1000 Darden Center Drive
Orlando, FL 32837
407-245-4000
www.darden.com
2
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6
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A
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S
,
OUR
COMMITMENT
TO YOU
2016 ANNUAL REPORT
I
N
C
.
OUR RESTAURANTS
Where people of all ages gather to enjoy the
abundance of great Italian food and wine and
are treated like family.
$3.8 billion in sales
843 units
The place for people who crave a
flavorful, boldly seasoned steak in a
down-to-earth setting that feels like
a rancher’s home.
$1.6 billion in sales
481 units
The restaurant of choice for
conscientious adults celebrating
the goodness of life without
compromise.
$254 million in sales
40 units
The destination to disconnect,
lighten up and have fun.
$218 million in sales
37 units
The modern American gathering place
where beer and food lovers unite.
$507 million in sales
65 units
The ultimate relationship brand,
offering a welcoming and club-like
dining experience.
$408 million in sales
54 units
The destination for a glamorous
night out.
®
$106 million in sales
16 units
137248_DardenAR_CVR.r2.indd 1
8/4/16 12:37 PM
1000 Darden Center Drive
Orlando, FL 32837
407-245-4000
www.darden.com
2
0
1
6
A
N
N
U
A
L
R
E
P
O
R
T
D
A
R
D
E
N
R
E
S
T
A
U
R
A
N
T
S
,
OUR
COMMITMENT
TO YOU
2016 ANNUAL REPORT
I
N
C
.
OUR RESTAURANTS
Where people of all ages gather to enjoy the
abundance of great Italian food and wine and
are treated like family.
$3.8 billion in sales
843 units
The place for people who crave a
flavorful, boldly seasoned steak in a
down-to-earth setting that feels like
a rancher’s home.
$1.6 billion in sales
481 units
The restaurant of choice for
conscientious adults celebrating
the goodness of life without
compromise.
$254 million in sales
40 units
The destination to disconnect,
lighten up and have fun.
$218 million in sales
37 units
The modern American gathering place
where beer and food lovers unite.
$507 million in sales
65 units
The ultimate relationship brand,
offering a welcoming and club-like
dining experience.
$408 million in sales
54 units
The destination for a glamorous
night out.
®
$106 million in sales
16 units
137248_DardenAR_CVR.r2.indd 1
8/4/16 12:37 PM
COMMITTED TO
Our People
We are a restaurant company, so food is always top of mind. But what
we do starts with people. Our 150,000 team members are what make
the difference at Darden — they are at the heart of everything we do.
That’s why we strive to hire the best and create an inclusive environment
where diversity of thought and background is valued — everyone is
treated with respect, and everyone has opportunities to develop and
grow their careers.
We’re extremely proud of our results-oriented people culture — one
filled with energy, passion, opportunity and fun. We work hard to
achieve our goals, and we all win together when we do.
We succeed because of our people,
and with our success comes great
opportunity for our team members.
That’s why who we hire is one of our
most important decisions, and why we
invest in our team members’ careers
every step of the way. We provide our
people with the tools they need to
succeed in their current roles, to grow
personally and professionally, and to
deliver exceptional experiences to our
guests each day.
And the results speak for themselves:
• Our hourly team members, on average, earn nearly $15/hour
• We promote nearly 1,000 team members a year into management
• 50% of all our Restaurant Managers are promoted from hourly positions
• 99% of our General Managers and Managing Partners are promoted from within
• 99% of all Directors of Operations are internal promotions
With more than 7,000 leadership
positions across our restaurants, we
provide a pathway for thousands of
individuals throughout the country
to advance from entry-level jobs into
management roles. It’s one of the
reasons Darden enjoys the lowest
annual turnover rates for hourly team
members in the industry – 30 points
below the industry average.
Board of Directors
DARDEN
Margaret Shân Atkins
Co-Founder and Managing Director
of Chetrum Capital LLC, a private
investment firm.
Bradley D. Blum
Founder and Owner of BLUM Enterprises,
LLC, a restaurant company focused on
restaurant strategy, concept develop-
ment and investing.
Jean M. Birch
Retired Chief Executive Officer and
President of Birch Company, LLC, a
specialized strategy and leadership
consulting firm focused on the
hospitality industry.
James P. Fogarty
Former Chief Executive Officer
of Orchard Brands, a multi-channel
marketer of apparel and home products.
Cynthia T. Jamison
Chairman of the Board of Directors of
Tractor Supply Company, the largest
operator of retail farm and ranch stores.
Eugene I. Lee, Jr.
President
Chief Executive Officer
Darden Restaurants, Inc.
Lionel L. Nowell, III
Former Senior Vice President and
Treasurer of PepsiCo, Inc., one of the
world’s largest food and beverage
companies.
Charles M. Sonsteby
Chairman of the Board
Darden Restaurants, Inc.
Vice Chairman, Chief Financial Officer
and Chief Administrative Officer of
The Michaels Companies, Inc.,
the largest arts and crafts specialty
retailer in North America.
William S. Simon
Former President and
Chief Executive Officer of
Walmart U.S.
Alan N. Stillman
Founder and former Chief Executive
Officer of The Smith & Wollensky
Restaurant Group, Inc., which develops
and operates high-end, high-volume
restaurants in major cities across the
United States.
137248_DardenAR_CVR.r2.indd 2
8/4/16 12:39 PM
COMMITTED TO
Our People
We are a restaurant company, so food is always top of mind. But what
we do starts with people. Our 150,000 team members are what make
the difference at Darden — they are at the heart of everything we do.
That’s why we strive to hire the best and create an inclusive environment
where diversity of thought and background is valued — everyone is
treated with respect, and everyone has opportunities to develop and
grow their careers.
We’re extremely proud of our results-oriented people culture — one
filled with energy, passion, opportunity and fun. We work hard to
achieve our goals, and we all win together when we do.
We succeed because of our people,
and with our success comes great
opportunity for our team members.
That’s why who we hire is one of our
most important decisions, and why we
invest in our team members’ careers
every step of the way. We provide our
people with the tools they need to
succeed in their current roles, to grow
personally and professionally, and to
deliver exceptional experiences to our
guests each day.
And the results speak for themselves:
• Our hourly team members, on average, earn nearly $15/hour
• We promote nearly 1,000 team members a year into management
• 50% of all our Restaurant Managers are promoted from hourly positions
• 99% of our General Managers and Managing Partners are promoted from within
• 99% of all Directors of Operations are internal promotions
With more than 7,000 leadership
positions across our restaurants, we
provide a pathway for thousands of
individuals throughout the country
to advance from entry-level jobs into
management roles. It’s one of the
reasons Darden enjoys the lowest
annual turnover rates for hourly team
members in the industry – 30 points
below the industry average.
Board of Directors
DARDEN
Margaret Shân Atkins
Co-Founder and Managing Director
of Chetrum Capital LLC, a private
investment firm.
Bradley D. Blum
Founder and Owner of BLUM Enterprises,
LLC, a restaurant company focused on
restaurant strategy, concept develop-
ment and investing.
Jean M. Birch
Retired Chief Executive Officer and
President of Birch Company, LLC, a
specialized strategy and leadership
consulting firm focused on the
hospitality industry.
James P. Fogarty
Former Chief Executive Officer
of Orchard Brands, a multi-channel
marketer of apparel and home products.
Cynthia T. Jamison
Chairman of the Board of Directors of
Tractor Supply Company, the largest
operator of retail farm and ranch stores.
Eugene I. Lee, Jr.
President
Chief Executive Officer
Darden Restaurants, Inc.
Lionel L. Nowell, III
Former Senior Vice President and
Treasurer of PepsiCo, Inc., one of the
world’s largest food and beverage
companies.
Charles M. Sonsteby
Chairman of the Board
Darden Restaurants, Inc.
Vice Chairman, Chief Financial Officer
and Chief Administrative Officer of
The Michaels Companies, Inc.,
the largest arts and crafts specialty
retailer in North America.
William S. Simon
Former President and
Chief Executive Officer of
Walmart U.S.
Alan N. Stillman
Founder and former Chief Executive
Officer of The Smith & Wollensky
Restaurant Group, Inc., which develops
and operates high-end, high-volume
restaurants in major cities across the
United States.
137248_DardenAR_CVR.r2.indd 2
8/4/16 12:39 PM
DEAR FELLOW SHAREHOLDERS
Darden has been on an incredible journey, and this year we were
able to accomplish great things by delivering outstanding experiences
every day, in every restaurant.
We know that when we focus on creating memorable moments for
our guests, we can grow our business. That’s why everything we do
is rooted in our mission – to be financially successful through great
people consistently delivering outstanding food, drinks and service in
an inviting atmosphere, making every guest loyal.
Eugene I. Lee, Jr.
President and Chief Executive Officer
Charles M. Sonsteby
Chairman of the Board
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 1
We bring our mission to life every day through our 150,000
team members in more than 1,500 restaurants across
the country who carry out the four pillars of our Back-to-
Basics operating philosophy – culinary innovation and
execution, attentive service, engaging atmospheres and
integrated marketing. To many, this may all sound simple,
but consistently doing the little things well to create
memorable moments for our guests is extremely difficult.
We continued to leverage our four competitive
advantages that are key to helping our businesses
drive sales growth and expand margins. They are:
• The significant scale of our Company
• The breadth and depth of our data and consumer insights
• Our commitment to rigorous strategic planning
• Our results-oriented, people culture
At a time when our industry faced considerable
headwinds – including increased and more diverse
competition – we are proud of the progress we have
made. Our businesses outperformed the industry1,
creating significant value for our shareholders, our guests,
our team members and the communities we serve.
Delivering Value
to Shareholders
In fiscal 2016, we grew total sales by 4.4 percent2
driven by same-restaurant sales growth of 3.3 percent –
exceeding the industry by more than 400 basis points1
while further simplifying our operations to reduce non-
guest-facing costs by approximately $95 million. Our
sales growth and cost management efforts resulted in
a 37.9 percent increase in adjusted diluted net earnings
per share to $3.53.3 On a reported basis, diluted
net earnings per share from continuing operations
increased 84.1 percent to $2.78 in fiscal 2016.
During the year, we completed a thorough review of our
strategic options to improve shareholder return resulting
in a transaction that was highly successful on many
fronts. We meaningfully improved our capital structure
by completing our comprehensive real estate strategy –
which included a tax-free spinoff of certain real estate and
restaurant assets into a new public company, Four Corners
Property Trust (FCPT). This strategy enabled us to reduce
our debt by approximately $1 billion while preserving the
Company’s investment-grade credit profile. Given the
1 Industry same-restaurant sales as reported by Knapp-Track (excluding Darden).
2 Fiscal 2015 included an extra week of operations, resulting in a 53-week
fiscal year. Fiscal 2016 growth excludes the impact of the extra operating
week in fiscal 2015 to allow for a 52-week to 52-week comparison.
3 Adjusted for special items and the 53rd week. A reconciliation of reported
to adjusted numbers can be found on page 57.
Total Sales¹
(in billions)
$6.64
$6.93
$6.29
Adjusted Earnings
Per Share²
$3.53
$2.56
$1.71
2014
2015
2016
2014
2015
2016
1 Total Sales in fiscal 2015 adjusted to exclude $125 million in sales due to the 53rd week.
2 Adjusted for special items and the 53rd week. A reconciliation of reported to adjusted numbers can be found on page 57.
2
Same-Restaurant
Sales Growth
3.3%
2.4%
2014
-1.3%
2015
2016
current trading multiples of both companies, we believe
we have created significant value for shareholders.
Continuing our commitment to enhancing shareholder
value, we returned more than $450 million through dividends
($265 million) and share repurchases ($185 million). As of the
end of the fiscal year, we had $315 million remaining of the
$500 million of share repurchases the Board authorized in
December. This June, we increased our quarterly dividend
to $0.56 per share. With this increase, the Darden dividend
after the real estate spinoff will be greater than the Darden
dividend before the real estate transaction was completed.
We continued to leverage our scale through aggressive
cost management programs and supply chain optimization.
This, combined with operational simplification and better
overall cost management at the restaurants, enabled
us to deliver $130 million in annual savings since fiscal
2015. We also simplified our organizational structure to
become more decentralized and operations-focused,
with clearer leadership accountability. And across our
portfolio, we increased the sharing of data and insights
on our guests’ needs and preferences to increase
guest traffic, drive in-restaurant behavior, enhance the
guest experience and improve financial returns.
In December, we introduced our value-creation framework.
Our goal over time is to deliver long-term earnings
after tax growth of 7 to 10 percent, derived from:
• Same-restaurant sales growth of 1 to 3 percent
• New restaurant growth of 2 to 3 percent
• EBIT margin expansion of 10 to 40 basis points
We expect to pay out approximately 50 to 60 percent of
our earnings after tax as dividends and repurchase $100
million to $200 million of our shares annually, leading to
a long-term Total Shareholder Return of 10 to 15 percent
— composed of EPS growth and dividend yield.
In summary, we have a value-creating business model
that generates significant and durable cash flow to fund
future growth and return capital to shareholders.
COMMITTED TO
Our Back-to-Basics
Operating Philosophy
Our success depends on operating the very best
restaurants possible. That’s why we are relentlessly
focused on:
• Driving culinary innovation and execution
• Delivering attentive service to every guest
• Providing an inviting and engaging
atmosphere inside each of our restaurants
We support these operating fundamentals through
smart and relevant integrated marketing programs that
resonate with our guests. The result is the opportunity
to grow market share through same-restaurant sales
growth and to deliver best-in-class profitability.
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 3
Delivering Value to Our Guests
Our strategy and positioning for each business
enabled us to build momentum and identify new ways
to exceed the expectations of our guests. In fiscal
2016, we successfully delivered against our mission
as we grew total sales to $6.9 billion with same-
restaurant sales growth at each of our businesses.
For the second consecutive year, Olive Garden
delivered positive same-restaurant sales growth — at
3.1 percent in fiscal 2016. The continued success of
Olive Garden is rooted in our laser focus on enhancing
the guest experience at every touchpoint. We boosted
culinary innovation by leveraging brand equities and
flavor profiles that loyal guests enjoy the most, and
we complemented this innovation with an expanded
menu that offers guests a variety of choices that
span a wide range of prices. To further improve the
guest experience, we simplified our operations and
ensured our restaurants were properly staffed.
Additionally, we continued to meet our guests’ growing
demand for convenience through our successful OG To-Go
platform and the national launch of large-party catering
delivery. Finally, to tell our guests about what’s new in
our restaurants, we’ve evolved our marketing to be more
integrated, targeted and personally relevant. This focus on
enhancing every touchpoint has improved the perceived
value of Olive Garden and has resonated with guests
as we outperformed the industry by 390 basis points.1
The momentum at LongHorn Steakhouse continued with
its third straight year of same-restaurant sales growth — at
3.5 percent in fiscal 2016. This success comes from an
emphasis on building loyalty through culinary innovation
and our relentless pursuit of delivering flawless guest
experiences. Through culinary platforms like Peak Season
and Chef Showcase, LongHorn continually introduced new
menu offerings that were seasonally relevant and made
with fresh, quality ingredients. In addition, we reduced
the number of menu items, simplifying procedures to
allow our restaurant teams to execute at a higher level.
We also invested in team member training, which helped
us defend our industry-leading retention. Finally, we
continued to reach guests with impactful advertising,
which was recognized by Ace Metrix when it named
LongHorn the “Brand of the Year” for casual dining for
the second year in a row. All of this resulted in LongHorn
outperforming the industry by more than 400 basis points.1
1 Industry same-restaurant sales as reported by Knapp-Track (excluding Darden).
COMMITTED TO
Leveraging Our
Competitive Advantages
We support our best-in-class restaurant businesses
by helping them reach their full potential. We do this
by leveraging four competitive advantages that are
keys to unlocking sales growth and expanding margins.
• Significant Scale
• Extensive Data & Insights
• Rigorous Strategic Planning
• Our Results-Oriented People Culture
4
COMMITTED TO
Long-Term Value Creation
ANNUAL TARGET, OVER TIME
Business Performance (Adj. EAT Growth)
Same-restaurant sales
New restaurant growth
1-3%
2-3%
EBIT margin expansion
10-40bps
Return of Cash
7-10%
Dividend payout ratio
50-60%
Share repurchase ($ millions)
$100-$200
3-5%
Total Shareholder Return
(EPS GROWTH + DIVIDEND YIELD)
10-15%
Seasons 52 had a strong year, growing same-restaurant
sales 4.7 percent. As an on-trend concept — giving
guests the opportunity to enjoy hand-crafted cuisine
that is healthful without sacrificing taste or style —
Seasons 52 is uniquely positioned to capitalize in a
dining segment that is poised for continued growth.
Our focus on enhancing operational execution and
evolving the menu received an incredibly positive
reaction from our guests, giving us momentum as we
build the pipeline for value-creating new restaurants.
Bahama Breeze continued to significantly outperform
the casual dining industry1 with same-restaurant sales
growth of 4.8 percent. Positioned as an island oasis
from the everyday, Bahama Breeze paired culinary
innovation with high-energy, in-restaurant events.
These events created signature experiences that
reinforced the business’ unique positioning while
attracting more guests — particularly Millennials.
At Yard House, same-restaurant sales grew 2.3 percent, the
third consecutive year of growth, as we continue to build
a loyal guest base. It’s from this base that we know that
our extensive beer selection, scratch kitchen and specially
curated rock music continued to strike a chord across
multiple demographics that joined us for lunch, happy hour,
dinner and late-night happy hour. We are extremely excited
about the growth we have planned for this business.
For the sixth consecutive year, The Capital Grille grew
same-restaurant sales — growing 3.9 percent in fiscal
2016. The Capital Grille is the ultimate relationship
brand, offering a welcoming and club-like dining
experience. Delivering high-touch experiences is
nothing new for us, and we continued to leverage
technology to enable us to personally connect with
more guests to create exclusively tailored visits.
Eddie V’s achieved same-restaurant sales growth of
1.8 percent. With its positioning as the destination for
a glamorous night out, this fine-dining restaurant was
able to capitalize on its ability to deliver unforgettable
experiences — setting new sales records during
key holidays throughout the year. Additionally, we
were able to implement operational initiatives that
simplified execution while preserving the high levels
of food quality and service for which we’re known.
We have a strong and differentiated portfolio of businesses,
each with anticipated growth ahead of them. Reflecting this
growth opportunity, we are ramping up the development
pipeline for future sites and anticipate opening 24 to
28 new restaurants in the coming fiscal year.
1 Industry same-restaurant sales as reported by Knapp-Track (excluding Darden).
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 5
Delivering Value to Our Team
Members and Communities
Everything we do starts with people: our 150,000
team members, the nearly one million guests we
serve each day and the individuals who live in the
communities that are home to our restaurants. That’s
why we strive to provide meaningful and rewarding
employment, deliver outstanding food and service to
our guests and give back to our local communities.
For many of our team members, Darden is their first
employer. This is a role we take great pride in – and a
responsibility we take seriously. For some, a job in our
restaurants is the start of a career path to management
positions within the Company. In fact, half of our
restaurant managers began their careers with us as
hourly team members. For others, it enables them
to further their education and eventually pursue a
career elsewhere. Whatever the case, we know that
the skills and experience we provide will help our team
members grow and succeed within the Company – or
wherever their career paths ultimately take them.
Inclusion and diversity are woven into the fabric of our
culture. Every day we leverage our differences to support
the business strategy as we create an environment
where all of our team members can reach their greatest
potential. In fact, 52 percent of our team members are
women, and 49 percent are minorities. Additionally, our
team members span five generations – Matures, Baby
Boomers, Generation X, Millennials and Centennials.
We also maintain strong relationships with more than
25 organizations that have a mission to advance diverse
communities. And we’re proud to have been recognized
by the Human Rights Campaign Foundation for scoring
100 percent on the Corporate Equality Index.
