (2,785) Other current liabilities....................................... 31,641 24,622 --------- ---------- Change in Current Assets and Liabilities...................... $ (28,886) $ (70,612) ========== =========== - -------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. </TABLE> 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 25, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending May 27, 2001. These statements should be read in conjunction with the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended May 28, 2000. The accounting policies used in preparing these consolidated financial statements are the same as those described in our annual report on Form 10-K. Certain reclassifications have been made to prior period amounts to conform with current period presentation. Note 2. Consolidated Statements of Cash Flows During the thirteen and thirty-nine weeks ended February 25, 2001, Darden paid $8,364 and $18,064, respectively, for interest (net of amount capitalized) and $801 and $55,982, respectively, for income taxes. 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. 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 29,667 and 3,725,249 shares of common stock were excluded from the calculation of diluted earnings per share for the thirteen weeks ended February 25, 2001 and February 27, 2000, respectively, because their exercise prices exceeded the average market price of common shares for the period. Options to purchase 2,524,418 and 3,597,926 shares of common stock were excluded from the calculation of diluted earnings per share for the thirty-nine weeks ended February 25, 2001 and February 27, 2000, respectively, for the same reason. Note 4. Restructuring Liability In 1997, the Company recorded restructuring charges of $70,900 in connection with the closing of certain restaurant properties. The related liabilities are included in other current liabilities in the accompanying consolidated balance sheets and were established to accrue for estimated carrying costs of buildings and equipment prior to disposal, employee severance costs, lease buy-out provisions and other costs associated with the restructuring action. All restaurant closings under this restructuring action have been completed. The remaining restructuring actions, including disposal of the closed owned properties and the lease buy-outs related to the closed leased properties, are expected to be substantially completed during 2001. 9
DARDEN RESTAURANTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (Dollar Amounts in Thousands, Except per Share Data) A summary of restructuring liability activity for the nine months ended February 25, 2001 is as follows: Balance at May 28, 2000.......................................... $ 8,564 Cash Payments: Carrying costs and employee severance payments................. (1,027) Lease payments including lease buy-outs........................ (1,450) ------- Balance at February 25, 2001..................................... $ 6,087 ======= Note 5. Long-term Debt On July 13, 2000, the Company filed a registration statement with the Securities and Exchange Commission. The purpose of the filing was to register $500,000 of debt securities using a shelf registration process. Under this process, the Company may offer, from time to time, up to $500,000 of debt securities. On September 5, 2000, the Company issued $150,000 of unsecured 8.375% senior notes due in September 2005. Proceeds from the issuance were used to repay short-term debt. 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 25, 2001 and February 27, 2000. <TABLE> <CAPTION> Thirteen Weeks Ended Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 25, February 27, February 25, February 27, 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Sales...................................... 100.0% 100.0% 100.0% 100.0% Costs and Expenses: Cost of sales: Food and beverage..................... 31.7 32.2 32.1 32.1 Restaurant labor...................... 31.8 32.2 31.8 32.3 Restaurant expenses................... 14.3 13.4 14.2 14.2 ----- ------ ----- ------ Total Cost of Sales................. 77.8% 77.8% 78.1% 78.6% Selling, general and administrative..... 10.0 10.0 10.3 10.4 Depreciation and amortization........... 3.7 3.6 3.7 3.6 Interest, net........................... 0.9 0.7 0.8 0.6 ----- ------ ----- ------ Total Costs and Expenses...... 92.4% 92.1% 92.9% 93.2% ----- ------ ----- ------ Earnings before Income Taxes............... 7.6 7.9 7.1 6.8 Income Taxes............................... (2.6) (2.8) (2.5) (2.4) ----- ------ ----- ------ Net Earnings............................... 