2016 Financial Highlights
FISCAL YEAR ENDED
(in millions, except per share amounts)
Sales from Continuing Operations
Earnings from Continuing Operations
Earnings from Discontinued Operations, net of tax
Net Earnings
Basic Net Earnings Per Share:
Earnings from Continuing Operations
Earnings from Discontinued Operations
Diluted Net Earnings Per Share:
Earnings from Continuing Operations
Earnings from Discontinued Operations
Dividends Paid Per Share
Average Shares Outstanding:
Basic
Diluted
6
May 29, 2016
May 31, 2015
May 25, 2014
$ 6,933.5
$ 359.7
$
15.3
$ 375.0
$
2.94
$
2.82
$
0.12
$
2.90
$
2.78
$
0.12
$
2.10
127.4
129.3
$ 6,764.0
$
196.4
513.1
$
$ 709.5
$ 5.56
$
1.54
$
4.02
$
5.47
1.51
$
$
3.96
$ 2.20
127.7
129.7
$ 6,285.6
$
183.2
$
103.0
$ 286.2
2.18
$
1.40
$
0.78
$
2.15
$
$
1.38
0.77
$
2.20
$
131.0
133.2
COMMITTED TO
Our Mission
To be financially successful through
great people consistently delivering
outstanding food, drinks and service
in an inviting atmosphere, making
every guest loyal.
We have a social responsibility to our guests and communities,
which is why our approach to citizenship is a key component
of how we fulfill our mission. We bring this to life through:
We are doing what matters most for our guests –
delivering memorable experiences that will bring them
back time and time again. Fiscal 2016 was a great
year for Darden, but there’s more work ahead.
• A commitment to our Food Principles – that great food
starts with quality ingredients that are sustainably sourced
• Our protection of the natural environment and resource
conservation efforts in our restaurants
• Connection and support for the vibrant communities
where we live, work and serve
We invite you to read more about our commitment
to citizenship at www.darden.com/citizenship.
With that in mind, we want to thank our dedicated team
members for their commitment to excellence. They are the
foundation of our success. We also want to express our
appreciation to the Board of Directors for providing strategic
guidance and their commitment to effective, transparent
corporate governance. Finally, we want to thank you, our
fellow shareholders, for your continued support of Darden
and our vision. We look forward to rewarding that support
through our ongoing commitment to value creation.
Charles M. Sonsteby
Chairman of the Board
Eugene I. Lee, Jr.
President and Chief Executive Officer
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 7
Executive Leadership
DARDEN
Eugene I. Lee, Jr.
President
Chief Executive Officer
Matt Broad
Senior Vice President
General Counsel &
Corporate Secretary
Todd Burrowes
President
LongHorn Steakhouse
Rick Cardenas
Senior Vice President
Chief Financial Officer
Chris Chang
Senior Vice President
Chief Information
Officer
Susan Connelly
Senior Vice President
Communications &
Corporate Affairs
Brian Foye
President
Seasons 52
Dave George
President
Olive Garden
Executive Vice President
Darden Restaurants
Danielle Kirgan
Senior Vice President
Chief Human
Resources Officer
Mike Kneidinger
President
Yard House
John Madonna
Senior Vice President
Corporate Controller
John Martin
President
The Capital Grille
Eddie V’s
Doug Milanes
Senior Vice President
Chief Supply Chain
Officer
Rich Renninger
Senior Vice President
Chief Development
Officer
Bill White
Senior Vice President
Treasurer
8
Darden Restaurants, Inc.
2016 Financial Review
10
22
22
23
24
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Report of Management’s Responsibilities
Management’s Report on Internal Control Over
Financial Reporting
Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
25 Consolidated Statements of Earnings
25 Consolidated Statements of Comprehensive Income
26 Consolidated Balance Sheets
27 Consolidated Statements of Changes in Stockholders’ Equity
28 Consolidated Statements of Cash Flows
29 Notes to Consolidated Financial Statements
56
Five-Year Financial Summary
137248_DardenAR_FINCL.r2.indd 9
8/4/16 12:40 PM
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 9
This discussion and analysis below for Darden Restaurants, Inc. (Darden, the
Company, we, us or our) should be read in conjunction with our consolidated
financial statements and related financial statement notes found elsewhere
in this report. We operate on a 52/53-week fiscal year, which ends on the
last Sunday in May. Fiscal 2016, which ended May 29, 2016, consisted of
52 weeks. Fiscal 2015, which ended May 31, 2015, consisted of 53 weeks
and fiscal 2014, which ended May 25, 2014, consisted of 52 weeks.
OVERVIEW OF OPERATIONS
Our business operates in the full-service dining segment of the restaurant
industry. At May 29, 2016, we operated 1,536 restaurants through
subsidiaries in the United States and Canada under the Olive Garden®,
LongHorn Steakhouse®, The Capital Grille®, Yard House®, Bahama Breeze®,
Seasons 52®, and Eddie V’s Prime Seafood® and Wildfish Seafood Grille®
(collectively, Eddie V’s) trademarks. We own and operate all of our restau-
rants in the United States and Canada, except for 6 joint venture restaurants
managed by us and 18 franchised restaurants. We also have 32 franchised
restaurants in operation located in Latin America, the Middle East and
Malaysia. All intercompany balances and transactions have been eliminated
in consolidation.
On November 9, 2015, we completed the spin-off of Four Corners
Property Trust, Inc. (Four Corners) with the pro rata distribution of one share
of common stock for every three shares of Darden common stock to
Darden shareholders. The separation included (i) the transfer of 6 LongHorn
Steakhouse restaurants located in the San Antonio, Texas area as well as
418 restaurant properties to Four Corners, which were subsequently leased
back to Darden; (ii) the issuance to us of all of the outstanding common
stock of Four Corners and corresponding pro rata distribution to our
shareholders of the outstanding shares of Four Corners common stock
as a tax-free stock dividend; and (iii) a cash dividend of approximately
$315.0 million received by us from Four Corners from the proceeds
of Four Corners’ term loan borrowings. See Note 2 to our consolidated
financial statements for further details.
We believe that capable operators of strong, multi-unit brands have the
opportunity to increase their share of the restaurant industry’s full-service
segment. Generally, the restaurant industry is considered to be comprised
of three segments: quick service, fast casual, and full service. All of our
restaurants fall within the full-service segment, which is highly fragmented
and includes many independent operators and small chains. We believe we
have strong brands and that the breadth and depth of our experience and
expertise sets us apart in the full-service segment of the restaurant industry.
This collective capability is the product of investments over many years in
areas that are critical to success in our business, including restaurant
operations excellence, brand management excellence, supply chain, talent
management and information technology, among other things.
With a focus on growing same-restaurant sales, we’ve implemented a
“Back-to-Basics” approach rooted in strong operating fundamentals. We’re
focused on improving culinary innovation and execution inside each of our
brands, delivering attentive service to each and every one of our guests,
and creating an inviting and engaging atmosphere inside our restaurants.
We support these priorities with smart and relevant integrated marketing
programs that resonate with our guests. By delivering on these operational
and brand-building imperatives, we expect to increase our market share
through new restaurant and same-restaurant sales growth and deliver
best-in-class profitability.
The Darden support structure enables our brands to achieve their
ultimate potential by: (1) driving advantages in supply chain and general and
administrative support; (2) applying insights collected from our significant
guest and transactional databases to enhance guest relationships and
identify new opportunities to drive sales growth; and (3) relentlessly driving
operating efficiencies and continuous improvement, operating with a sense
of urgency and inspiring a performance-driven culture.
We seek to increase profits by leveraging our fixed and semi-fixed costs
with sales from new restaurants and increased guest traffic and sales at
existing restaurants. To evaluate our operations and assess our financial
performance, we monitor a number of operating measures, with a special
focus on two key factors:
• Same-restaurant sales – which is a year-over-year 52-week
com parison of each period’s sales volumes for restaurants open at
least 16 months, including recently acquired restaurants, regardless
of when the restaurants were acquired; and
• Segment profit – which is restaurant sales, less food and beverage
costs, restaurant labor costs, restaurant expenses and marketing
expenses (sometimes referred to as restaurant-level earnings).
10
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
Outlook
We expect combined Darden same-restaurant sales to increase in fiscal
2017 between 1.0 percent and 2.0 percent, and we expect fiscal 2017
sales from continuing operations to increase between 1.7 percent and
2.7 percent. In fiscal 2017, we expect to open approximately 24 to 28
new restaurants, and we expect capital expenditures incurred to build
new restaurants, remodel and maintain existing restaurants and technology
initiatives to be between $310.0 million and $350.0 million.
In June 2016, we announced a quarterly dividend of $0.56 per share,
payable on August 1, 2016. Based on the $0.56 quarterly dividend decla-
ration, our expected annual dividend is $2.24 per share, which reflects
an increase of 6.7 percent compared to our fiscal 2016 annual dividend.
Dividends are subject to the approval of our Board of Directors and,
accordingly, the timing and amount of our dividends are subject to change.
There are significant risks and challenges that could impact our
operations and ability to increase sales and earnings. The restaurant industry
is intensely competitive and sensitive to economic cycles and other business
factors, including changes in consumer tastes and dietary habits. Other
risks and uncertainties are discussed and referenced in the subsection below
entitled “Forward-Looking Statements.”
Increasing same-restaurant sales can improve segment profit because
these incremental sales provide better leverage of our fixed and semi-fixed
restaurant-level costs. A restaurant brand can generate same-restaurant
sales increases through increases in guest traffic, increases in the average
guest check, or a combination of the two. The average guest check can be
impacted by menu price changes and by the mix of menu items sold. For
each restaurant brand, we gather daily sales data and regularly analyze the
guest traffic counts and the mix of menu items sold to aid in developing
menu pricing, product offerings and promotional strategies. We focus on
balancing our pricing and product offerings with other initiatives to produce
sustainable same-restaurant sales growth.
We compute same-restaurant sales using restaurants open at least
16 months because this period is generally required for new restaurant
sales levels to normalize. Sales at newly opened restaurants generally do
not make a significant contribution to profitability in their initial months of
operation due to operating inefficiencies. Our sales and expenses can be
impacted significantly by the number and timing of new restaurant openings
and closings, and relocations and remodeling of existing restaurants.
Pre-opening expenses each period reflect the costs associated with opening
new restaurants in current and future periods.
Fiscal 2016 Financial Highlights
Our sales from continuing operations were $6.93 billion in fiscal 2016
compared to $6.76 billion in fiscal 2015. The 2.5 percent increase in
sales from continuing operations was driven by a combined Darden same-
restaurant sales increase of 3.3 percent on a 52-week basis and the
addition of two net new company-owned restaurants, partially offset by the
impact of the 53rd week of operation in fiscal 2015.
Net earnings from continuing operations for fiscal 2016 were
$359.7 million ($2.78 per diluted share) compared with net earnings from
continuing operations for fiscal 2015 of $196.4 million ($1.51 per diluted
share). Net earnings from continuing operations for fiscal 2016 increased
83.1 percent and diluted net earnings per share from continuing operations
increased 84.1 percent compared with fiscal 2015.
Our net earnings from discontinued operations were $15.3 million
($0.12 per diluted share) for fiscal 2016, compared with net earnings from
discontinued operations of $513.1 million ($3.96 per diluted share) for
fiscal 2015. When combined with results from continuing operations, our
diluted net earnings per share were $2.90 and $5.47 for fiscal 2016 and
2015, respectively.
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
RESULTS OF OPERATIONS FOR FISCAL 2016, 2015 AND 2014
To facilitate review of our results of operations, the following table sets forth our financial results for the periods indicated. All information is derived from the
consolidated statements of earnings for the fiscal years ended May 29, 2016, May 31, 2015 and May 25, 2014. This information and the following analysis
have been presented with the results of operations, costs incurred in connection with the sale and related gain on the sale of Red Lobster and results for the
two closed company-owned synergy restaurants classified as discontinued operations for all periods presented.
(in millions)
May 29, 2016
May 31, 2015
May 25, 2014
2016 vs 2015
2015 vs 2014
Percent Change
Sales
Costs and expenses:
Food and beverage
Restaurant labor
Restaurant expenses
Marketing expenses
General and administrative expenses
Depreciation and amortization
Impairments and disposal of assets, net
Total operating costs and expenses
Operating income
Interest, net
Earnings before income taxes
Income tax expense (benefit) (1)
Earnings from continuing operations
Earnings from discontinued operations, net of tax
Net earnings
$6,933.5
$6,764.0
$6,285.6
2.5%
2,039.7
2,189.2
1,163.5
238.0
384.9
290.2
5.8
$6,311.3
622.2
172.5
449.7
90.0
$ 359.7
15.3
$ 375.0
2,085.1
2,135.6
1,120.8
243.3
430.2
319.3
62.1
$6,396.4
367.6
192.3
175.3
(21.1)
$ 196.4
513.1
$ 709.5
1,892.2
2,017.6
1,080.7
252.3
413.1
304.4
16.4
$5,976.7
308.9
134.3
174.6
(8.6)
$ 183.2
103.0
$ 286.2
(2.2)%
2.5%
3.8%
(2.2)%
(10.5)%
(9.1)%
(90.7)%
(1.3)%
69.3%
(10.3)%
156.5%
(526.5)%
83.1%
(97.0)%
(47.1)%
(1) Effective tax rate
20.0%
(12.0)%
(4.9)%
7.6%
10.2%
5.8%
3.7%
(3.6)%
4.1%
4.9%
278.7%
7.0%
19.0%
43.2%
0.4%
145.3%
7.2%
398.2%
147.9%
The following table details the number of company-owned restaurants currently reported in continuing operations, compared with the number open at the
end of fiscal 2015 and the end of fiscal 2014.
Olive Garden (1)
LongHorn Steakhouse
Yard House
The Capital Grille
Bahama Breeze
Seasons 52
Eddie V’s
Other (2)
Total
May 29, 2016
May 31, 2015
May 25, 2014
843
481
65
54
37
40
16
—
1,536
846
480
59
54
36
43
16
—
1,534
837
464
52
54
37
38
15
4
1,501
(1) Includes six locations in Canada for all periods presented.
(2) Represents company-owned synergy restaurants in operation. We completed the conversion of all remaining synergy restaurants into stand-alone Olive Garden restaurants during the
first quarter of fiscal 2015.
12
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
SALES
The following table presents our sales and U.S. same-restaurant sales (SRS) by brand for the periods indicated.
(in millions)
2016
2015
2014
2016 vs 2015 2015 vs 2014 2016 vs 2015 2015 vs 2014
Fiscal Years
Percent Change
SRS (1)
Olive Garden
LongHorn Steakhouse
Yard House
The Capital Grille
Bahama Breeze
Seasons 52
Eddie V’s
3.1%
3.5%
2.3%
3.9%
4.8%
4.7%
1.8%
(1) Same-restaurant sales is a year-over-year comparison of each period’s sales volumes for a 52-week year and is limited to restaurants open at least 16 months.
$3,838.6
$1,587.7
$ 507.0
$ 408.3
$ 217.9
$ 253.8
$ 105.8
$3,789.6
$1,544.7
$ 469.9
$ 403.3
$ 209.2
$ 238.6
$ 96.9
$3,643.1
$1,383.9
$ 395.4
$ 363.2
$ 201.5
$ 196.3
$ 78.4
4.0%
11.6%
18.8%
11.0%
3.8%
21.5%
23.6%
1.3%
2.8%
7.9%
1.2%
4.2%
6.4%
9.2%
1.3%
4.4%
3.8%
4.8%
1.8%
2.3%
5.4%
The following table presents our average annual sales per restaurant
for the periods indicated. Average annual sales are calculated as net sales
divided by total restaurant operating weeks multiplied by 52 weeks.
(in millions)
Olive Garden
LongHorn Steakhouse
Yard House
The Capital Grille
Bahama Breeze
Seasons 52
Eddie V’s
May 29,
2016
May 31,
2015
May 25,
2014
$4.5
$3.3
$8.2
$7.6
$5.9
$6.0
$6.6
$4.4
$3.2
$8.3
$7.2
$5.7
$5.7
$6.3
$4.4
$3.1
$8.2
$7.1
$5.6
$5.7
$6.0
Olive Garden’s sales increase for fiscal 2016 was driven by a U.S.
same- restaurant sales increase partially offset by the impact of the 53rd
week in fiscal 2015. The increase in U.S. same-restaurant sales in fiscal
2016 resulted from a 2.0 percent increase in average check combined with
a 1.1 percent increase in same-restaurant guest counts. Olive Garden’s
sales increase for fiscal 2015 was driven by revenue from nine net new
restaurants combined with a U.S. same-restaurant sales increase and the
impact of the 53rd week. The increase in U.S. same-restaurant sales in fiscal
2015 resulted from a 2.9 percent increase in average check partially offset
by a 1.6 percent decrease in same-restaurant guest counts.
LongHorn Steakhouse’s sales increase for fiscal 2016 was driven by
revenue from one net new restaurant combined with a same-restaurant
sales increase, partially offset by the impact of the 53rd week in fiscal
2015. The increase in same-restaurant sales in fiscal 2016 resulted from
a 3.0 percent increase in average check combined with a 0.5 percent
increase in same-restaurant guest counts. LongHorn Steakhouse’s sales
increase for fiscal 2015 was driven by revenue from 16 net new restaurants
combined with a same-restaurant sales increase and the impact of the
53rd week. The increase in same-restaurant sales in fiscal 2015 resulted
from a 3.6 percent increase in average check combined with a 0.8 percent
increase in same-restaurant guest counts.
In total, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s and
Yard House generated sales in fiscal 2016 and 2015, which were 5.3 percent
and 14.8 percent above fiscal 2015 and fiscal 2014, respectively. The sales
increases for fiscal 2016 were primarily driven by the incremental sales from
six net new Yard House restaurants since the end of fiscal 2015 and same-
restaurant sales increases at all five brands partially offset by the impact
of the 53rd week in fiscal 2015. The sales increases for fiscal 2015 were
primarily driven by incremental sales from 12 net new restaurants since the
end of fiscal 2014 and the impact of the 53rd week. Sales growth for fiscal
2015 also reflected same-restaurant sales increases at all five brands.
COSTS AND EXPENSES
The following table sets forth selected operating data as a percent of sales
from continuing operations for the periods indicated. This information is
derived from the consolidated statements of earnings for the fiscal years
ended May 29, 2016, May 31, 2015 and May 25, 2014. Additionally, this
information and the following analysis have been presented with the results
of operations, costs incurred in connection with the sale and related gain on
the sale of Red Lobster and results for the two closed synergy restaurants
classified as discontinued operations for all periods presented.
Sales
Costs and expenses:
Food and beverage
Restaurant labor
Restaurant expenses
Marketing expenses
General and administrative expenses
Depreciation and amortization
Impairments and disposal of assets, net
Total operating costs and expenses
Operating income
Interest, net
Earnings before income taxes
Income tax expense (benefit)
Earnings from continuing operations
Earnings from discontinued operations,
net of taxes
Net earnings
Fiscal Years
2015
2014
2016
100.0% 100.0% 100.0%
29.4
31.6
16.8
3.4
5.5
4.2
0.1
91.0%
9.0
2.5
6.5
1.3
5.2
30.8
31.6
16.6
3.6
6.4
4.7
0.9
94.6%
5.4
2.8
2.6
(0.3)
2.9
0.2
5.4%
7.6
10.5%
30.1
32.1
17.2
4.0
6.6
4.8
0.3
95.1%
4.9
2.1
2.8
(0.1)
2.9
1.7
4.6%
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 13
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
Total operating costs and expenses from continuing operations were
$6.31 billion in fiscal 2016, $6.40 billion in fiscal 2015 and $5.98 billion in
fiscal 2014. As a percent of sales, total costs and expenses from continuing
operations were 91.0 percent in fiscal 2016, 94.6 percent in fiscal 2015
and 95.1 percent in fiscal 2014.
Fiscal 2016 Compared to Fiscal 2015:
• Food and beverage costs decreased as a percent of sales as a result
of favorable menu mix and pricing, cost savings initiatives and food
cost deflation, primarily seafood and dairy.
• Restaurant labor costs were flat as a percent of sales as wage-rate
inflation, higher manager bonus and salary costs were offset by
sales leverage.
• Restaurant expenses (which include utilities, repairs and
maintenance, credit card, lease, property tax, workers’ compen-
sation, new restaurant pre-opening and other restaurant-level
operating expenses) increased as a percent of sales, primarily as a
result of increased rent expense partially offset by sales leverage
and cost savings initiatives.
• Marketing expenses decreased as a percent of sales, primarily as a
result of sales leverage.
• General and administrative expenses decreased as a percent of
sales, primarily due to lower general and administrative expenses
incurred in fiscal 2016 related to the real estate plan implementation
as compared to the strategic action plan costs incurred in fiscal
2015. General and administrative expenses as a percent of sales also
decreased as a result of sales leverage, support cost savings and the
favorable settlement of legal matters.
• Depreciation and amortization expense decreased as a percent
of sales primarily from the impact of the spin-off of Four Corners,
completed sale-leaseback transactions and sales leverage.
• Impairments and disposal of assets, net, decreased as a percent
of sales primarily due to higher restaurant-related impairments in
fiscal 2015.
Fiscal 2015 Compared to Fiscal 2014:
• Food and beverage costs increased as percent of sales as a result
of food cost inflation, primarily dairy and beef, and increased costs for
promotional items, partially offset by pricing and favorable menu mix.
• Restaurant labor costs decreased as a percent of sales primarily as a
result of sales leverage.
• Restaurant expenses (which include utilities, repairs and maintenance,
credit card, lease, property tax, workers’ compensation, new restau-
rant pre-opening, rent expense and other restaurant-level operating
expenses) decreased as a percent of sales, primarily as a result of
sales leverage and lower new restaurant pre-opening expenses.
• Marketing expenses decreased as a percent of sales, primarily as a
result of sales leverage and reduced media costs.
• General and administrative expenses decreased as a percent of
sales, primarily as a result of sales leverage and support cost savings
net of costs related to implementation of the strategic action plan.
• Depreciation and amortization expense as a percent of sales
decreased primarily due to lower net new restaurants and remodel
activities as compared to the prior year.
INTEREST EXPENSE
Net interest expense decreased as a percent of sales in fiscal 2016 primarily
due to lower average debt balances in fiscal 2016 as compared to fiscal
2015 related to the retirement of $1.03 billion in principal of long-term debt
in fiscal 2016. The decrease was partially offset by higher debt retirement
costs of $106.8 million in fiscal 2016 compared to debt retirement costs of
$91.3 million in fiscal 2015. Net interest expense increased as a percent of
sales in fiscal 2015 as compared to fiscal 2014 primarily due to $91.3 million
of debt retirement costs related to the retirement of $1.01 billion in principal
of long-term debt in fiscal 2015.
INCOME TAXES
The effective income tax rates for fiscal 2016, 2015 and 2014 for continuing
operations were 20.0 percent, (12.0) percent and (4.9) percent, respectively.
Our effective tax rate from continuing operations was negative in both fiscal
2015 and fiscal 2014 primarily due to the impact of certain tax credits on
lower earnings before income taxes driven primarily by costs incurred related
to our strategic action plan. The increase in our effective tax rate for fiscal
2016 compared to fiscal 2015 is primarily due to higher earnings before
income taxes. The decrease in our effective rate for fiscal 2015 compared to
fiscal 2014 is primarily attributable to the impact of the favorable resolution
of prior-year tax matters.
NET EARNINGS AND NET EARNINGS PER SHARE
FROM CONTINUING OPERATIONS
Net earnings from continuing operations for fiscal 2016 were $359.7 million
($2.78 per diluted share) compared with net earnings from continuing
operations for fiscal 2015 of $196.4 million ($1.51 per diluted share) and
net earnings from continuing operations for fiscal 2014 of $183.2 million
($1.38 per diluted share).
Net earnings from continuing operations for fiscal 2016 increased
83.1 percent and diluted net earnings per share from continuing operations
increased 84.1 percent compared with fiscal 2015, primarily due to
increased sales, lower food and beverage costs, marketing expenses, gen-
eral and administrative expenses, depreciation and amortization expenses
and impairments and disposal of assets, net as a percent of sales, partially
offset by higher restaurant expenses as a percent of sales and a higher
effective income tax rate. Our diluted net earnings per share from continuing
operations for fiscal 2016 were adversely impacted by approximately
$0.51 due to debt retirement costs and approximately $0.26 related to the
real estate plan implementation and positively impacted by approximately
$0.02 due to a tax benefit associated with the prior year lobster
aquaculture divestiture.
Net earnings from continuing operations for fiscal 2015 increased
7.2 percent and diluted net earnings per share from continuing operations
increased 9.4 percent compared with fiscal 2014, primarily due to increased
sales and a lower effective income tax rate and lower restaurant labor
expenses, restaurant expenses and marketing expenses as a percent of
sales, partially offset by higher food and beverage costs, general and
administrative expenses and impairments and disposal of assets, net as
a percent of sales. Our diluted net earnings per share from continuing
operations for fiscal 2015 were adversely impacted by approximately
$0.42 related to debt retirement costs and approximately $0.68 due to
the combined impact of a tax benefit related to exiting from our lobster
aquaculture project and legal, financial advisory and other costs related to
implementation of the strategic action plan and asset impairments.
14
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
EARNINGS FROM DISCONTINUED OPERATIONS
On an after-tax basis, earnings from discontinued operations for fiscal 2016
were $15.3 million ($0.12 per diluted share) compared with earnings from
discontinued operations for fiscal 2015 of $513.1 million ($3.96 per diluted
share) and fiscal 2014 of $103.0 million ($0.77 per diluted share). Earnings
from discontinued operations reflects pre-tax gains of $17.9 million recorded
in fiscal 2016 and $837.0 million in fiscal 2015, related to the sale of
Red Lobster.
SEGMENT RESULTS
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse,
The Capital Grille, Yard House, Bahama Breeze, Seasons 52 and Eddie V’s
in North America as operating segments. We aggregate our operating
segments into reportable segments based on a combination of the size,
economic characteristics and sub-segment of full-service dining within
which each brand operates. Our four reportable segments are: (1) Olive
Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business
(see Note 6 to our consolidated financial statements).
Our management uses segment profit as the measure for assessing
performance of our segments. Olive Garden’s segment profit margins were
19.8 percent for fiscal 2016, 18.5 percent for fiscal 2015 and 17.8 percent
for fiscal 2014. The growth for fiscal 2016 was driven primarily by leverag-
ing positive same-restaurant sales, food and beverage cost favorability and
cost reduction initiatives, partially offset by additional rent expense resulting
from real estate transactions. The growth for fiscal 2015 was driven
primarily by leveraging positive same-restaurant sales and cost reduction
initiatives, partially offset by food and beverage cost inflation. LongHorn’s
segment profit margins were 17.3 percent for fiscal 2016, 15.5 percent for
fiscal 2015 and 14.8 percent for fiscal 2014. The growth for fiscal 2016
was driven primarily by leveraging positive same-restaurant sales as well
as improved cost of sales and lower marketing expense, partially offset by
additional rent expense resulting from real estate transactions. The growth
for fiscal 2015 was driven primarily by leveraging positive same-restaurant
sales and cost reduction initiatives, partially offset by food and beverage
cost inflation. Fine Dining’s segment profit margins were 19.5 percent for
fiscal 2016, 19.0 percent for fiscal 2015 and 18.4 percent for fiscal 2014.
The growth for fiscal 2016 was driven primarily by improved food and
beverage costs. The growth for fiscal 2015 was driven primarily by leveraging
positive same-restaurant sales and lower restaurant expenses. The Other
Business segment profit margins were 16.9 percent for fiscal 2016,
15.5 percent for fiscal 2015 and 13.4 percent for fiscal 2014. The growth
for fiscal 2016 was driven by positive same-restaurant sales leverage and
lower food and beverage costs. The growth for fiscal 2015 was driven by
positive same-restaurant sales leverage and lower restaurant expenses.
SEASONALITY
Our sales volumes fluctuate seasonally. Typically, our average sales per
restaurant are highest in the winter and spring, followed by the summer, and
lowest in the fall. Holidays, changes in the economy, severe weather and
similar conditions may impact sales volumes seasonally in some operating
regions. Because of the seasonality of our business, results for any quarter
are not necessarily indicative of the results that may be achieved for the full
fiscal year.
IMPACT OF INFLATION
We attempt to minimize the annual effects of inflation through appropriate
planning, operating practices and menu price increases. We do not believe
inflation had a significant overall effect on our annual results of operations
during fiscal 2016. We experienced higher than normal inflationary costs
during fiscal 2015 and fiscal 2014 and were able to partially reduce the
annual impact utilizing these strategies.
CRITICAL ACCOUNTING ESTIMATES
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 expenses during the reporting period. Actual results
could differ from those estimates.
Our significant accounting policies are more fully described in Note 1
to the consolidated financial statements. Judgments and uncertainties
affecting the application of those policies may result in materially different
amounts being reported under different conditions or using different
assumptions. We consider the following estimates to be most critical in
understanding the judgments that are involved in preparing our consolidated
financial statements.
Leases
We evaluate our leases at their inception to estimate their expected term,
which commences on the date when we have the right to control the use
of the leased property and includes the non-cancelable base term plus all
option periods we are reasonably assured to exercise. Our judgment in
determining the appropriate expected term for each lease affects our
evaluation of:
• The classification and accounting for leases as capital
versus operating;
• The rent holidays and escalation in payments that are included in the
calculation of straight-line rent; and
• The term over which leasehold improvements for each restaurant
facility are amortized.
These judgments may produce materially different amounts of
depreciation, amortization and rent expense than would be reported if
different expected lease terms were used.
Valuation of Long-Lived Assets
Land, buildings and equipment and certain other assets, including
definite-lived intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The judgments we make related to the
expected useful lives of long-lived assets, definitions of lease terms and our
ability to realize undiscounted cash flows in excess of the carrying amounts
of these assets are affected by factors such as the ongoing maintenance and
improvements of the assets, changes in economic conditions, changes in
usage or operating performance, desirability of the restaurant sites and other
factors, such as our ability to sell our assets held for sale. As we assess the
ongoing expected cash flows and carrying amounts of our long-lived assets,
significant adverse changes in these factors could cause us to realize an
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 15
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
impairment loss. Based on a review of operating results for each of our
restaurants, the amount of net book value associated with lower performing
restaurants that would be deemed at risk for impairment is not material to
our consolidated financial statements.
Valuation and Recoverability of Goodwill and Trademarks
Goodwill and trademarks are not subject to amortization and have been
assigned to reporting units for purposes of impairment testing. The reporting
units are our restaurant brands. At May 29, 2016, we had the following
amounts recorded as goodwill and trademarks at our brands:
(in millions)
Olive Garden
LongHorn Steakhouse
The Capital Grille
Yard House
Eddie V’s
Total
Goodwill
Trademarks
$ 30.2
49.3
401.6
369.2
22.0
$872.3
$
—
307.8
147.0
109.3
10.5
$574.6
A significant amount of judgment is involved in determining if an
indicator of impairment has occurred. Such indicators may include, among
others: a significant decline in our expected future cash flows; a sustained,
significant decline in our stock price and market capitalization; a significant
adverse change in legal factors or in the business climate; unanticipated
competition; the testing for recoverability of a significant asset group within
a reporting unit; and slower growth rates. Any adverse change in these
factors could have a significant impact on the recoverability of these assets
and could have a material impact on our consolidated financial statements.
Consistent with our accounting policy for goodwill and trademarks,
we performed our annual impairment test of our goodwill and trademarks as
of the first day of our fiscal fourth quarter. Based on the results of the step
one impairment test, no impairment of goodwill or trademarks was indicated.
Changes in circumstances, existing at the measurement date or at other
times in the future, or in the numerous estimates associated with manage-
ment’s judgments and assumptions made in assessing the fair value of our
goodwill and trademarks, could result in an impairment loss of a portion or
all of our goodwill or trademarks.
A key assumption in our goodwill impairment test is the weighted-average cost of capital utilized for discounting our cash flow estimates in estimating
the fair value of our brands under an income approach. A key assumption in our trademark fair value estimate is the discount rate utilized in the relief-from-
royalty method. The following table illustrates the sensitivity to a one-percentage-point change in our weighted-average cost of capital assumption for goodwill
and our discount rate assumption in our trademark valuation model.
Goodwill Sensitivity
Trademark Sensitivity
Amount by
Which Fair
Impact to Fair
Value from a One-
Percentage-Point
Increase in
Weighted-Average
Cost of Capital
Value Exceeded Weighted-Average
Carrying Value
Cost of Capital
Discount Rate
Amount by
Which Fair
Value Exceeded
Carrying Value
Impact to Fair
Value from a One-
Percentage-Point
Increase in the
Discount Rate
9.5%
9.0%
12.0%
15.0%
$1,928.2
$ 306.2
$ 368.6
$ 88.0
$(202.0)
$ (71.2)
$ (72.4)
$ (9.9)
10.5%
10.0%
13.0%
16.0%
$506.0
$ 91.3
$118.7
$ 28.7
$(83.5)
$(25.4)
$(20.5)
$ (3.3)
(dollars in millions)
LongHorn Steakhouse
The Capital Grille
Yard House
Eddie V’s
If our annual test resulted in an impairment of our goodwill or trademarks, our financial position and results of operations would be adversely affected
and our leverage ratio for purposes of our credit agreement would increase. A leverage ratio exceeding the maximum permitted under our credit agreement
would be a default under our credit agreement. At May 29, 2016, a write-down of goodwill, other indefinite-lived intangible assets, or any other assets in
excess of approximately $1.22 billion would have been required to cause our leverage ratio to exceed the permitted maximum. As our leverage ratio is
determined on a quarterly basis, and due to the seasonal nature of our business, a lesser amount of impairment in future quarters could cause our leverage
ratio to exceed the permitted maximum.
16
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
During fiscal 2015, we conducted a comprehensive evaluation of a
wide range of options for the potential monetization of our real estate portfolio.
As a result of this evaluation, we undertook the following strategies:
• Sale-leaseback transactions of 64 restaurant properties, 14 of
which closed in the fourth quarter of fiscal 2015 and the remaining
50 transactions closed in fiscal 2016. The 64 transactions generated
net proceeds of $238.0 million.
• Transfer of 424 of our restaurant properties into a REIT, with substan-
tially all of the REIT’s initial assets being leased back to Darden.
We completed the spin-off of Four Corners on November 9, 2015.
See Note 2 to our consolidated financial statements for further details.
• Sale-leaseback of our corporate headquarters, which was completed
in fiscal 2016, generating net proceeds of $131.0 million.
We maintain a $750.0 million revolving Credit Agreement (Revolving
Credit Agreement), with Bank of America, N.A. (BOA) as administrative agent,
and the lenders and other agents party thereto. The Revolving Credit
Agreement is a senior unsecured credit commitment to the Company and
contains customary representations and affirmative and negative covenants
(including limitations on liens and subsidiary debt and a maximum consoli-
dated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00)
and events of default usual for credit facilities of this type. As of May 29,
2016, we were in compliance with all covenants under the Revolving
Credit Agreement.
The Revolving Credit Agreement matures on October 24, 2018, and
the proceeds may be used for commercial paper back-up, working capital
and capital expenditures, the refinancing of certain indebtedness, certain
acquisitions and general corporate purposes. Loans under the Revolving
Credit Agreement bear interest at a rate of LIBOR plus a margin determined
by reference to a ratings-based pricing grid (Applicable Margin), or the base
rate (which is defined as the highest of the BOA prime rate, the Federal
Funds rate plus 0.500 percent, and the Eurocurrency Rate plus 1.00 percent)
plus the Applicable Margin. Assuming a “BBB” equivalent credit rating
level, the Applicable Margin under the Revolving Credit Agreement will be
1.100 percent for LIBOR loans and 0.100 percent for base rate loans.
As of May 29, 2016, we had no outstanding balances under the Revolving
Credit Agreement.
At May 29, 2016, our long-term debt consisted principally of:
• $150.0 million of unsecured 6.000 percent senior notes due in
August 2035; and
• $300.0 million of unsecured 6.800 percent senior notes due in
October 2037.
Unearned Revenues
Unearned revenues represent our liability for gift cards that have been sold
but not yet redeemed. The estimated value of gift cards expected to remain
unused is recognized over the expected period of redemption as the remaining
gift card values are redeemed, generally over a period of 10 years. Utilizing
this method, we estimate both the amount of breakage and the time period
of redemption. If actual redemption patterns vary from our estimates, actual
gift card breakage income may differ from the amounts recorded. We update
our estimates of our redemption period and our breakage rate periodically
and apply that rate to gift card redemptions. Changing our breakage-rate
assumption on unredeemed gift cards by 25 basis points would result in an
adjustment in our unearned revenues of approximately $19.0 million.
Income Taxes
We estimate certain components of our provision for income taxes. These
estimates include, among other items, depreciation and amortization
expense allowable for tax purposes, allowable tax credits for items such as
taxes paid on reported employee tip income, effective rates for state and
local income taxes and the tax deductibility of certain other items. We adjust
our annual effective income tax rate as additional information on outcomes
or events becomes available.
Assessment of uncertain tax positions requires judgments relating to
the amounts, timing and likelihood of resolution. As described in Note 13
to our consolidated financial statements, the $14.3 million balance of
unrecognized tax benefits at May 29, 2016, includes $1.2 million related to
tax positions for which it is reasonably possible that the total amounts could
change during the next 12 months based on the outcome of examinations.
The $1.2 million relates to items that would impact our effective income
tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows generated from operating activities are our principal source of
liquidity, which we use to finance capital expenditures for new restaurants
and to remodel existing restaurants, to pay dividends to our shareholders
and to repurchase shares of our common stock. Since substantially all of our
sales are for cash and cash equivalents, and accounts payable are generally
due in 5 to 30 days, we are able to carry current liabilities in excess of current
assets. In addition to cash flows from operations, we use a combination of
long-term and short-term borrowings to fund our capital needs.
We currently manage our business and financial ratios to target an
investment-grade bond rating, which has historically allowed flexible access
to financing at reasonable costs. Currently, our publicly issued long-term
debt carries “Baa3” (Moody’s Investors Service), “BBB” (Standard & Poor’s)
and “BBB” (Fitch) ratings. Our commercial paper has ratings of “P-3”
(Moody’s Investors Service), “A-2” (Standard & Poor’s) and “F-2” (Fitch).
These ratings are as of the date of the filing of this annual report and have
been obtained with the understanding that Moody’s Investors Service,
Standard & Poor’s and Fitch will continue to monitor our credit and make
future adjustments to these ratings to the extent warranted. The ratings are
not a recommendation to buy, sell or hold our securities, may be changed,
superseded or withdrawn at any time and should be evaluated independently
of any other rating.
137248_DardenAR_FINCL.r2.indd 17
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
During fiscal 2016, utilizing the proceeds of the Four Corners cash
dividend, cash proceeds from the sale-leasebacks of restaurant properties
and our corporate headquarters and additional cash on hand, we retired
approximately $1.03 billion aggregate principal of long-term debt
consisting of:
• $285.0 million of our variable-rate term loan, maturing in
August 2017;
• $500.0 million of unsecured 6.200 percent senior notes due in
October 2017;
• $121.9 million of unsecured 4.500 percent senior notes due in
October 2021;
The interest rate on our $300.0 million 6.800 percent senior notes due
October 2037 is subject to adjustment from time to time if the debt rating
assigned to such series of notes is downgraded below a certain rating level
(or subsequently upgraded). The maximum adjustment is 2.000 percent
above the initial interest rate and the interest rate cannot be reduced below
the initial interest rate. In October 2014, Moody’s Investors Service down-
graded our senior unsecured ratings to “Ba1” from “Baa3” resulting in an
increase of 0.250 percent in the interest rates on our senior notes due in
October 2037. In April 2016, Moody’s Investors Service subsequently
upgraded our rating to “Baa3” and the interest rate was restored to the
initial rate.
• $111.1 million of unsecured 3.350 percent senior notes due in
Through our shelf registration statement on file with the SEC,
November 2022; and
• $10.0 million of unsecured 4.520 percent senior notes due in
August 2024.
During fiscal 2016, we recorded approximately $106.8 million of
expenses associated with the $1.03 billion aggregate principal retirement
including cash costs of approximately $68.7 million for repurchase premiums,
make-whole amounts and hedge settlements and non-cash charges of
approximately $38.1 million associated with hedge and loan cost write-offs.
These amounts were recorded in interest, net, in our consolidated statement
of earnings. Excluding these one-time retirement costs, we expect these
debt retirements to reduce our interest expense by approximately
$50.0 million annually.
depending on conditions prevailing in the public capital markets, we may issue
unsecured debt securities from time to time in one or more series, which
may consist of notes, debentures or other evidences of indebtedness in one
or more offerings.
From time to time, we may repurchase our outstanding debt in privately
negotiated transactions. Such repurchases, if any, will depend on prevailing
market conditions, our liquidity requirements and other factors.
From time to time, we enter into interest rate derivative instruments
to manage interest rate risk inherent in our operations. See Note 8 to our
consolidated financial statements.