5.0% 5.1% 4.6% 4.4% ===== ====== ===== ====== - -------------------------------------------------------------------------------------------------------------------- </TABLE> Results of Operations For the fiscal 2001 third quarter ended February 25, 2001, earnings after tax were $49.5 million or 40 cents per diluted share, compared to earnings after tax of $46.9 million or 36 cents per diluted share in the third quarter of fiscal 2000. The increase in third quarter earnings was primarily attributable to strong same-restaurant sales growth at both Red Lobster and Olive Garden. Sales of $988.6 million for the third quarter were 7.8% higher than last year's third quarter. For the first nine months of fiscal 2001, net earnings were $136.0 million or $1.10 per diluted share, compared to $118.7 million or 89 cents per diluted share in the same fiscal 2000 period. Sales of $2.9 billion for the first nine months of fiscal 2001 were 9.0% higher than last year. Food and beverage costs for the quarter were 31.7% of sales, compared to 32.2% of sales last year. The decrease is primarily a result of favorable menu-mix changes, pricing changes, and other efficiencies resulting from higher sales volumes, which were partially offset by higher product costs. Restaurant labor decreased to 31.8% of sales compared to last year's 32.2% primarily due to efficiencies resulting from higher sales volumes. Restaurant expenses increased to 14.3% of sales compared to 13.4% last year, principally as a result of higher utility costs. Selling, general and administrative expenses amounting to 10.0% of sales were comparable to last year, also at 10.0% of sales. Depreciation and amortization expense as a percentage of sales increased from 3.6% to 3.7% primarily as a result of new restaurant and remodel activity, partially offset by the favorable impact of higher sales volumes. Interest expense increased to 0.9% of sales compared to 0.7% last year primarily due to higher debt levels. The effective tax rate for the third quarter of fiscal 2001 was 34.4% compared to 35.5% in last year's third quarter. The decrease in the effective tax rate resulted primarily from increases in annual expected tax credits and deductions that were not available last year. 11
Food and beverage costs for the first nine months of fiscal 2001 were comparable to last year at 32.1% of sales. The comparability is a result of favorable menu-mix changes, pricing changes, and other efficiencies resulting from higher sales volumes, which were offset by higher product costs. Restaurant labor decreased to 31.8% of sales compared to last year's 32.3% primarily due to efficiencies resulting from higher sales volumes. Restaurant expenses were comparable to last year at 14.2% of sales primarily as a result of higher sales volumes and the fixed component of these expenses which are not impacted by higher sales volumes, offset by higher utility costs. Selling, general and administrative expenses amounted to 10.3% of sales compared to 10.4% in the prior year. Depreciation and amortization expense as a percentage of sales increased to 3.7% from 3.6% last year primarily as a result of new restaurant and remodel activity, partially offset by the favorable impact of higher sales volumes. Interest expense increased to 0.8% of sales compared to 0.6% last year primarily due to higher debt levels. The effective tax rate for the first nine months of fiscal 2001 was 34.8% compared to 35.5% last year. The decrease in the effective tax rate resulted primarily from increases in annual expected tax credits and deductions that were not available last year. Division Results Red Lobster sales of $539.8 million were 6.2% above last year's third quarter. Same-restaurant sales in the United States were up 5.5% for the quarter, marking the thirteenth consecutive quarter of same-restaurant sales increases. Third quarter operating profits improved over the prior year primarily as a result of the increased sales and lower food and beverage and restaurant labor expenses as a percentage of sales. These improvements were partially offset by higher utility costs, which increased restaurant expenses as a percentage of sales. Through the first nine months of fiscal 2001, Red Lobster's sales increased 7.2% to $1.6 billion and same-restaurant sales in the United States increased by 6.7%. Olive Garden continued its positive momentum in the third quarter of fiscal 2001 with a 6.8% increase in sales to $422.6 million. Same-restaurant sales in the United States increased 5.6%, marking the twenty-sixth consecutive quarter of same-restaurant sales increases. Third quarter operating profits improved over the prior year primarily as a result of the increased sales and lower food and beverage and restaurant labor expenses as a percentage of sales. These improvements were partially offset by higher utility costs, which increased restaurant expenses as a percentage of sales. Through the first nine months of fiscal 2001, Olive Garden sales increased by 8.4% to $1.3 billion and same-restaurant sales in the United States increased by 7.2%. Bahama Breeze restaurants continue to produce strong sales. Four new openings occurred in the third quarter, bringing the total number of restaurants to 19. Three additional restaurants under construction may open in fiscal 2001. Restaurant sales at Smokey Bones BBQ, Darden's latest test concept, continue to exceed management's initial expectations. One new opening occurred in the third quarter in Dartmouth, MA, bringing the total number of restaurants to five. Four additional restaurants under construction are planned to open in fiscal 2001. The table below details the number of restaurants open at the end of the third quarter of fiscal 2001, compared with the number open at the end of May 2000 and the end of last fiscal year's third quarter. NUMBER OF RESTAURANTS <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------- February 25, 2001 May 28, 2000 February 27, 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Red Lobster - USA............................... 623 622 619 Red Lobster - Canada............................ 32 32 32 ----- ----- ----- Total...................................... 655 654 651 Olive Garden - USA.............................. 464 464 459 Olive Garden - Canada........................... 5 5 5 ----- ----- ----- Total...................................... 469 469 464 Bahama Breeze................................... 19 14 10 Smokey Bones BBQ................................ 5 2 1 ----- ----- ----- Total...................................... 1,148 1,139 1,126 ===== ===== ===== </TABLE> 12