A summary of our contractual obligations and commercial commitments at May 29, 2016, is as follows:
(in millions)
Contractual Obligations
Long-term debt (1)
Leases (2)
Purchase obligations (3)
Benefit obligations (4)
Unrecognized income tax benefits (5)
Total contractual obligations
(in millions)
Other Commercial Commitments
Standby letters of credit (6)
Guarantees (7)
Total commercial commitments
Total
$1,080.2
3,060.9
378.6
379.6
15.1
$4,914.4
Payments Due by Period
Less Than
1 Year
$ 30.2
310.6
318.0
27.1
1.3
$687.2
1-3
Years
$ 60.3
585.7
50.7
58.7
2.4
$757.8
3-5
Years
$ 60.3
515.3
9.9
73.5
11.4
$670.4
Amount of Commitment Expiration per Period
Total Amounts
Committed
$124.9
154.2
$279.1
Less Than
1 Year
$124.9
36.6
$161.5
1-3
Years
$ —
58.3
$58.3
3-5
Years
$ —
35.9
$35.9
More Than
5 Years
$ 929.4
1,649.3
—
220.3
—
$2,799.0
More Than
5 Years
$ —
23.4
$23.4
(1) Includes interest payments associated with existing long-term debt, including the current portion. Excludes discount and issuance costs of $10.0 million.
(2) Inclusive of all arrangements accounted for as operating, capital and financing leases. Includes imputed interest of $76.6 million over the life of financing lease obligations and imputed
interest of $27.0 million over the life of capital lease obligations.
(3) I ncludes commitments for food and beverage items and supplies, capital projects, information technology and other miscellaneous commitments.
(4) Includes expected contributions associated with our defined benefit plans and payments associated with our postretirement benefit plan and our non-qualified deferred compensation plan
through fiscal 2026.
(5) Includes interest on unrecognized income tax benefits of $0.7 million, $0.1 million of which relates to contingencies expected to be resolved within one year.
(6) Includes letters of credit for $116.5 million of workers’ compensation and general liabilities accrued in our consolidated financial statements and letters of credit for $8.4 million related to
contractual operating lease obligations and other payments.
(7) Consists solely of guarantees associated with leased properties that have been assigned to third parties and are primarily related to the disposition of Red Lobster. We are not aware of any
non-performance under these arrangements that would result in our having to perform in accordance with the terms of the guarantees.
18
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
Our fixed-charge coverage ratio, which measures the number of times
each year that we earn enough to cover our fixed charges, amounted to
2.7 times and 1.7 times, on a continuing operations basis, for the fiscal years
ended May 29, 2016 and May 31, 2015, respectively. Our adjusted debt to
adjusted total capital ratio (which includes 6.25 times the total annual mini-
mum rent on a consolidated basis of $248.5 million and $182.1 million for
the fiscal years ended May 29, 2016 and May 31, 2015, respectively, as
components of adjusted debt and adjusted total capital) was 53 percent and
55 percent as of May 29, 2016 and May 31, 2015, respectively. We include
the lease-debt equivalent and contractual lease guarantees in our adjusted
debt to adjusted total capital ratio reported to shareholders, as we believe its
inclusion better represents the optimal capital structure that we target from
period to period and because it is consistent with the calculation of the
covenant under our Revolving Credit Agreement.
Based on these ratios, we believe our financial condition is strong.
The composition of our capital structure is shown in the following table.
(in millions, except ratios)
CAPITAL STRUCTURE
Current portion long-term debt
Long-term debt, excluding unamortized
discount and issuance costs
Capital lease obligations
Total debt
Stockholders’ equity
Total capital
CALCULATION OF ADJUSTED CAPITAL
Total debt
Lease-debt equivalent
Guarantees
Adjusted debt
Stockholders’ equity
Adjusted total capital
May 29,
2016
May 31,
2015
$
—
$ 15.0
450.0
52.0
$ 502.0
1,952.0
$2,454.0
$ 502.0
1,553.1
154.2
$2,209.3
1,952.0
$4,161.3
1,466.6
54.5
$1,536.1
2,333.5
$3,869.6
$1,536.1
1,138.1
147.7
$2,821.9
2,333.5
$5,155.4
CAPITAL STRUCTURE RATIOS
Debt to total capital ratio
Adjusted debt to adjusted total capital ratio
20%
53%
40%
55%
Net cash flows provided by operating activities from continuing
operations were $820.4 million, $874.3 million and $555.4 million in fiscal
2016, 2015 and 2014, respectively. Net cash flows provided by operating
activities include net earnings from continuing operations of $359.7 million,
$196.4 million and $183.2 million in fiscal 2016, 2015 and 2014, respec-
tively. Net cash flows provided by operating activities from continuing
operations decreased in fiscal 2016 primarily due to current period activity
of taxable timing differences and the timing of inventory purchases, offset
by higher net earnings from continuing operations. Net cash flows provided
by operating activities from continuing operations increased in fiscal 2015
primarily due to higher net earnings from continuing operations, a reduction
in current period continuing operations income taxes paid and the timing
of inventory purchases.
Net cash flows provided by investing activities from continuing
operations were $75.4 million in fiscal 2016 compared to net cash flows
used in investing activities from continuing operations of $235.1 million
and $436.3 million in fiscal 2015 and 2014, respectively. Proceeds from the
disposal of land, buildings and equipment of $325.2 million in fiscal 2016
reflect the impact of closed sale-leaseback transactions. Capital expenditures
incurred principally for building new restaurants, remodeling existing restau-
rants, replacing equipment, and technology initiatives were $228.3 million
in fiscal 2016, compared to $296.5 million in fiscal 2015 and $414.8 million
in fiscal 2014. The decreasing trend of expenditures from fiscal 2014
to fiscal 2016 results primarily from decreases in remodel and new
restaurant activity.
Net cash flows used in financing activities from continuing operations
were $1.12 billion in fiscal 2016, compared to $1.78 billion in fiscal 2015
and $179.2 million in fiscal 2014. Net cash flows used in financing activities
in fiscal 2016 reflected long-term debt payments of $1.10 billion, including
repurchase premiums and make-whole provisions, dividend payments of
$268.2 million and share repurchases of $184.8 million, partially offset by
the $315.0 million cash dividend received by us from Four Corners and
proceeds from the exercise of employee stock options. Net cash flows used
in financing activities in fiscal 2015 reflected long-term debt payments of
$1.07 billion, including repurchase premiums and make-whole provisions,
dividend payments of $278.9 million, share repurchases of $502.3 million
and net repayments of short-term debt $207.6 million, partially offset by
proceeds from the exercise of employee stock options. Net cash flows
used in financing activities in fiscal 2014 included dividend payments
of $288.3 million, partially offset by net proceeds from the issuance
of short-term debt and from the exercise of employee stock options.
Our defined benefit and other postretirement benefit costs and liabilities
are determined using various actuarial assumptions and methodologies pre-
scribed under Financial Accounting Standards Board Accounting Standards
Codification Topic 715, Compensation – Retirement Benefits and Topic 712,
Compensation – Nonretirement Postemployment Benefits. We use certain
assumptions including, but not limited to, the selection of a discount rate
and expected long-term rate of return on plan assets. We set the discount
rate assumption annually for each plan at its valuation date to reflect the
yield of high-quality fixed-income debt instruments, with lives that approxi-
mate the maturity of the plan benefits. At May 29, 2016, our discount rate
was 4.2 percent and 4.0 percent, respectively, for our defined benefit and
postretirement benefit plans. The expected long-term rate of return on plan
assets is based upon several factors, including our historical assumptions
compared with actual results, an analysis of current market conditions, asset
allocations and the views of leading financial advisers and economists. Our
expected long-term rate of return on plan assets for our defined benefit plans
was 6.5 percent for fiscal year 2016, 7.0 percent for fiscal year 2015 and
8.0 percent for fiscal year 2014. In fiscal 2016, we made defined benefit
plans contributions of approximately $25.4 million, which included a volun-
tary funding contribution of $25.0 million. We made defined benefit plans
contributions of approximately $0.4 million and $0.4 million in fiscal years
2015 and 2014, respectively.
137248_DardenAR_FINCL.r2.indd 19
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 19
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We are exposed to a variety of market risks, including fluctuations in interest
rates, foreign currency exchange rates, compensation and commodity
prices. To manage this exposure, we periodically enter into interest rate and
foreign currency exchange instruments, equity forwards and commodity
instruments for other than trading purposes (see Notes 1 and 8 to our
consolidated financial statements).
We use the variance/covariance method to measure value at risk,
over time horizons ranging from one week to one year, at the 95 percent
confidence level. At May 29, 2016, our potential losses in future net earn-
ings resulting from changes in foreign currency exchange rate instruments,
commodity instruments, equity forwards and floating-rate debt interest
rate exposures were approximately $25.2 million over a period of one year.
The value at risk from an increase in the fair value of all of our long-term
fixed-rate debt, over a period of one year, was approximately $73.0 million.
The fair value of our long-term fixed-rate debt outstanding as of May 29,
2016, averaged $492.2 million, with a high of $536.8 million and a low
of $462.1 million during fiscal 2016. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and
cash flows by targeting an appropriate mix of variable and fixed-rate debt.
APPLICATION OF NEW ACCOUNTING STANDARDS
See Note 1 to our consolidated financial statements for a discussion of
recently issued accounting standards.
We have a recognized net loss of $87.9 million (net of tax) and a
recognized net gain of $2.4 million (net of tax) as components of accumu-
lated other comprehensive income (loss) for the defined benefit plans and
postretirement benefit plan, respectively, as of May 29, 2016. These net
gains and losses represent changes in the amount of the projected benefit
obligation and plan assets resulting from differences in the assumptions
used and actual experience. The amortization of the net loss component of
our fiscal 2017 net periodic benefit cost for the defined benefit plans is
expected to be approximately $2.0 million (net of tax). The amortization of
the net gain component of our fiscal 2017 net periodic benefit cost for the
postretirement benefit plan is expected to be approximately $1.9 million
(net of tax).
We believe our defined benefit and postretirement benefit plan
assumptions are appropriate based upon the factors discussed above.
However, other assumptions could also be reasonably applied that could
differ from the assumptions used. These changes in assumptions would
not significantly impact our funding requirements. We expect to contribute
approximately $0.4 million to our defined benefit pension plans and
approximately $1.3 million to our postretirement benefit plan during
fiscal 2017.
We are not aware of any trends or events that would materially affect
our capital requirements or liquidity. We believe that our internal cash-
generating capabilities, the potential issuance of unsecured debt securities
under our shelf registration statement and short-term commercial paper
should be sufficient to finance our capital expenditures, debt maturities,
stock repurchase program and other operating activities through fiscal 2017.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, changes in financial condition, sales or expenses, results of
operations, liquidity, capital expenditures or capital resources.
FINANCIAL CONDITION
Our total current assets were $820.3 million at May 29, 2016, compared
with $1.06 billion at May 31, 2015. The decrease was primarily due to
the decrease in cash and cash equivalents driven by the pay down of our
long-term debt.
Our total current liabilities were $1.19 billion at May 29, 2016,
compared with $1.20 billion at May 31, 2015. The decrease was primarily
due to a decrease in other current liabilities related to the recognition of
contingent proceeds from the sale of Red Lobster offset by an increase in
unearned revenues associated with gift card sales in excess of redemptions.
20
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
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, diluted net earnings per share growth,
and capital expenditures in fiscal 2017, 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,” “outlook” or similar expressions, are forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995 and are included, along with this statement, 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. In addition to the risks and uncertainties of
ordinary business obligations, and those described in information incorporated
into this report, the forward-looking statements contained in this report are
subject to the risks and uncertainties described in Part I, Item 1A “Risk
Factors” in our Annual Report on Form 10-K for the year ended May 29,
2016, which are summarized as follows:
• Insufficient guest or employee facing technology, or a failure to
maintain a continuous and secure cyber network, free from material
failure, interruption or security breach;
• Food safety and food-borne illness concerns throughout the
supply chain;
• Litigation, including allegations of illegal, unfair or inconsistent
employment practices;
• Unfavorable publicity, or a failure to respond effectively to
adverse publicity;
• Risks relating to public policy changes and federal, state and local
regulation of our business, including in the areas of environmental
matters, minimum wage, unionization, data privacy, menu labeling,
immigration requirements and taxes;
• The inability to cancel long-term, non-cancelable leases that we may
want to cancel or the inability to renew the leases that we may want
to extend at the end of their terms;
• Labor and insurance costs;
• Our inability or failure to execute a comprehensive business
continuity plan following a major natural disaster such as a hurricane
or manmade disaster, including terrorism;
• Health concerns arising from food-related pandemics, outbreaks of
flu viruses or other diseases;
• Intense competition, or an insufficient focus on competition and the
consumer landscape;
• Our failure to drive both short-term and long-term profitable sales
growth through brand relevance, operating excellence, opening new
restaurants of existing brands and developing or acquiring new
dining brands;
• Our plans to expand our smaller brands Bahama Breeze, Seasons 52
and Eddie V’s, and the testing of other new business ventures that
have not yet proven their long-term viability;
• A lack of suitable new restaurant locations or a decline in the quality
of the locations of our current restaurants;
• Higher-than-anticipated costs to open, close, relocate or
remodel restaurants;
• A failure to identify and execute innovative marketing and guest
relationship tactics and ineffective or improper use of social media or
other marketing initiatives;
• A failure to recruit, develop and retain effective leaders or the loss
or shortage of key personnel, or an inability to adequately monitor
and respond to employee dissatisfaction;
• A failure to address cost pressures, including rising costs for
commodities, health care and utilities used by our restaurants, and a
failure to effectively deliver cost management activities and achieve
economies of scale in purchasing;
• The impact of shortages or interruptions in the delivery of food and
other products from third-party vendors and suppliers;
• Adverse weather conditions and natural disasters;
• Volatility in the market value of derivatives we use to hedge
commodity prices;
• Economic and business factors specific to the restaurant industry
and other general macroeconomic factors including energy prices
and interest rates that are largely out of our control;
• Disruptions in the financial markets that may impact consumer
spending patterns, affect the availability and cost of credit and
increase pension plan expenses;
• Risks associated with doing business with franchisees, business
partners and vendors in foreign markets;
• Failure to protect our intellectual property;
• Impairment of the carrying value of our goodwill or other
intangible assets;
• A failure of our internal controls over financial reporting and future
changes in accounting standards; and
• An inability or failure to recognize, respond to and effectively manage
the accelerated impact of social media.
Any of the risks described above or elsewhere in this report or our other
filings with the SEC could have a material impact on our business, financial
condition or results of operations. It is not possible to predict or identify all
risk factors. Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also impair our business
operations. Therefore, the above is not intended to be a complete discussion
of all potential risks or uncertainties.
137248_DardenAR_FINCL.r2.indd 21
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DARDEN
REPORT OF MANAGEMENT’S RESPONSIBILITIES AND
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
REPORT OF MANAGEMENT’S RESPONSIBILITIES
The management of Darden Restaurants, Inc. is responsible for the fairness
and accuracy of the consolidated financial statements. The consolidated
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, using management’s best estimates and
judgments where appropriate. The financial information throughout this
report is consistent with our consolidated financial statements.
Management has established a system of internal controls over financial
reporting that provides reasonable assurance that assets are adequately
safeguarded and transactions are recorded accurately, in all material respects,
in accordance with management’s authorization. Our internal controls provide
for appropriate segregation of duties and responsibilities and there are
documented policies regarding utilization of our assets and proper financial
reporting. These formally stated and regularly communicated policies set
high standards of ethical conduct for all employees. We also maintain a
strong audit program that independently evaluates the adequacy of the
design and effectiveness of these internal controls.
The Audit Committee of the Board of Directors meets at least quarterly to
determine that management, internal auditors and the independent registered
public accounting firm are properly discharging their duties regarding internal
control and financial reporting. The independent registered public account-
ing firm, internal auditors and employees have full and free access to the
Audit Committee at any time.
KPMG LLP, an independent registered public accounting firm, is retained
to audit our consolidated financial statements and the effectiveness of our
internal control over financial reporting. Their reports follow.
MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act of 1934, as amended). The Company’s internal control over
financial reporting is designed to provide reasonable assurance to the
Company’s management and Board of Directors regarding the preparation
and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control
over financial reporting as of May 29, 2016. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework (2013). Management has concluded that, as of
May 29, 2016, the Company’s internal control over financial reporting was
effective based on these criteria.
The Company’s independent registered public accounting firm
KPMG LLP, has issued an audit report on the effectiveness of our internal
control over financial reporting, which follows.
Eugene I. Lee, Jr.
President and Chief Executive Officer
22
137248_DardenAR_FINCL.r2.indd 22
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Darden Restaurants, Inc.:
We have audited Darden Restaurants, Inc. and subsidiaries’ internal control
over financial reporting as of May 29, 2016, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Darden
Restaurants, Inc.’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and proce-
dures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, Darden Restaurants, Inc. maintained, in all material
respects, effective internal control over financial reporting as of May 29,
2016, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
balance sheets of Darden Restaurants, Inc. as of May 29, 2016 and May 31,
2015, and the related consolidated statements of earnings, comprehensive
income, changes in stockholders’ equity, and cash flows for each of the years in
the three-year period ended May 29, 2016, and our report dated July 25, 2016
expressed an unqualified opinion on those consolidated financial statements.
Orlando, Florida
July 25, 2016
Certified Public Accountants
137248_DardenAR_FINCL.r2.indd 23
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 23
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Darden Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Darden
Restaurants, Inc. and subsidiaries as of May 29, 2016 and May 31, 2015,
and the related consolidated statements of earnings, comprehensive income,
changes in stockholders’ equity, and cash flows for each of the years in
the three-year period ended May 29, 2016. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Darden
Restaurants, Inc. as of May 29, 2016 and May 31, 2015, and the results of
their operations and their cash flows for each of the years in the three-year
period ended May 29, 2016, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), Darden Restaurants, Inc.’s
internal control over financial reporting as of May 29, 2016, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated July 25, 2016 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Orlando, Florida
July 25, 2016
Certified Public Accountants
24
137248_DardenAR_FINCL.r2.indd 24
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CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except per share data)
Sales
Costs and expenses:
Food and beverage
Restaurant labor
Restaurant expenses
Marketing expenses
General and administrative expenses
Depreciation and amortization
Impairments and disposal of assets, net
Total operating costs and expenses
Operating income
Interest, net
Earnings before income taxes
Income tax expense (benefit)
Earnings from continuing operations
Earnings from discontinued operations, net of tax expense of $3.4, $344.8 and $32.3, respectively
Net earnings
Basic net earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted net earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Average number of common shares outstanding:
Basic
Diluted
Dividends declared per common share
See accompanying notes to consolidated financial statements.
DARDEN
May 29,
2016
Fiscal Year Ended
May 31,
2015
May 25,
2014
$6,933.5
$6,764.0
$6,285.6
2,039.7
2,189.2
1,163.5
238.0
384.9
290.2
5.8
$6,311.3
622.2
172.5
449.7
90.0
$ 359.7
15.3
$ 375.0
$ 2.82
0.12
$ 2.94
$ 2.78
0.12
$ 2.90
127.4
129.3
$ 2.10
2,085.1
2,135.6
1,120.8
243.3
430.2
319.3
62.1
1,892.2
2,017.6
1,080.7
252.3
413.1
304.4
16.4
$6,396.4
$5,976.7
367.6
192.3
175.3
(21.1)
$ 196.4
513.1
$ 709.5
$ 1.54
4.02
$ 5.56
$ 1.51
3.96
$ 5.47
127.7
129.7
$ 2.20
308.9
134.3
174.6
(8.6)
$ 183.2
103.0
$ 286.2
$ 1.40
0.78
$ 2.18
$ 1.38
0.77
$ 2.15
131.0
133.2
$ 2.20
Consolidated Statements of Comprehensive Income
(in millions)
Net earnings
Other comprehensive income (loss):
Foreign currency adjustment
Change in fair value of marketable securities, net of taxes of $0.0, $0.0 and $0.0, respectively
Change in fair value of derivatives and amortization of unrecognized gains and losses on derivatives,
net of taxes of $14.3, $17.4 and $3.9, respectively
Net unamortized gain (loss) arising during period, including amortization of unrecognized
net actuarial loss, net of taxes of $(16.0), $4.8 and $2.9, respectively
Other comprehensive income (loss)
Total comprehensive income
See accompanying notes to consolidated financial statements.
May 29,
2016
$375.0
0.5
—
23.0
(23.9)
$ (0.4)
$374.6
Fiscal Year Ended
May 31,
2015
$709.5
3.0
—
31.3
7.2
$ 41.5
$751.0
May 25,
2014
$286.2
(2.9)
(0.1)
3.4
4.3
$ 4.7
$290.9
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 25
137248_DardenAR_FINCL.r2.indd 25
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CONSOLIDATED BALANCE SHEETS
DARDEN
(in millions)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid income taxes
Prepaid expenses and other current assets
Deferred income taxes
Assets held for sale
Total current assets
Land, buildings and equipment, net
Goodwill
Trademarks
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued payroll
Accrued income taxes
Other accrued taxes
Unearned revenues
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Deferred rent
Other liabilities
Total liabilities
Stockholders’ equity:
Common stock and surplus, no par value. Authorized 500.0 shares; issued 127.5 and 127.9 shares,
respectively; outstanding 126.2 and 126.7 shares, respectively
Preferred stock, no par value. Authorized 25.0 shares; none issued and outstanding
Retained earnings
Treasury stock, 1.3 and 1.3 shares, at cost, respectively
Accumulated other comprehensive income (loss)
Unearned compensation
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to consolidated financial statements.
May 29,
2016
May 31,
2015
$ 274.8
64.0
175.4
46.1
76.4
163.3
20.3
$ 820.3
2,041.6
872.3
574.6
273.8
$4,582.6
$ 241.9
135.1
—
49.1
360.4
—
400.6
$1,187.1
440.0
255.2
249.7
498.6
$2,630.6
1,502.6
—
547.5
(7.8)
(87.0)
(3.3)
$1,952.0
$4,582.6
$ 535.9
78.0
163.9
18.9
69.4
157.4
32.9
$1,056.4
3,215.8
872.4
574.6
275.5
$5,994.7
$ 198.8
141.1
12.6
51.5
328.6
15.0
449.1
$1,196.7
1,452.3
341.8
225.9
444.5
$3,661.2
1,405.9
—
1,026.0
(7.8)
(86.6)
(4.0)
$2,333.5
$5,994.7
26
137248_DardenAR_FINCL.r2.indd 26
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CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY
DARDEN
Common
Stock
and
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss) Compensation
Total
Equity
Unearned Stockholders’
$1,207.6
$ 998.9
$(8.1)
$(132.8)
$(6.1) $2,059.5
—
—
—
50.6
26.0
—
10.9
(0.1)
286.2
—
(288.9)
—
—
—
—
(0.4)
7.2
—
—
—
—
0.3
—
—
—
—
—
—
4.7
—
—
—
—
—
—
—
—
—
—
—
—
0.9
—
—
—
286.2
4.7
(288.9)
50.9
26.0
0.9
10.9
(0.5)
7.2
(in millions, except per share data)
Balances at May 26, 2013
Net earnings
Other comprehensive income
Dividends declared ($2.20 per share)
Stock option exercises (1.8 shares)
Stock-based compensation
ESOP note receivable repayments
Income tax benefits credited to equity
Repurchases of common stock (0.0 shares)
Issuance of stock under Employee Stock Purchase Plan
and other plans (0.2 shares)
Balances at May 25, 2014
$1,302.2
$ 995.8
$(7.8)
$(128.1)
$(5.2) $2,156.9
Net earnings
Other comprehensive income
Dividends declared ($2.20 per share)
Stock option exercises (4.2 shares)
Stock-based compensation
ESOP note receivable repayments
Income tax benefits credited to equity
Repurchases of common stock (10.0 shares)
Issuance of stock under Employee Stock Purchase Plan
and other plans (0.1 shares)
—
—
—
154.6
26.4
—
18.4
(102.5)
709.5
—
(279.5)
—
—
—
—
(399.8)
6.8
—
—
—
—
—
—
—
—
—
—
—
41.5
—
—
—
—
—
—
—
—
—
—
—
—
1.2
—
—
—
709.5
41.5
(279.5)
154.6
26.4
1.2
18.4
(502.3)
6.8
Balances at May 31, 2015
$1,405.9
$1,026.0
$(7.8)
$ (86.6)
$(4.0) $2,333.5
Net earnings
Other comprehensive income
Dividends declared ($2.10 per share)
Stock option exercises (2.4 shares)
Stock-based compensation
ESOP note receivable repayments
Income tax benefits credited to equity
Repurchases of common stock (3.0 shares)
Issuance of stock under Employee Stock Purchase Plan
and other plans (0.2 shares)
Separation of Four Corners Property Trust
—
—
—
94.4
14.9
—
17.5
(34.9)
4.8
—
375.0
—
(268.2)
—
—
—
—
(149.9)
—
(435.4)
—
—
—
—
—
—
—
—
—
—
—
(0.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
0.6
—
—
0.1
—
375.0
(0.4)
(268.2)
94.4
14.9
0.6
17.5
(184.8)
4.9
(435.4)
Balances at May 29, 2016
$1,502.6
$ 547.5
$(7.8)
$ (87.0)
$(3.3) $1,952.0
See accompanying notes to consolidated financial statements.
137248_DardenAR_FINCL.r2.indd 27
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 27
CONSOLIDATED STATEMENTS OF CASH FLOWS
DARDEN
(in millions)
Cash flows – operating activities
Net earnings
Earnings from discontinued operations, net of tax
Adjustments to reconcile net earnings from continuing operations to cash flows:
Depreciation and amortization
Impairments and disposal of assets, net
Amortization of loan costs and losses on interest-rate related derivatives
Stock-based compensation expense
Change in current assets and liabilities
Contributions to pension and postretirement plans
Change in cash surrender value of trust-owned life insurance
Deferred income taxes
Change in deferred rent
Change in other assets and liabilities
Loss on extinguishment of debt
Other, net
Net cash provided by operating activities of continuing operations
Cash flows – investing activities
Purchases of land, buildings and equipment
Proceeds from disposal of land, buildings and equipment
Purchases of marketable securities
Proceeds from sale of marketable securities
Purchases of capitalized software and other assets
Net cash provided by (used in) investing activities of continuing operations
Cash flows – financing activities
Proceeds from issuance of common stock
Income tax benefits credited to equity
Special cash distribution from Four Corners Property Trust
Dividends paid
Repurchases of common stock
ESOP note receivable repayments
Proceeds from issuance of short-term debt
Repayments of short-term debt
Repayments of long-term debt
Payment of debt issuance costs
Principal payments on capital leases
Proceeds from financing lease obligation
Net cash used in financing activities of continuing operations
Cash flows – discontinued operations
Net cash provided by (used in) operating activities of discontinued operations
Net cash provided by (used in) investing activities of discontinued operations
Net cash provided by (used in) discontinued operations
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
Cash flows from changes in current assets and liabilities
Receivables, net
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued payroll
Prepaid/accrued income taxes
Other accrued taxes
Unearned revenues
Other current liabilities
Change in current assets and liabilities
See accompanying notes to consolidated financial statements.
28
May 29,
2016
Fiscal Year Ended
May 31,
2015
May 25,
2014
$ 375.0
(15.3)
290.2
5.8
3.6
37.3
13.7
(26.5)
3.3
(10.8)
23.8
5.3
106.8
8.2
$ 820.4
(228.3)
325.2
—
1.8
(23.3)
$ 75.4
99.3
17.5
315.0
(268.2)
(184.8)
0.6
—
—
(1,096.8)
—
(3.4)
—
$(1,120.8)
$
(42.4)
6.3
(36.1)
(261.1)
535.9
$ 274.8
$ 14.0
(11.8)
(10.8)
45.6
(5.9)
(21.3)
(1.4)
46.0
(40.7)
$ 13.7
$ 709.5
(513.1)
319.3
62.1
8.6
53.7
76.3
(1.5)
(6.5)
42.0
22.0
3.8
91.3
6.8
$ 874.3
(296.5)
67.9
—
9.7
(16.2)
$ (235.1)
159.7
18.4
—
(278.9)
(502.3)
1.2
397.4
(605.0)
(1,065.9)
—
(2.2)
93.1
$(1,784.5)
(403.3)
1,986.2
$ 1,582.9
437.6
98.3
$ 535.9
$ 7.8
64.5
2.9
(20.9)
23.4
(13.8)
2.2
34.9
(24.7)
$ 76.3
$ 286.2
(103.0)
304.4
16.4
13.8
38.7
0.6
(1.4)
(12.2)
(44.9)
29.5
18.9
—
8.4
$ 555.4
(414.8)
4.4
(3.0)
8.7
(31.6)
$ (436.3)
58.1
10.9
—
(288.3)
(0.5)
0.9
2,616.3
(2,573.2)
—
(1.4)
(2.0)
—
$ (179.2)
214.7
(144.5)
$ 70.2
10.1
88.2
$ 98.3
$
(1.5)
(25.6)
0.5
27.2
7.5
(21.0)
—
28.8
(15.3)
$ 0.6
137248_DardenAR_FINCL.r2.indd 28
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NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS AND PRINCIPLES OF CONSOLIDATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
operations of Darden Restaurants, Inc. and its wholly owned subsidiaries
(Darden, the Company, we, us or our). We own and operate the Olive Garden®,
LongHorn Steakhouse®, The Capital Grille®, Yard House®, Bahama Breeze®,
Seasons 52®, and Eddie V’s Prime Seafood® and Wildfish Seafood Grille®
(collectively, “Eddie V’s”) restaurant brands located in the United States and
Canada. Through subsidiaries, we own and operate all of our restaurants
in the United States and Canada, except for 6 joint venture restaurants
managed by us and 18 franchised restaurants. We also have 32 franchised
restaurants in operation located in Latin America, the Middle East and
Malaysia. All significant intercompany balances and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION
On May 15, 2014, we entered into an agreement to sell Red Lobster and
certain related assets and associated liabilities and closed the sale on July 28,
2014. For fiscal 2016, 2015 and 2014, all gains and losses on disposition,
impairment charges and disposal costs, along with the sales, costs and
expenses and income taxes attributable to the discontinued 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 3 for additional information.
Unless otherwise noted, amounts and disclosures throughout these
notes to consolidated financial statements relate to our continuing operations.
FISCAL YEAR
We operate on a 52/53-week fiscal year, which ends on the last Sunday in
May. Fiscal 2016, which ended May 29, 2016, consisted of 52 weeks.
Fiscal 2015, which ended May 31, 2015, consisted of 53 weeks and fiscal
2014, which ended May 25, 2014, consisted of 52 weeks.
USE OF ESTIMATES
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 expenses during the reporting period. Actual results
could differ from those estimates.
DARDEN
CASH AND CASH EQUIVALENTS
Cash equivalents include highly liquid investments such as U.S. Treasury
bills, taxable municipal bonds and money market funds that have an original
maturity of three months or less. Amounts receivable from credit card com-
panies are also considered cash equivalents because they are both short
term and highly liquid in nature and are typically converted to cash within
three days of the sales transaction. The components of cash and cash
equivalents are as follows:
(in millions)
Short-term investments
Credit card receivables
Depository accounts
Total Cash and Cash Equivalents
May 29,
2016
May 31,
2015
$166.7
81.1
27.0
$274.8
$455.5
77.8
2.6
$535.9
As of May 29, 2016, and May 31, 2015, we had cash and cash
equivalent accounts in excess of insured limits. We manage the credit risk
of our positions through utilizing multiple financial institutions and
monitoring the credit quality of those financial institutions that hold our
cash and cash equivalents.
RECEIVABLES, NET
Receivables, net of the allowance for doubtful accounts, represent their
estimated net realizable value. Provisions for doubtful accounts are recorded
based on historical collection experience and the age of the receivables.
Receivables are written off when they are deemed uncollectible. See Note 12.
INVENTORIES
Inventories consist of food and beverages and are valued at the lower of
weighted-average cost or market.
MARKETABLE SECURITIES
Available-for-sale securities are carried at fair value. Classification of
marketable securities as current or noncurrent is dependent upon manage-
ment’s intended holding period, the security’s maturity date, or both.
Unrealized gains and losses, net of tax, on available-for-sale securities are
carried in accumulated other comprehensive income (loss) within the
consolidated financial statements and are reclassified into earnings when
the securities mature or are sold.
137248_DardenAR_FINCL.r2.indd 29
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 29
LAND, BUILDINGS AND EQUIPMENT, NET
Land, buildings and equipment are recorded at cost less accumulated
depreciation. Building components are depreciated over estimated useful
lives ranging from 7 to 40 years using the straight-line method. Leasehold
improvements, which are reflected on our consolidated balance sheets as a
component of buildings in land, buildings and equipment, net, are amortized
over the lesser of the expected lease term, including cancelable option peri-
ods, or the estimated useful lives of the related assets using the straight-line
method. Equipment is depreciated over estimated useful lives ranging from
2 to 15 years also using the straight-line method. See Note 5 for additional
information. Gains and losses on the disposal of land, buildings and equipment
are included in impairments and disposal of assets, net, while the write-off
of undepreciated book value associated with the replacement of equipment
in the normal course of business is recorded as a component of restaurant
expenses in our accompanying consolidated statements of earnings.
Depreciation and amortization expense from continuing operations associated
with buildings and equipment and losses on replacement of equipment were
as follows:
(in millions)
Depreciation and amortization
on buildings and equipment
Losses on replacement of equipment
Fiscal Year
2015
2014
2016
$274.4
5.5
$305.0
5.5
$296.3
4.4
CAPITALIZED SOFTWARE COSTS AND
OTHER DEFINITE-LIVED INTANGIBLES
Capitalized software, which is a component of other assets, is recorded at
cost less accumulated amortization. Capitalized software is amortized using
the straight-line method over estimated useful lives ranging from 3 to
10 years. The cost of capitalized software and related accumulated
amortization was as follows:
(in millions)
Capitalized software
Accumulated amortization
Capitalized software, net of
accumulated amortization
May 29,
2016
$169.7
(93.1)
May 31,
2015
$148.0
(80.4)
$ 76.6
$ 67.6
We have other definite-lived intangible assets, including assets related
to the value of below-market leases resulting from our acquisitions that are
included as a component of other assets on our consolidated balance
sheets. We also have definite-lived intangible liabilities related to the value of
above-market leases resulting from our acquisitions that are included in
other liabilities on our consolidated balance sheets. Definite-lived intangibles
are amortized on a straight-line basis over estimated useful lives of 1 to
20 years. The cost and related accumulated amortization was as follows:
(in millions)
Other definite-lived intangibles
Accumulated amortization
Other definite-lived intangible assets,
net of accumulated amortization
Below-market leases
Accumulated amortization
Below-market leases, net of
accumulated amortization
Above-market leases
Accumulated amortization
Above-market leases, net of
accumulated amortization
May 29,
2016
$ 14.2
(7.3)
May 31,
2015
$ 15.1
(7.3)
$ 6.9
$ 7.8
$ 29.2
(13.3)
$ 29.2
(11.5)
$ 15.9
$ 17.7
$(21.4)
8.3
$(21.4)
6.4
$(13.1)
$(15.0)
Amortization expense from continuing operations associated with
capitalized software and other definite-lived intangibles included in
depreciation and amortization in our accompanying consolidated statements
of earnings was as follows:
(in millions)
Amortization expense –
capitalized software
Amortization expense –
other definite-lived intangibles
Fiscal Year
2015
2014
2016
$14.9
$13.3
$7.0
0.9
1.0
1.1
Amortization expense from continuing operations associated with
above- and-below-market leases included in restaurant expenses as a
component of rent expense in our consolidated statements of earnings was
as follows:
(in millions)
Restaurant expense –
below-market leases
Restaurant expense –
above-market leases
Fiscal Year
2015
2014
2016
$ 1.8
$ 1.8
$ 1.8
(1.4)
(1.4)
(1.4)
Amortization of capitalized software and other definite-lived intangible
assets will be approximately $17.6 million annually for fiscal 2017
through 2021.
30
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
TRUST-OWNED LIFE INSURANCE
We have a trust that purchased life insurance policies covering certain of
our officers and other key employees (trust-owned life insurance or TOLI).
The trust is the owner and sole beneficiary of the TOLI policies. The policies
were purchased to offset a portion of our obligations under our non-qualified
deferred compensation plan. The cash surrender value for each policy is
included in other assets, while changes in cash surrender values are included
in general and administrative expenses.
LIQUOR LICENSES
The costs of obtaining non-transferable liquor licenses that are directly
issued by local government agencies for nominal fees are expensed as
incurred. The costs of purchasing transferable liquor licenses through open
markets in jurisdictions with a limited number of authorized liquor licenses
are capitalized as indefinite-lived intangible assets and included in other
assets. Liquor licenses are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Annual liquor license renewal fees are expensed over the
renewal term.
GOODWILL AND TRADEMARKS
We review our goodwill and trademarks for impairment annually, as of the
first day of our fourth fiscal quarter or more frequently if indicators of impair-
ment exist. Goodwill and trademarks are not subject to amortization and
have been assigned to reporting units for purposes of impairment testing.
The reporting units are our restaurant brands. Our goodwill and trademark
balances are allocated as follows:
Goodwill
Trademarks
(in millions)
Olive Garden (1)
LongHorn Steakhouse
The Capital Grille
Yard House
Eddie V’s
Total
May 29, May 31, May 29, May 31,
2015
2015
2016
2016
$ 30.2
49.3
401.6
369.2
22.0
$872.3
$ 30.2
49.3
401.7
369.2
22.0
$872.4
—
$
307.8
147.0
109.3
10.5
$574.6
—
$
307.8
147.0
109.3
10.5
$574.6
(1) Goodwill related to Olive Garden is associated with the RARE Hospitality International, Inc.
(RARE) acquisition and the estimated value of the direct benefits derived by Olive Garden
as a result of the RARE acquisition.
A significant amount of judgment is involved in determining if an indicator
of impairment has occurred. Such indicators may include, among others:
a significant decline in our expected future cash flows; a sustained, significant
decline in our stock price and market capitalization; a significant adverse
change in legal factors or in the business climate; unanticipated competition;
the testing for recoverability of a significant asset group within a reporting unit;
and slower growth rates. Any adverse change in these factors could have
a significant impact on the recoverability of these assets and could have a
material impact on our consolidated financial statements.
The goodwill impairment test involves a two-step process. The first
step is a comparison of each reporting unit’s fair value to its carrying value.
We estimate fair value using the best information available, including market
information and discounted cash flow projections (also referred to as the
income approach). The income approach uses a reporting unit’s projection
of estimated operating results and cash flows that is discounted using a
weighted-average cost of capital that reflects current market conditions.
The projection uses management’s best estimates of economic and market
conditions over the projected period including growth rates in sales, costs
and number of units, estimates of future expected changes in operating
margins and cash expenditures. Other significant estimates and assumptions
include terminal value growth rates, future estimates of capital expenditures
and changes in future working capital requirements. We validate our estimates
of fair value under the income approach by comparing the values to fair
value estimates using a market approach. A market approach estimates fair
value by applying cash flow and sales multiples to the reporting unit’s oper-
ating performance. The multiples are derived from comparable publicly
traded companies with similar operating and investment characteristics of
the reporting units. If the fair value of the reporting unit is higher than its
carrying value, goodwill is deemed not to be impaired, and no further testing
is required. If the carrying value of the reporting unit is higher than its fair
value, there is an indication that impairment may exist and the second step
must be performed to measure the amount of impairment loss. The amount
of impairment is determined by comparing the implied fair value of reporting
unit goodwill to the carrying value of the goodwill in the same manner as if
the reporting unit was being acquired in a business combination. Specifically,
fair value is allocated to all of the assets and liabilities of the reporting unit,
including any unrecognized intangible assets, in a hypothetical analysis that
would calculate the implied fair value of goodwill. If the implied fair value of
goodwill is less than the recorded goodwill, we would record an impairment
loss for the difference.
As part of our process for performing the step one impairment test
of goodwill, we estimated the fair value of our reporting units utilizing the
income and market approaches described above to derive an enterprise
value of the Company. We reconciled the enterprise value to our overall esti-
mated market capitalization. The estimated market capitalization considers
recent trends in our market capitalization and an expected control premium,
based on comparable recent and historical transactions. Based on the
results of the step one impairment test, no impairment of goodwill was
indicated for any of our brands.
The fair value of trademarks is estimated and compared to the
carrying value. We estimate the fair value of trademarks using the relief-
from-royalty method, which requires assumptions related to projected sales
from our annual long-range plan; assumed royalty rates that could be
payable if we did not own the trademarks; and a discount rate. We recognize
an impairment loss when the estimated fair value of the trademarks is less
than carrying value. We completed our impairment test and concluded
as of the date of the test, there was no impairment of the trademarks for
LongHorn Steakhouse, The Capital Grille, Eddie V’s and Yard House.