Financial Condition, Liquidity and Capital Resources Inventories totaled $208.0 million as of February 25, 2001, up from $142.2 million at May 28, 2000. The increase results from typical increases in seafood inventory levels at this time of the year due to availability and upcoming promotions. The additional seafood is expected to be used during the current fiscal year. Short-term debt totaled $82.0 million as of February 25, 2001, down from $115.0 million at May 28, 2000. Long-term debt, including its current portion, totaled $448.6 million as of February 25, 2001, up from $306.6 million at May 28, 2000. The increase in long-term debt is a result of the Company issuing $150.0 million of unsecured debt in the second quarter of fiscal 2001. This issuance was used to repay short-term debt which has since increased primarily as a result of continued share repurchase activity and increased spending on land, buildings and equipment. Other current liabilities totaled $232.0 million as of February 25, 2001, up from $212.3 million at May 28, 2000. The increase is primarily a result of net increases in employee benefit related accruals and gift certificate/card payables. Capital expenditures were $86.7 million for the third quarter of fiscal 2001 compared to $85.4 million in last year's third quarter. For the first nine months of fiscal 2001, capital expenditures were $244.7 million, compared to $192.4 million in the same period last year. The increased expenditures resulted primarily from new restaurant growth as well as remodeling activity. Treasury stock purchases totaled $42.0 million in the third quarter of fiscal 2001 compared to $64.8 million in last year's third quarter. For the first nine months of fiscal 2001, treasury stock purchases totaled $125.2 million, compared to $148.3 million in the same period last year. Forward-Looking Statements Certain information included in this report and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or written statements made or to be made by the Company) may contain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This forward-looking information is based on assumptions concerning important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, could cause the actual results to materially differ from those expressed in the forward-looking statements. These risks and uncertainties include competition, economic and market conditions, changes in food and other costs, importance of locations, effects of government regulations and the Company's ability to achieve its growth objectives, each of which is more specifically discussed in Exhibit 99 filed with the Company's annual report on Form 10-K for the fiscal year ended May 28, 2000. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the information provided in our annual report or Form 10-K for the fiscal year ended May 28, 2000. 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 (b) Reports on Form 8-K. On December 21, 2000, the Company filed a current report on Form 8-K to announce record second quarter earnings per diluted share of 24 cents, which was a 33% increase over last year. 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 5, 2001 By: /s/ Paula J. Shives ------------------------------- Paula J. Shives Senior Vice President, General Counsel and Secretary Dated: April 5, 2001 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 16
Exhibit 12 DARDEN RESTAURANTS, INC. COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands) <TABLE> <CAPTION> Thirteen Weeks Ended Thirty-Nine Weeks Ended - -------------------------------------------------------------------------------------------------------------------- February 25, February 27, February 25, February 27, 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Consolidated Earnings from Operations Before Income Taxes..................... $75,491 $72,715 $208,640 $183,907 Plus Fixed Charges......................... 14,583 12,151 40,205 32,504 Less Capitalized Interest.................. (833) (441) (2,558) (1,340) ------- -------- --------- -------- Consolidated Earnings from Operations Before Income Taxes Available to Cover Fixed Charges..................... $89,241 $84,425 $246,287 $215,071 ======= ======= ======== ======== Ratio of Consolidated Earnings to Fixed Charges................................. 6.12 6.95 6.13 6.62 ======= ======= ======== ======== - -------------------------------------------------------------------------------------------------------------------- </TABLE>