We evaluate the useful lives of our other intangible assets, to determine
if they are definite or indefinite-lived. A determination on useful life requires
significant judgments and assumptions regarding the future effects of obso-
lescence, demand, competition, other economic factors (such as the stability
of the industry, legislative action that results in an uncertain or changing
regulatory environment and expected changes in distribution channels), the
level of required maintenance expenditures and the expected lives of other
related groups of assets.
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 31
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS
Land, buildings and equipment and certain other assets, including
definite-lived intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the assets to
the future undiscounted net cash flows expected to be generated by the
assets. Identifiable cash flows are measured at the lowest level for which
they are largely independent of the cash flows of other groups of assets and
liabilities, generally at the restaurant level. If such assets are determined
to be impaired, the impairment recognized is measured by the amount by
which the carrying amount of the assets exceeds their fair value. Fair value is
generally determined based on appraisals, sales prices of comparable assets
or discounted future net cash flows expected to be generated by the assets.
Restaurant sites and certain other assets to be disposed of are reported at
the lower of their carrying amount or fair value, less estimated costs to sell.
Restaurant sites and certain other assets to be disposed of are included in
assets held for sale on our consolidated balance sheets when certain criteria
are met. These criteria include the requirement that the likelihood of disposing
of these assets within one year is probable. Assets not meeting the “held for
sale” criteria remain in land, buildings and equipment until their disposal is
probable within one year.
We account for exit or disposal activities, including restaurant closures,
in accordance with Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 420, Exit or Disposal Cost Obligations.
Such costs include the cost of disposing of the assets as well as other facility-
related expenses from previously closed restaurants. These costs are
generally expensed as incurred. Additionally, at the date we cease using
a property under an operating lease, we record a liability for the net present
value of any remaining lease obligations, net of estimated sublease income.
Any subsequent adjustments to that liability as a result of lease termination
or changes in estimates of sublease income are recorded in the period
incurred. Upon disposal of the assets, primarily land, associated with a
closed restaurant, any gain or loss is recorded in the same caption within
our consolidated statements of earnings as the original impairment.
INSURANCE ACCRUALS
Through the use of insurance program deductibles and self-insurance,
we retain a significant portion of expected losses under our workers’ com-
pensation, certain employee medical and general liability programs. Accrued
liabilities have been recorded based on our estimates of the anticipated
ultimate costs to settle all claims, both reported and not yet reported.
REVENUE RECOGNITION
Sales, as presented in our consolidated statements of earnings, represents
food and beverage product sold and is presented net of discounts, coupons,
employee meals and complimentary meals. Revenue from restaurant sales
is recognized when food and beverage products are sold. Sales taxes collected
from customers and remitted to governmental authorities are presented on
a net basis within sales in our consolidated statements of earnings.
Revenue from the sale of franchises is recognized as income when
substantially all of our material obligations under the franchise agreement
have been performed. Continuing royalties, which are a percentage of net
sales of franchised restaurants, are accrued as income when earned. Revenue
from the sale of consumer packaged goods includes ongoing royalty fees
based on a percentage of licensed retail product sales and is recognized
upon the sale of product by our licensed manufacturers to retail outlets.
UNEARNED REVENUES
Unearned revenues represent our liability for gift cards that have been sold
but not yet redeemed. We recognize sales from our gift cards when the gift
card is redeemed by the customer. Although there are no expiration dates or
dormancy fees for our gift cards, based on our analysis of our historical gift
card redemption patterns, we can reasonably estimate the amount of gift
cards for which redemption is remote, which is referred to as “breakage.”
We recognize breakage within sales for unused gift card amounts in proportion
to actual gift card redemptions, which is also referred to as the “redemption
recognition” method. The estimated value of gift cards expected to remain
unused is recognized over the expected period of redemption as the remaining
gift card values are redeemed, generally over a period of 10 years. Utilizing
this method, we estimate both the amount of breakage and the time period
of redemption. If actual redemption patterns vary from our estimates, actual
gift card breakage income may differ from the amounts recorded. We update
our estimates of our redemption period and our breakage rate periodically
and apply that rate to gift card redemptions.
FOOD AND BEVERAGE COSTS
Food and beverage costs include inventory, warehousing, related purchasing
and distribution costs, and gains and losses on certain commodity derivative
contracts. Vendor allowances received in connection with the purchase
of a vendor’s products are recognized as a reduction of the related food and
beverage costs as earned. Advance payments are made by the vendors
based on estimates of volume to be purchased from the vendors and the
terms of the agreement. As we make purchases from the vendors each
period, we recognize the pro rata portion of allowances earned as a reduction
of food and beverage costs for that period. Differences between estimated
and actual purchases are settled in accordance with the terms of the agree-
ments. Vendor agreements are generally for a period of one year or more
and payments received are initially recorded as long-term liabilities. Amounts
expected to be earned within one year are recorded as current liabilities.
INCOME TAXES
We provide for federal and state income taxes currently payable as well as for
those deferred because of temporary differences between reporting income
and expenses for financial statement purposes versus tax purposes. Federal
income tax credits are recorded as a reduction of income taxes. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in earnings in the period that includes the enactment
date. Interest recognized on reserves for uncertain tax positions is included
in interest, net, in our consolidated statements of earnings. A corresponding
liability for accrued interest is included as a component of other current
liabilities on our consolidated balance sheets. Penalties, when incurred,
are recognized in general and administrative expenses.
ASC Topic 740, Income Taxes, requires that a position taken or
expected to be taken in a tax return be recognized (or derecognized) in the
financial statements when it is more likely than not (i.e., a likelihood of more
than 50 percent) that the position would be sustained upon examination by
tax authorities. A recognized tax position is then measured at the largest
amount of benefit that is greater than 50 percent likely of being realized
upon ultimate settlement. See Note 13 for additional information.
32
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
Income tax benefits credited to equity relate to tax benefits associated
with amounts that are deductible for income tax purposes but do not affect
earnings. These benefits are principally generated from employee exercises
of non-qualified stock options and vesting of employee restricted
stock awards.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We enter into derivative instruments for risk management purposes only,
including derivatives designated as hedging instruments as required by
FASB ASC Topic 815, Derivatives and Hedging, and those utilized as eco-
nomic hedges. We use financial derivatives to manage interest rate and
compensation risks inherent in our business operations. Our use of derivative
instruments is currently limited to equity forwards contracts. These instruments
are generally structured as hedges of the variability of cash flows related to
forecasted transactions (cash flow hedges). However, we do at times enter
into instruments designated as fair value hedges to reduce our exposure
to changes in fair value of the related hedged item. We do not enter into
derivative instruments for trading or speculative purposes, where changes
in the cash flows or fair value of the derivative are not expected to offset
changes in cash flows or fair value of the hedged item. However, we have
entered into equity forwards to economically hedge changes in the fair value
of employee investments in our non-qualified deferred compensation plan.
All derivatives are recognized on the balance sheet at fair value. For those
derivative instruments for which we intend to elect hedge accounting, on
the date the derivative contract is entered into, we document all relationships
between hedging instruments and hedged items, as well as our risk-
management objective and strategy for undertaking the various hedge
transactions. This process includes linking all derivatives designated as cash
flow hedges to specific assets and liabilities on the consolidated balance
sheet or to specific forecasted transactions. We also formally assess, both at
the hedge’s inception and on an ongoing basis, whether the derivatives used
in hedging transactions are highly effective in offsetting changes in cash
flows of hedged items.
To the extent our derivatives are effective in offsetting the variability of
the hedged cash flows, and otherwise meet the cash flow hedge accounting
criteria required by Topic 815 of the FASB ASC, 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 derivatives are
effective in mitigating changes in fair value, and otherwise meet the fair
value hedge accounting criteria required by Topic 815 of the FASB ASC,
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. Cash flows
related to derivatives are included in operating activities. See Note 8 for
additional information.
LEASES
For operating leases, we recognize rent expense on a straight-line basis over
the expected lease term, including cancelable option periods where we are
reasonably assured to exercise the options. Differences between amounts
paid and amounts expensed are recorded as deferred rent. Capital leases
are recorded as an asset and an obligation at an amount equal to the present
value of the minimum lease payments during the lease term. Sale-leasebacks
are transactions through which we sell assets (such as restaurant properties)
at fair value and subsequently lease them back. The resulting leases generally
qualify and are accounted for as operating leases. Financing leases are gen-
erally the product of a failed sale-leaseback transaction and result in retention
of the “sold” assets within land, buildings and equipment with a financing
lease obligation equal to the amount of proceeds received recorded as a
component of other liabilities on our consolidated balance sheets.
Within the provisions of certain of our leases, there are rent holidays
and escalations in payments over the base lease term, as well as renewal
periods. The effects of the holidays and escalations have been reflected in
rent expense on a straight-line basis over the expected lease term. The lease
term commences on the date when we have the right to control the use of
the leased property, which is typically before rent payments are due under
the terms of the lease. Many of our leases have renewal periods totaling 5 to
20 years, exercisable at our option and require payment of property taxes,
insurance and maintenance costs in addition to the rent payments. The
consolidated financial statements reflect the same lease term for amortizing
leasehold improvements as we use to determine capital versus operating
lease classifications and in calculating straight-line rent expense for each
restaurant. Percentage rent expense is generally based on sales levels and
is accrued at the point in time we determine that it is probable that such
sales levels will be achieved. Amortization expense related to capital leases
is included in depreciation and amortization expense in our consolidated
statements of earnings. Landlord allowances are recorded based on
contractual terms and are included in accounts receivable, net, and as a
deferred rent liability and amortized as a reduction of rent expense on a
straight-line basis over the expected lease term. Gains on sale-leaseback
transactions are recorded as a deferred liability and amortized as a reduction
of rent expense on a straight-line basis over the expected lease term.
PRE-OPENING EXPENSES
Non-capital expenditures associated with opening new restaurants are
expensed as incurred.
ADVERTISING
Production costs of commercials are charged to operations in the fiscal
period the advertising is first aired. The costs of programming and other
advertising, promotion and marketing programs are charged to operations
in the fiscal period incurred and reported as marketing expenses on our
consolidated statements of earnings.
STOCK-BASED COMPENSATION
We recognize the cost of employee service received in exchange for awards
of equity instruments based on the grant date fair value of those awards. We
recognize compensation expense on a straight-line basis over the employee
service period for awards granted. We utilize the Black-Scholes option pricing
model to estimate the fair value of stock option awards. The dividend yield
has been estimated based upon our historical results and expectations for
changes in dividend rates. The expected volatility was determined using
historical stock prices. The risk-free interest rate was the rate available on
zero coupon U.S. government obligations with a term approximating the
expected life of each grant. The expected life was estimated based on the
exercise history of previous grants, taking into consideration the remaining
contractual period for outstanding awards. We utilize a Monte Carlo simula-
tion to estimate the fair value of our market-based equity-settled performance
awards. See Note 15 for further information.
137248_DardenAR_FINCL.r2.indd 33
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NET EARNINGS PER SHARE
Basic net earnings per share are computed by dividing net earnings by the
weighted-average number of common shares outstanding for the reporting
period. Diluted net earnings per share reflect the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock. Outstanding stock options, restricted stock
and equity-settled performance stock units granted by us represent the only
dilutive effect reflected in diluted weighted-average shares outstanding.
These stock-based compensation instruments do not impact the numerator
of the diluted net earnings per share computation.
The following table presents the computation of basic and diluted net
earnings per common share:
(in millions, except per share data)
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Average common shares
outstanding – Basic
Effect of dilutive stock-based
compensation
Average common shares
outstanding – Diluted
Basic net earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted net earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Fiscal Year
2015
$196.4
513.1
$709.5
2016
$359.7
15.3
$375.0
2014
$183.2
103.0
$286.2
127.4
127.7
131.0
1.9
2.0
2.2
129.3
129.7
133.2
$ 2.82
0.12
$ 2.94
$ 1.54
4.02
$ 5.56
$ 1.40
0.78
$ 2.18
$ 2.78
0.12
$ 2.90
$ 1.51
3.96
$ 5.47
$ 1.38
0.77
$ 2.15
Restricted stock and options to purchase shares of our common stock
excluded from the calculation of diluted net earnings per share because the
effect would have been anti-dilutive, are as follows:
(in millions)
Fiscal Year Ended
May 29, May 31, May 25,
2014
2015
2016
Anti-dilutive restricted stock and options
0.3
0.1
4.2
FOREIGN CURRENCY
The Canadian dollar is the functional currency for our Canadian restaurant
operations and the Malaysian ringgit is the functional currency for our
franchises based in Malaysia. Assets and liabilities denominated in foreign
currencies are translated into U.S. dollars using the exchange rates in effect
at the balance sheet date. Results of operations are translated using the
average exchange rates prevailing throughout the period. Translation gains
and losses are reported as a separate component of other comprehensive
income (loss). Aggregate cumulative translation losses were $1.2 million and
$1.7 million at May 29, 2016 and May 31, 2015, respectively. Net losses
from foreign currency transactions recognized in our consolidated statements
of earnings were $1.8 million and $1.4 million for fiscal 2016 and 2015,
respectively, and was not significant for fiscal 2014.
34
APPLICATION OF NEW ACCOUNTING STANDARDS
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09,
Revenue from Contracts with Customers (Topic 606). This update provides a
comprehensive new revenue recognition model that requires a company to
recognize revenue to depict the transfer of goods or services to a customer
at an amount that reflects the consideration it expects to receive in exchange
for those goods or services. The guidance also requires additional disclosure
about the nature, amount, timing and uncertainty of revenue and cash flows
arising from customer contracts. This update is effective for annual and interim
periods beginning after December 15, 2017, which requires us to adopt
these provisions in the first quarter of fiscal 2019. Early adoption is permitted.
This update permits the use of either the retrospective or cumulative effect
transition method. We are evaluating the effect this guidance will have on
our consolidated financial statements and related disclosures. We have not
yet selected a transition method nor have we determined the effect of the
standard on our ongoing financial reporting.
In July 2015, the FASB issued ASU 2015-11, Simplifying the
Measurement of Inventory (Topic 330). This update requires inventory within
the scope of the standard to be measured at the lower of cost and net
realizable value. Net realizable value is defined as the estimated selling
prices in the ordinary course of business, less reasonably predictable costs
of completion, disposal, and transportation. This update is effective for
annual and interim periods beginning after December 15, 2016, which will
require us to adopt these provisions in the first quarter of fiscal 2018. Early
adoption is permitted. We do not expect the adoption of this guidance to
have a material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes (Topic 740). This update requires that
deferred tax liabilities and assets be classified as noncurrent in a classified
balance sheet. This update is effective for annual and interim periods
beginning after December 15, 2016, which will require us to adopt these
provisions in the first quarter of fiscal 2018. Early adoption is permitted.
Other than the revised balance sheet presentation of deferred tax liabilities
and assets, we do not expect the adoption of this guidance to have a
material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).
This update requires a lessee to recognize on the balance sheet a liability to
make lease payments and a corresponding right-of-use asset. The guidance
also requires certain qualitative and quantitative disclosures about the amount,
timing and uncertainty of cash flows arising from leases. This update is
effective for annual and interim periods beginning after December 15, 2018,
which will require us to adopt these provisions in the first quarter of fiscal
2020 using a modified retrospective approach. Early adoption is permitted.
We have not yet selected a transition date nor have we determined the effect
of the standard on our ongoing financial reporting.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock
Compensation (Topic 718). This update was issued as part of the FASB’s
simplification initiative and affects all entities that issue share-based payment
awards to their employees. The amendments in this update cover such areas
as the recognition of excess tax benefits and deficiencies, the classification
of those excess tax benefits on the statement of cash flows, an accounting
policy election for forfeitures, the amount an employer can withhold to cover
income taxes and still qualify for equity classification and the classification of
those taxes paid on the statement of cash flows. This update is effective for
annual and interim periods beginning after December 15, 2016, which will
require us to adopt these provisions in the first quarter of fiscal 2018. This
guidance will be applied either prospectively, retrospectively or using a
137248_DardenAR_FINCL.r2.indd 34
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
modified retrospective transition method, depending on the area covered in
this update. Early adoption is permitted. We have not yet selected a transi-
tion date nor have we determined the effect of the standard on our ongoing
financial reporting.
NOTE 2
REAL ESTATE TRANSACTIONS
As a result of a comprehensive evaluation for the monetization of our real
estate portfolio, we undertook strategies to pursue sale-leaseback transac-
tions of individual restaurant properties and our corporate headquarters and
to transfer 424 of our restaurant properties into a REIT, with substantially all
of the REIT’s initial assets being leased back to Darden.
SALE-LEASEBACKS
During fiscal 2015, we implemented a plan to pursue sale-leaseback
transactions of 64 restaurant properties. Fourteen of the transactions closed
in the fourth quarter of fiscal 2015, and the remaining 50 transactions
closed in fiscal 2016. The 64 individual sale-leasebacks generated net pro-
ceeds of $238.0 million, resulting in deferred gains totaling $49.0 million
which will be amortized over the expected leaseback periods on a straight-line
basis. Additionally, during fiscal 2016, we completed the sale-leaseback of
our corporate headquarters, generating net proceeds of $131.0 million,
resulting in a deferred gain of $6.3 million, which will be amortized over the
expected leaseback period on a straight-line basis.
REIT TRANSACTION – SEPARATION OF FOUR CORNERS
On June 23, 2015, we announced our plan to separate our business into two
separate and independent publicly traded companies. We accomplished this
separation on November 9, 2015, with the pro rata distribution of one share
of Four Corners Property Trust, Inc. (Four Corners) common stock for every
three shares of Darden common stock to holders of Darden common stock.
The separation, which was completed pursuant to a separation and distribu-
tion agreement between Darden and Four Corners, included (i) the transfer
of 6 LongHorn Steakhouse restaurants located in the San Antonio, Texas
area (the LongHorn San Antonio Business) as well as 418 restaurant proper-
ties (the Four Corners Properties) to Four Corners, which were subsequently
leased back to Darden; (ii) the issuance to us of all of the outstanding com-
mon stock of Four Corners and corresponding pro rata distribution to our
shareholders of the outstanding shares of Four Corners common stock as a
tax-free stock dividend; and (iii) a cash dividend of $315.0 million received
by us from Four Corners from the proceeds of Four Corners’ term loan bor-
rowings. We requested and received a private letter ruling from the Internal
Revenue Service on certain issues relevant to the qualification of the spin-off
as a tax-free transaction.
Our shareholders’ equity decreased by $435.4 million as a result of
the separation of Four Corners. The components of the decrease, principally
comprised of the net book value of the net assets that we contributed to
Four Corners in connection with the separation, included $834.8 million in
net book value of fixed assets, $84.4 million consisting primarily of deferred
tax liabilities, offset by the $315.0 million cash dividend received by us from
Four Corners.
AGREEMENTS WITH FOUR CORNERS
We entered into lease agreements with Four Corners, pursuant to which we
leased the Four Corners Properties on a triple-net basis with terms compar-
able to similar leases negotiated on an arm’s-length basis. Under the lease
agreements, our subsidiaries are the tenant, while Four Corners is the land-
lord. The leases are triple-net leases that provide for an average initial term
of approximately 15 years with stated annual rental payments and options
to extend the leases for another 15 years. Under the lease agreements, the
rent is subject to annual escalations of 1.5 percent, as well as, in most of the
leases, a fair market value adjustment at the start of one of the renewal options.
We entered into franchise agreements with Four Corners pursuant to
which we provide certain franchising services to Four Corners’ subsidiary
which operates the LongHorn San Antonio Business. The franchising services
consist of licensing the right to use and display certain trademarks in con-
nection with the operation of the LongHorn San Antonio Business, marketing
services, training and access to certain LongHorn operating procedures. The
fees and conditions of these franchising services are on terms comparable
to similar franchising services negotiated on an arm’s-length basis.
DEBT RETIREMENT
During fiscal 2016, utilizing the proceeds of the Four Corners cash dividend,
cash proceeds from the sale-leasebacks of restaurant properties and our
corporate headquarters and additional cash on hand, we retired approximately
$1.03 billion aggregate principal of long-term debt (see Note 7 for
additional details).
NOTE 3
DISPOSITIONS
On July 28, 2014, we closed on the sale of 705 Red Lobster restaurants.
All direct cash flows related to operating these businesses were eliminated
at the date of sale. Our continuing involvement has primarily been limited
to a transition services agreement, pursuant to which we provide limited,
specific services for up to two years from the date of sale with minimal
impact to our cash flows. In total, we have recognized a pre-tax gain on the
sale of Red Lobster of $854.8 million, which is included in earnings from
discontinued operations in our consolidated statements of earnings.
For fiscal 2016, 2015 and 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 (loss) from discontinued operations, net
of tax expense (benefit)” 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 discontin-
ued operations. Assets associated with those restaurants not yet disposed
of, that are considered held for sale, have been segregated from continuing
operations and are included in assets held for sale on our accompanying
consolidated balance sheets.
137248_DardenAR_FINCL.r2.indd 35
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
Earnings from discontinued operations, net of taxes in our accompanying
consolidated statements of earnings are comprised of the following:
(in millions)
Sales
Costs and expenses:
Restaurant and marketing expenses
Depreciation and amortization
Other income and expenses (1)
Earnings before income taxes
Income tax expense
Earnings from discontinued
operations, net of tax
Fiscal Year Ended
May 31,
2015
May 25,
2014
May 29,
2016
$ —
$ 400.4
$2,472.1
1.8
—
(20.5)
18.7
3.4
353.0
0.2
(810.7)
857.9
344.8
2,134.1
124.6
78.1
135.3
32.3
$ 15.3
$ 513.1
$ 103.0
(1) Amounts for fiscal years 2016 and 2015 primarily relate to the gain recognized on the sale
of Red Lobster.
Assets classified as held for sale on our accompanying consolidated
balance sheets as of May 29, 2016, consisted of land, buildings and equip-
ment with carrying amounts of $20.3 million primarily related to excess land
parcels adjacent to our corporate headquarters. Assets classified as held
for sale on our accompanying consolidated balance sheets as of May 31,
2015 consisted of land, buildings and equipment with carrying amounts of
$32.9 million related to Red Lobster properties subject to landlord consents
and excess land parcels adjacent to our corporate headquarters.
Impairment charges were measured based on the amount by which
the carrying amount of these assets exceeded their fair value. Fair value is
generally determined based on appraisals or sales prices of comparable
assets and estimates of discounted future cash flows. These amounts are
included in impairments and disposal of assets, net as a component of
earnings from continuing operations in the accompanying consolidated
statements of earnings.
NOTE 5
LAND, BUILDINGS AND EQUIPMENT, NET
The components of land, buildings and equipment, net, are as follows:
(in millions)
May 29, 2016 May 31, 2015
Land
Buildings
Equipment
Assets under capital leases
Construction in progress
Total land, buildings and equipment
Less accumulated depreciation and
amortization
Less amortization associated with
assets under capital leases
Land, buildings and equipment, net
$ 133.1
2,297.1
1,318.5
71.9
40.0
$ 3,860.6
$ 633.5
3,338.9
1,439.1
72.0
36.9
$ 5,520.4
(1,788.3)
(2,277.7)
(30.7)
$ 2,041.6
(26.9)
$ 3,215.8
NOTE 4
IMPAIRMENTS AND DISPOSAL OF ASSETS, NET
NOTE 6
SEGMENT INFORMATION
Impairments and disposal of assets, net, in our accompanying consolidated
statements of earnings are comprised of the following:
(in millions)
Fiscal Year
2015
2016
$ 9.2
Restaurant impairments
(5.9)
Disposal gains
Other
2.5
Impairments and disposal of assets, net $ 5.8
$49.4
(4.2)
16.9
$62.1
2014
$11.5
(1.9)
6.8
$16.4
Restaurant impairments for fiscal 2016 and 2015 were primarily related
to underperforming restaurants and restaurant assets involved in individual
sale-leaseback transactions. Restaurant impairments for fiscal 2014 were
primarily related to underperforming restaurants.
Disposal gains for fiscal 2016 and 2015 were primarily related to
the sale of land parcels and sale-leaseback transactions. Disposal gains for
fiscal 2014 were primarily related to the sale of land parcels.
Other impairment charges for fiscal 2016 primarily related to a
cost-method investment and the expected disposal of excess land parcels
adjacent to our corporate headquarters which are held for sale. During fiscal
2015, other impairment charges related to the expected disposal of excess
land parcels adjacent to our corporate headquarters, our lobster aquaculture
project and a corporate airplane in connection with the closure of our avia-
tion department. Other impairment charges for fiscal 2014 primarily related
to a corporate airplane in connection with its expected sale.
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse,
The Capital Grille, Yard House, Bahama Breeze, Seasons 52 and Eddie V’s in
North America as operating segments. The brands operate principally in the
U.S. within full-service dining. We aggregate our operating segments into
reportable segments based on a combination of the size, economic charac-
teristics and sub-segment of full-service dining within which each brand
operates. We have four reportable segments: (1) Olive Garden, (2) LongHorn
Steakhouse, (3) Fine Dining and (4) Other Business.
The Olive Garden segment includes the results of our company-owned
Olive Garden restaurants in the U.S. and Canada. The LongHorn Steakhouse
segment includes the results of our company-owned LongHorn Steakhouse
restaurants in the U.S. The Fine Dining segment aggregates our premium
brands that operate within the fine-dining sub-segment of full-service dining
and includes the results of our company-owned The Capital Grille and
Eddie V’s restaurants in the U.S. The Other Business segment aggregates
our remaining brands and includes the results of our company-owned
Yard House, Seasons 52 and Bahama Breeze restaurants in the U.S. This
segment also includes results from our franchises and consumer-packaged
goods sales.
External sales are derived principally from food and beverage sales.
We do not rely on any major customers as a source of sales, and the
customers and long-lived assets of our reportable segments are
predominantly in the U.S. There were no material transactions among
reportable segments.
36
137248_DardenAR_FINCL.r2.indd 36
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
Our management uses segment profit as the measure for assessing performance of our segments. Segment profit includes revenues and expenses
directly attributable to restaurant-level results of operations (sometimes referred to as restaurant-level earnings). These expenses include food and beverage
costs, restaurant labor costs, restaurant expenses and marketing expenses (collectively “restaurant and marketing expenses”). The following tables reconcile
our segment results to our consolidated results reported in accordance with GAAP:
(in millions)
At May 29, 2016 and for the year ended
Sales
Restaurant and marketing expenses
Segment profit
Depreciation and amortization
Impairments and disposal of assets, net
Segment assets
Purchases of land, buildings and equipment
(in millions)
At May 31, 2015 and for the year ended
Sales
Restaurant and marketing expenses
Segment profit
Depreciation and amortization
Impairments and disposal of assets, net
Segment assets
Purchases of land, buildings and equipment
(in millions)
For the year ended May 25, 2014
Sales
Restaurant and marketing expenses
Segment profit
Depreciation and amortization
Impairments and disposal of assets, net
Purchases of land, buildings and equipment
Olive
Garden
$3,838.6
3,079.4
$ 759.2
$ 124.1
(1.4)
939.2
95.6
Olive
Garden
$3,789.6
3,089.1
$ 700.5
$ 149.8
28.2
1,625.1
118.9
Olive
Garden
$3,643.1
2,995.1
$ 648.0
$ 149.6
3.3
131.9
LongHorn
Steakhouse
$1,587.7
1,312.4
$ 275.3
$ 67.9
(1.5)
969.2
46.9
LongHorn
Steakhouse
$1,544.7
1,304.8
$ 239.9
$ 71.6
0.4
1,261.1
67.4
LongHorn
Steakhouse
$1,383.9
1,179.6
$ 204.3
$ 66.7
0.8
114.4
Fine Dining
Other Business
Corporate
Consolidated
$514.1
413.6
$100.5
$ 27.1
0.7
857.0
21.4
$ 993.1
825.0
$ 168.1
$ 50.5
6.0
987.6
60.5
$
$
$
—
—
—
20.6
2.0
829.6
3.9
$6,933.5
5,630.4
$1,303.1
$ 290.2
5.8
4,582.6
228.3
Fine Dining
Other Business
Corporate
Consolidated
$500.1
405.2
$ 94.9
$ 26.4
—
865.6
22.9
$ 929.6
785.7
$ 143.9
$ 47.3
21.0
1,054.6
83.4
$
$
—
—
—
$
24.2
12.5
1,188.3
3.9
$6,764.0
5,584.8
$1,179.2
$ 319.3
62.1
5,994.7
296.5
Fine Dining
Other Business
Corporate
Consolidated
$441.6
360.2
$ 81.4
$ 24.3
4.8
42.3
$ 817.0
707.9
$ 109.1
$ 42.7
3.7
123.1
$
$
$
—
—
—
21.1
3.8
3.1
$6,285.6
5,242.8
$1,042.8
$ 304.4
16.4
414.8
Reconciliation of segment profit to earnings from continuing operations before income taxes:
(in millions)
Segment profit
Less general and administrative expenses
Less depreciation and amortization
Less impairments and disposal of assets, net
Less interest, net
Earnings before income taxes
Fiscal Year Ended
May 29, 2016 May 31, 2015 May 25, 2014
$1,303.1
(384.9)
(290.2)
(5.8)
(172.5)
$ 449.7
$1,179.2
(430.2)
(319.3)
(62.1)
(192.3)
$ 175.3
$1,042.8
(413.1)
(304.4)
(16.4)
(134.3)
$ 174.6
137248_DardenAR_FINCL.r2.indd 37
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NOTE 7
DEBT
The components of long-term debt are as follows:
(in millions)
Variable-rate term loan (1.68% at May 31, 2015)
due August 2017
6.200% senior notes due October 2017
4.500% senior notes due October 2021
3.350% senior notes due November 2022
4.520% senior notes due August 2024
6.000% senior notes due August 2035
6.800% senior notes due October 2037
Total long-term debt
Fair value hedge
Less unamortized discount and issuance costs
Total long-term debt less unamortized discount
and issuance costs
Less current portion
Long-term debt, excluding current portion
May 29,
2016
May 31,
2015
$
—
—
—
—
—
150.0
300.0
$450.0
—
(10.0)
$ 285.0
500.0
121.9
111.1
10.0
150.0
300.0
$1,478.0
3.6
(14.3)
$440.0
—
$440.0
$1,467.3
(15.0)
$1,452.3
During fiscal 2016, utilizing the proceeds of the Four Corners cash
dividend, cash proceeds from the sale-leasebacks of restaurant properties
and our corporate headquarters and additional cash on hand, we retired
approximately $1.03 billion aggregate principal of long-term debt consisting of:
• $285.0 million of our variable-rate term loan, maturing in
August 2017;
• $500.0 million of unsecured 6.200 percent senior notes due in
October 2017;
• $121.9 million of unsecured 4.500 percent senior notes due in
October 2021;
• $111.1 million of unsecured 3.350 percent senior notes due in
November 2022; and
• $10.0 million of unsecured 4.520 percent senior notes due in
August 2024.
During fiscal 2016, we recorded approximately $106.8 million
associated with the fiscal 2016 retirements including cash costs of approxi-
mately $68.7 million for repurchase premiums, make-whole amounts and
hedge settlements and non-cash charges of approximately $38.1 million
associated with hedge and loan cost write-offs. These amounts were recorded
in interest, net, in our consolidated statements of earnings.
The interest rate on our $300.0 million 6.800 percent senior notes due
October 2037 is subject to adjustment from time to time if the debt rating
assigned to such series of notes is downgraded below a certain rating level
(or subsequently upgraded). The maximum adjustment is 2.000 percent
above the initial interest rate and the interest rate cannot be reduced below
the initial interest rate. In October 2014, Moody’s Investors Service (Moody’s)
downgraded our senior unsecured ratings to “Ba1” from “Baa3” resulting
in an increase of 0.250 percent in the interest rates on our senior notes due
in October 2037. In April 2016, Moody’s subsequently upgraded our rating
to “Baa3” and the interest rate was restored to the initial rate.
The aggregate contractual maturities of long-term debt for each of the
five fiscal years subsequent to May 29, 2016, and thereafter are as follows:
(in millions)
Fiscal Year
2017
2018
2019
2020
2021 Thereafter
Debt repayments
$ —
$ —
$ —
$ —
$ —
$450.0
We maintain a $750.0 million revolving Credit Agreement (Revolving
Credit Agreement), with Bank of America, N.A. (BOA) as administrative agent,
and the lenders and other agents party thereto. The Revolving Credit
Agreement is a senior unsecured credit commitment to the Company and
contains customary representations and affirmative and negative covenants
(including limitations on liens and subsidiary debt and a maximum con-
solidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00)
and events of default usual for credit facilities of this type. As of May 29,
2016, we were in compliance with all covenants under the Revolving
Credit Agreement.
The Revolving Credit Agreement matures on October 24, 2018, and
the proceeds may be used for commercial paper back-up, working capital
and capital expenditures, the refinancing of certain indebtedness, certain
acquisitions and general corporate purposes. Loans under the Revolving
Credit Agreement bear interest at a rate of LIBOR plus a margin determined
by reference to a ratings-based pricing grid (Applicable Margin), or the base
rate (which is defined as the highest of the BOA prime rate, the Federal
Funds rate plus 0.500 percent and the Eurocurrency Rate plus 1.00 percent)
plus the Applicable Margin. Assuming a “BBB” equivalent credit rating
level, the Applicable Margin under the Revolving Credit Agreement will be
1.100 percent for LIBOR loans and 0.100 percent for base rate loans.
As of May 29, 2016, we had no outstanding balances under the Revolving
Credit Agreement.
NOTE 8
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We use financial derivatives to manage interest rate and equity-based
compensation risks inherent in our business operations. 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 May 29, 2016, if counterparties to the derivative
instruments failed completely to perform, would approximate the values of
derivative instruments currently recognized as assets on 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
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.
38
137248_DardenAR_FINCL.r2.indd 38
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
During fiscal 2016, in connection with the repayment of our 2017 and
2021 senior notes, we settled our interest-rate swap agreements for a gain
of $4.1 million, which was recorded as a component of interest, net in our
consolidated statements of earnings and included in the total $106.8 million
of costs associated with the pay down of our debt in fiscal 2016. The swap
agreements effectively swapped 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 fiscal 2016, 2015 and 2014, $1.7 million, $3.6 million and $2.9 million,
respectively, was recorded as a reduction to interest expense related to net
swap settlements.
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 May 29, 2016, we were party
to equity forward contracts that were indexed to 0.9 million shares of our
common stock, at varying forward rates between $40.69 per share and
$60.60 per share, extending through September 2020. 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 or received.
We entered into equity forward contracts to hedge the risk of changes
in future cash flows associated with recognized, cash-settled performance
stock units and employee-directed investments in Darden stock within the
non-qualified deferred compensation plan. 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 compen-
sation plan within general and administrative expenses in our consolidated
statements of earnings. As of May 29, 2016, we were party to an equity
forward contract that was indexed to 0.1 million shares of our common stock
at forward rate of $41.03 per share, can only be net settled in cash and
expires in fiscal 2019.
The notional and fair values of our derivative contracts are as follows:
Notional Values
Fair Values
(in millions)
Derivative contracts designated as hedging instruments
Equity forwards
Interest rate related
May 29, May 31,
2016
2015
$14.9
—
$ 11.4
200.0
Derivative contracts not designated as hedging instruments
Equity forwards
$28.2
$ 51.7
Total derivative contracts
Balance
Sheet
Location
(1)
(1)
(1)
Derivative Assets
Derivative Liabilities
May 29, May 31, May 29, May 31,
2016
2015
2016
2015
$1.2
—
$1.2
$2.6
$2.6
$3.8
$0.4
3.6
$4.0
$1.3
$1.3
$5.3
$ —
—
$ —
$ —
$ —
$ —
$ —
—
$ —
$ —
$ —
$ —
(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.
The effects of derivative instruments in cash flow hedging relationships in the consolidated statements of earnings are as follows:
(in millions)
Equity
Interest rate
Amount of Gain (Loss)
Recognized in AOCI
(Effective Portion)
Fiscal Year
2016 2015
2014
Location of Gain (Loss)
Reclassified from AOCI
to Earnings
$2.0
$2.1
— —
$2.1
$2.0
$(3.5)
—
$(3.5)
(2)
Interest, net
Amount of Gain (Loss)
Reclassified from AOCI
to Earnings (Effective Portion)
Fiscal Year
2016
2015 2014
$ 2.1 $ (1.0) $ (0.8)
(37.4)
(10.3)
$(35.3) $(46.7) $(11.1)
(45.7)
Location of Gain (Loss)
Recognized in Earnings
(Ineffective Portion)
Amount of Gain (Loss)
Recognized in Earnings
(Ineffective Portion) (1)
Fiscal Year
2016 2015 2014
(2)
Interest, net
$0.9
$1.1
$1.4
— — —
$1.4
$1.1
$0.9
(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 restaurant labor expenses and
general and administrative expenses.
.
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 39
137248_DardenAR_FINCL.r2.indd 39
8/4/16 12:40 PM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
The effects of derivatives not designated as hedging instruments in the consolidated statements of earnings are as follows:
(in millions)
Equity forwards
Equity forwards
Location of Gain (Loss)
Recognized in Earnings
Restaurant labor expenses
General and administrative expenses
Amount of Gain (Loss) Recognized in Earnings
2016
$ 3.9
7.5
$11.4
Fiscal Year
2015
$ 4.0
9.2
$13.2
2014
$(0.5)
(1.3)
$(1.8)
Based on the fair value of our derivative instruments designated as cash flow hedges as of May 29, 2016, we expect to reclassify $0.3 million of net gains
on derivative instruments from accumulated other comprehensive income (loss) to earnings during the next 12 months based on the maturity of equity forward
contracts. However, the amounts ultimately realized in earnings will be dependent on the fair value of the contracts on the settlement dates.
NOTE 9
FAIR VALUE MEASUREMENTS
The fair values of cash equivalents, receivables, net, 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 at May 29, 2016 and May 31, 2015:
(in millions)
Fixed-income securities:
Corporate bonds (1)
U.S. Treasury securities (2)
Mortgage-backed securities (1)
Derivatives:
Equity forwards (3)
Total
(in millions)
Fixed-income securities:
Corporate bonds (1)
U.S. Treasury securities (2)
Mortgage-backed securities (1)
Derivatives:
Equity forwards (3)
Interest rate swaps (4)
Total
Items Measured at Fair Value at May 29, 2016
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)
$ 2.0
3.9
1.0
3.8
$10.7
$ —
3.9
—
—
$3.9
$2.0
—
1.0
3.8
$6.8
$ —
—
—
—
$ —
Items Measured at Fair Value at May 31, 2015
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)
$ 2.2
5.0
1.6
1.7
3.6
$14.1
$ —
5.0
—
—
—
$5.0
$2.2
—
1.6
1.7
3.6
$9.1
$ —
—
—
—
—
$ —
(1) The fair value of these securities is based on closing market prices of the investments, when applicable, or, alternatively, valuations utilizing market data and other observable inputs, inclusive
of the risk of nonperformance.
(2) The fair value of our U.S. Treasury securities is based on closing market prices.
(3) The fair value of our equity forwards is based on the closing market value of Darden stock, inclusive of the risk of nonperformance.
(4) The fair value of our interest rate lock and swap agreements is based on current and expected market interest rates, inclusive of the risk of nonperformance.
40
137248_DardenAR_FINCL.r2.indd 40
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
Our fixed-income securities are carried at fair value and consist of
available-for-sale securities related to insurance funding requirements for
our workers’ compensation and general liability claims. As of May 29, 2016,
the cost and market value for our securities that qualify as available-for-sale
was $6.9 million. Earnings include insignificant realized gains and loss from
sales of available-for-sale securities. At May 29, 2016, our available-for-sale
securities of $2.5 million have maturities of less than one year and $4.4 million
have maturities within one to three years.
The carrying value and fair value of long-term debt, as of May 29, 2016,
was $440.0 million and $499.5 million, respectively. The carrying value and
fair value of long-term debt including the amounts included in current liabilities
as of May 31, 2015, was $1.47 billion and $1.57 billion, respectively. The
fair value of long-term debt, which is classified as Level 2 in the fair value
hierarchy, is determined based on market prices or, if market prices are not
available, the present value of the underlying cash flows discounted at our
incremental borrowing rates.
The fair value of non-financial assets measured at fair value on a
non-recurring basis, which is classified as Level 3 in the fair value hierarchy,
is determined based on appraisals or sales prices of comparable assets and
estimates of future cash flows. As of May 29, 2016, long-lived assets held
and used with a carrying value of $5.4 million, primarily related to two
underperforming restaurants, were determined to have no fair value resulting
in an impairment charge of $5.4 million. As of May 31, 2015, long-lived
assets held and used with a carrying value of $70.5 million, primarily related
to restaurant assets involved in sale-leaseback arrangements, were written
down to their fair value of $55.4 million, resulting in an impairment charge
of $15.1 million. As of May 29, 2016, long-lived assets held for sale with
a carrying value of $17.5 million, related to excess land parcels adjacent
to our corporate headquarters, were written down to their fair value of
$16.9 million, resulting in an impairment charge of $0.6 million. As of May 31,
2015, long-lived assets held for sale with a carrying value of $21.1 million,
related to excess land parcels adjacent to our corporate headquarters, were
written down to their fair value of $17.0 million, resulting in an impairment
charge of $4.1 million.
NOTE 10
STOCKHOLDERS’ EQUITY
SHARE REPURCHASE PROGRAM
Repurchased common stock has historically been reflected as a reduction
of stockholders’ equity. On December 16, 2015, our Board of Directors
authorized a new share repurchase program under which we may repurchase
up to $500.0 million of our outstanding common stock. As of May 29, 2016,
$315.6 million remains under this authorization. This repurchase program
does not have an expiration and replaces all other outstanding share
repurchase authorizations.
SHARE RETIREMENTS
As of May 29, 2016, of the 185.0 million cumulative shares repurchased
under the current and previous authorizations, 172.3 million shares were
retired and restored to authorized but unissued shares of common stock.
We expect that all shares of common stock acquired in the future will also
be retired and restored to authorized but unissued shares of common stock.
STOCKHOLDERS’ RIGHTS PLAN
In connection with the announced REIT transaction, our Board approved a
Rights Agreement dated June 23, 2015, to deter any person from acquiring
ownership of more than 9.8 percent of our common stock during the period
leading up to the REIT transaction. Under the Rights Agreement, each share
of our common stock had associated with it one right to purchase one thou-
sandth of a share of our Series A Junior Participating Cumulative Preferred
Stock at a purchase price of $156.26 per share, subject to adjustment under
certain circumstances to prevent dilution. On November 10, 2015, the rights
expired by their terms following completion of the spin-off of Four Corners.
As a result, each share of our common stock is no longer accompanied
by a right. The holders of common stock are not entitled to any payment
as a result of the expiration of the Rights Agreement and the rights
issued thereunder.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income (loss), net of tax, are as follows:
(in millions)
Balances at May 25, 2014
Gain (loss)
Reclassification realized in net earnings
Balances at May 31, 2015
Gain (loss)
Reclassification realized in net earnings
Balances at May 29, 2016
Foreign Currency
Translation Adjustment
Unrealized Gains (Losses) Unrealized Gains (Losses)
on Marketable Securities
on Derivatives
Benefit Plan
Accumulated Other
Funding Position Comprehensive Income (Loss)
$(4.7)
(4.3)
7.3
$(1.7)
0.5
—
$(1.2)
$0.1
—
—
$0.1
—
—
$0.1
$(50.4)
2.1
29.2
$(19.1)
2.0
21.0
$ 3.9
$(73.1)
3.1
4.1
$(65.9)
(23.5)
(0.4)
$(89.8)
$(128.1)
0.9
40.6
$ (86.6)
(21.0)
20.6
$ (87.0)
137248_DardenAR_FINCL.r2.indd 41
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
Reclassifications related to foreign currency translation in fiscal 2015 primarily relate to the disposition of Red Lobster and are included in earnings
from discontinued operations, net of tax expense in our consolidated statement of earnings. The following table presents the amounts and line items in our
consolidated statements of earnings where other adjustments reclassified from AOCI into net earnings were recorded:
(in millions)
AOCI Components
Derivatives
Equity contracts
Interest rate contracts
Benefit plan funding position
Pension/postretirement plans
Actuarial losses
Settlement loss
Total – pension/postretirement plans
Recognized net actuarial gain – other plans
Location of Gain (Loss)
Recognized in Earnings
(1)
(2)
Total before tax
Tax benefit
Net of tax
(3)
(3)
(4)
Total before tax
Tax benefit
Net of tax
May 29,
2016
$ 2.1
(37.4)
$(35.3)
14.3
$(21.0)
$ (2.8)
—
$ (2.8)
3.4
$ 0.6
(0.2)
$ 0.4
Fiscal Year
May 31,
2015
$ (1.0)
(45.7)
$(46.7)
17.5
$(29.2)
$ (2.6)
(6.1)
$ (8.7)
1.8
$ (6.9)
2.8
$ (4.1)
(1) Primarily included in restaurant labor costs and general and administrative expenses. See Note 8 for additional details.
(2) Included in interest, net, on our consolidated statements of earnings. Reclassifications primarily related to the acceleration of hedge loss amortization resulting from the pay down of the
associated long-term debt.
(3) Included in the computation of net periodic benefit costs – pension and postretirement plans, which is a component of restaurant labor expenses and general and administrative expenses.
See Note 14 for additional details.
(4) Included in the computation of net periodic benefit costs – other plans, which is a component of general and administrative expenses.
NOTE 11
LEASES
An analysis of rent expense incurred related to continuing operations
is as follows:
(in millions)
Restaurant minimum rent (1)
Restaurant rent averaging expense
Restaurant percentage rent
Other
Total rent expense
2016
$233.6
15.9
8.0
8.1
$265.6
Fiscal Year
2015
$167.0
16.7
7.7
3.5
$194.9
2014
$146.4
26.9
6.6
5.5
$185.4
(1) The increase for fiscal 2016 is primarily related to the REIT transaction and individual
sale-leaseback transactions. See Note 2 for further information.
Total rent expense included in discontinued operations was $0.0 million,
$6.2 million and $36.2 million for fiscal 2016, 2015 and 2014, respectively.
These amounts include restaurant minimum rent of $0.0 million, $5.8 million
and $33.0 million for fiscal 2016, 2015 and 2014, respectively.
The annual future lease commitments under capital lease obligations
and noncancelable operating and financing leases, including those related to
restaurants reported as discontinued operations, for each of the five fiscal
years subsequent to May 29, 2016 and thereafter is as follows:
(in millions)
Fiscal Year
Capital Financing Operating
$ 5.9
2017
6.0
2018
6.0
2019
6.1
2020
6.0
2021
49.0
Thereafter
$ 79.0
Total future lease commitments
(27.0)
Less imputed interest (at 6.5%), (various)
Present value of future lease commitments $ 52.0
Less current maturities
(2.7)
Obligations under capital and financing
leases, net of current maturities
$ 49.3
$ 7.1 $ 297.6
287.6
7.2
271.5
7.4
255.2
7.5
232.8
7.6
115.8
1,484.6
$152.6 $2,829.3
(76.6)
$ 76.0
(1.3)
$ 74.7
42
137248_DardenAR_FINCL.r2.indd 42
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NOTE 12
ADDITIONAL FINANCIAL INFORMATION
NOTE 13
INCOME TAXES
The tables below provide additional financial information related to our
consolidated financial statements:
BALANCE SHEETS
(in millions)
Receivables, net
Retail outlet gift card sales
Landlord allowances due
Miscellaneous
Allowance for doubtful accounts
Other Current Liabilities
Non-qualified deferred compensation plan
Sales and other taxes
Insurance-related
Employee benefits
Contingent proceeds – Red Lobster disposition
Accrued interest
Miscellaneous
May 29, 2016 May 31, 2015
$ 43.9
3.7
16.9
(0.5)
$ 64.0
$194.0
58.7
36.3
35.8
—
5.1
70.7
$400.6
$ 47.1
12.9
18.9
(0.9)
$ 78.0
$209.6
63.9
37.4
34.3
31.5
11.4
61.0
$449.1
STATEMENTS OF EARNINGS
(in millions)
Interest expense (1)
Imputed interest on capital
and financing leases
Capitalized interest
Interest income
Interest, net
Fiscal Year
2015
2014
2016
$165.4
$186.2
$134.0
8.9
(0.7)
(1.1)
$172.5
8.0
(1.3)
(0.6)
$192.3
3.5
(2.6)
(0.6)
$134.3
Total income tax expense was allocated as follows:
(in millions)
Earnings from continuing operations
Earnings from discontinued operations
Total consolidated income tax expense
Fiscal Year
2015
$ (21.1)
344.8
$323.7
2014
$ (8.6)
32.3
$23.7
2016
$90.0
3.4
$93.4
The components of earnings from continuing operations before income
taxes and the provision for income taxes thereon are as follows:
(in millions)
Earnings from continuing operations
before income taxes:
U.S.
Foreign
Earnings from continuing operations
before income taxes
Income taxes:
Current:
Federal
State and local
Foreign
Total current
Deferred (principally U.S.):
Federal
State and local
Total deferred
Total income taxes
Fiscal Year
2015
2014
2016
$450.6
(0.9)
$179.9
(4.6)
$189.0
(14.4)
$449.7
$175.3
$174.6
$ 89.1
2.7
1.9
$ 93.7
$ (2.4)
(1.3)
$ (3.7)
$ 90.0
$ (12.7)
(8.0)
6.9
$ (13.8)
$
—
(7.3)
$ (7.3)
$ (21.1)
$ 39.5
5.4
3.0
$ 47.9
$ (43.7)
(12.8)
$ (56.5)
$ (8.6)
(1) Interest expense in fiscal 2016 and 2015 includes approximately $106.8 million and
$91.3 million, respectively, of expenses associated with the retirement of long-term debt.
See Note 7.
The following table is a reconciliation of the U.S. statutory income tax
rate to the effective income tax rate from continuing operations included in
the accompanying consolidated statements of earnings:
STATEMENTS OF CASH FLOWS
(in millions)
Cash paid during the fiscal year for:
Interest, net of amounts capitalized (1)
Income taxes, net of refunds (2)
Non-cash investing and financing activities:
Increase in land, buildings and equipment
through accrued purchases
Net book value of assets distributed
in Four Corners separation, net of
deferred tax liabilities
Fiscal Year
2015
2016
2014
$140.8 $142.8 $117.5
$128.0 $290.7 $ 90.0
$ 14.9 $ 11.1 $ 24.4
$750.4 $
— $
—
(1) Interest paid in fiscal 2016 and 2015 includes approximately $68.7 million and $44.0
million, respectively, of payments associated with the retirement of long-term debt. See
Note 7.
(2) Income taxes paid in fiscal 2015 were higher primarily as a result of the gain recognized
on the sale of Red Lobster.
U.S. statutory rate
State and local income taxes,
net of federal tax benefits
Benefit of federal income tax credits
Other, net
Effective income tax rate
Fiscal Year
2015
2014
2016
35.0%
35.0%
35.0%
1.2
(12.5)
(3.7)
20.0%
(6.6)
(34.0)
(6.4)
(12.0)%
(2.7)
(30.3)
(6.9)
(4.9)%
As of May 29, 2016, we had estimated current prepaid state income
taxes of $17.0 million and current prepaid federal income taxes of
$29.1 million, which are included on our accompanying consolidated
balance sheets as prepaid income taxes.
DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 43
137248_DardenAR_FINCL.r2.indd 43
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
(in millions)
Accrued liabilities
Compensation and employee benefits
Deferred rent and interest income
Net operating loss, credit and charitable
contribution carryforwards
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Trademarks and other acquisition
related intangibles
Buildings and equipment
Capitalized software and other assets
Other
Gross deferred tax liabilities
Net deferred tax liabilities
May 29,
2016
May 31,
2015
$ 109.4
176.0
97.8
47.1
5.9
$ 436.2
(17.0)
$ 419.2
(226.4)
(238.6)
(34.0)
(12.1)
$(511.1)
$ (91.9)
$ 104.9
186.6
88.9
50.1
6.5
$ 437.0
(13.5)
$ 423.5
(220.6)
(337.1)
(28.1)
(22.1)
$(607.9)
$(184.4)
Net operating loss, credit and charitable contribution carryforwards
have the potential to expire. We have taken current and potential future expi-
rations into consideration when evaluating the need for valuation allowances
against these deferred tax assets. A valuation allowance for deferred tax
assets is provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Realization is dependent upon the
generation of future taxable income or the reversal of deferred tax liabilities
during the periods in which those temporary differences become deductible.
We consider the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future
taxable income over the periods in which our deferred tax assets are
deductible, we believe it is more-likely-than-not that we will realize the
benefits of these deductible differences, net of the existing valuation
allowances at May 29, 2016.
As of May 29, 2016, we had unrecognized tax benefits of $14.3 million,
which represents the aggregate tax effect of the differences between tax return
positions and benefits recognized in our consolidated financial statements,
all of which would favorably affect the effective tax rate if resolved in our
favor. Included in the balance of unrecognized tax benefits at May 29, 2016,
is $1.2 million related to tax positions for which it is reasonably possible
that the total amounts could change during the next 12 months based on
the outcome of examinations. The $1.2 million relates to items that would
impact our effective income tax rate.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits follows:
(in millions)
Balances at May 31, 2015
Additions related to current-year tax positions
Reductions related to prior-year tax positions
Reductions due to settlements with taxing authorities
Reductions to tax positions due to statute expiration
Balances at May 29, 2016
$13.7
3.9
(0.4)
(1.0)
(1.9)
$14.3
We recognize accrued interest related to unrecognized tax benefits in
income tax expense. Penalties, when incurred, are recognized in general and
administrative expense. Interest expense associated with unrecognized tax
benefits, excluding the release of accrued interest related to prior year matters
due to settlement or the lapse of the statute of limitations was as follows:
(in millions)
Interest expense on unrecognized
tax benefits
Fiscal Year
2015
2014
2016
$0.5
$1.1
$0.4
At May 29, 2016, we had $0.7 million accrued for the payment of interest
associated with unrecognized tax benefits.
For U.S. federal income tax purposes, we participate in the Internal
Revenue Service’s (IRS) Compliance Assurance Process (CAP), whereby
our U.S. federal income tax returns are reviewed by the IRS both prior to
and after their filing. Income tax returns are subject to audit by state and
local governments, generally years after the returns are filed. These returns
could be subject to material adjustments or differing interpretations of the
tax laws. The major jurisdictions in which the Company files income tax
returns include the U.S. federal jurisdiction, Canada, and all states in the
U.S. that have an income tax. With a few exceptions, the Company is no
longer subject to U.S. federal income tax examinations by tax authorities for
years before fiscal 2015, and state and local, or non-U.S. income tax exami-
nations by tax authorities for years before fiscal 2011.
44
137248_DardenAR_FINCL.r2.indd 44
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NOTE 14
RETIREMENT PLANS
DEFINED BENEFIT PLANS AND POSTRETIREMENT BENEFIT PLAN
We sponsor non-contributory defined benefit pension plans, for a group of salaried employees in the United States, in which benefits are based on various
formulas that include years of service and compensation factors; and for a group of hourly employees in the United States, in which a fixed level of benefits is
provided. As of December 2014, the plans were frozen and no additional service was eligible to be accrued under such plans. Pension plan assets are primarily
invested in U.S. and International equities as well as long-duration bonds and real estate investments. Our policy is to fund, at a minimum, the amount necessary
on an actuarial basis to provide for benefits in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended, and the
Internal Revenue Code (IRC), as amended by the Pension Protection Act of 2006. We also sponsor a non-contributory postretirement benefit plan that provides
health care benefits to our salaried retirees. Fundings related to the defined benefit pension plans and postretirement benefit plans, which are funded on a
pay-as-you-go basis, were as follows:
(in millions)
Defined benefit pension plans funding
Postretirement benefit plan funding
2016
$25.4
1.1
Fiscal Year
2015
$0.4
1.1
2014
$0.4
0.9
During the fourth quarter of fiscal 2016, we made a voluntary funding contribution of $25.0 million to our defined benefit pension plans. We expect to
contribute approximately $0.4 million to our defined benefit pension plans and approximately $1.3 million to our postretirement benefit plan during fiscal 2017.
We are required to recognize the over- or under-funded status of the plans as an asset or liability as measured by the difference between the fair value
of the plan assets and the benefit obligation and any unrecognized prior service costs and actuarial gains and losses as a component of accumulated other
comprehensive income (loss), net of tax.
The following provides a reconciliation of the changes in the plan benefit obligation, fair value of plan assets and the funded status of the plans as of
May 29, 2016 and May 31, 2015:
(in millions)
Change in Benefit Obligation:
Benefit obligation at beginning of period
Service cost
Interest cost
Plan amendments
Plan settlements
Participant contributions
Benefits paid
Actuarial loss
Benefit obligation at end of period
Change in Plan Assets:
Fair value at beginning of period
Actual return on plan assets
Employer contributions
Plan settlements
Participant contributions
Benefits paid
Fair value at end of period
Defined Benefit Plans
2016
2015
Postretirement Benefit Plan
2016
2015
$288.4
—
10.6
—
—
—
(15.9)
15.4
$298.5
$236.6
(4.1)
25.4
—
—
(15.9)
$242.0
$283.9
1.1
10.0
—
(15.8)
—
(8.6)
17.8
$288.4
$243.9
16.7
0.4
(15.8)
—
(8.6)
$236.6
$ 18.0
0.2
0.8
—
—
—
(1.1)
2.0
$ 19.9
$ —
—
1.1
—
—
(1.1)
$ —
$(19.9)
$ 38.5
0.5
1.0
(26.9)
—
0.4
(1.5)
6.0
$ 18.0
$ —
—
1.1
—
0.4
(1.5)
$ —
$(18.0)
Unfunded status at end of period
$ (56.5)
$ (51.8)
137248_DardenAR_FINCL.r2.indd 45
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
The following is a detail of the balance sheet components of each of our plans and a reconciliation of the amounts included in accumulated other
comprehensive income (loss):
(in millions)
May 29, 2016
May 31, 2015
May 29, 2016
May 31, 2015
Defined Benefit Plans
Postretirement Benefit Plan
Components of the Consolidated Balance Sheets:
Current liabilities
Noncurrent liabilities
Net amounts recognized
Amounts Recognized in Accumulated Other
Comprehensive Income (Loss), net of tax:
Prior service (cost) credit
Net actuarial gain (loss)
Net amounts recognized
$ —
56.5
$ 56.5
$ —
(87.9)
$(87.9)
$ —
51.8
$ 51.8
$ —
(68.7)
$(68.7)
$ 1.3
18.6
$19.9
$11.9
(9.5)
$ 2.4
$ 1.1
16.9
$18.0
$14.9
(9.0)
$ 5.9
The following is a summary of our accumulated and projected benefit obligations for our defined benefit plans:
(in millions)
Accumulated benefit obligation for all defined benefit plans
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation
Fair value of plan assets
Projected benefit obligations for all plans with projected benefit obligations in excess of plan assets
May 29, 2016
May 31, 2015
$298.5
$288.4
298.5
242.0
298.5
288.4
236.6
288.4
The following table presents the weighted-average assumptions used to determine benefit obligations and net expense:
Weighted-average assumptions used to determine
benefit obligations at May 29 and May 31 (1)
Discount rate
Rate of future compensation increases
Weighted-average assumptions used to determine
net expense for fiscal years ended May 29 and May 31 (2)
Discount rate
Expected long-term rate of return on plan assets
Rate of future compensation increases
(1) Determined as of the end of fiscal year.
(2) Determined as of the beginning of fiscal year.
Defined Benefit Plans
2016
2015
Postretirement Benefit Plan
2016
2015
4.18%
N/A
4.43%
6.50%
N/A
4.43%
N/A
4.41%
7.00%
3.86%
4.00%
N/A
4.22%
N/A
N/A
4.22%
N/A
4.26%
N/A
N/A
46
137248_DardenAR_FINCL.r2.indd 46
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
We set the discount rate assumption annually for each of the plans
at their valuation dates to reflect the yield of high-quality fixed-income debt
instruments, with lives that approximate the maturity of the plan benefits.
Additionally, for our mortality assumption as of fiscal year end, we selected
the most recent RP-2014 mortality tables and MP-2015 mortality improve-
ment scale to measure the benefit obligations.
The expected long-term rate of return on plan assets is based upon
several factors, including our historical assumptions compared with actual
results, an analysis of current market conditions, asset fund allocations
and the views of leading financial advisers and economists. We reduced
our expected long-term rate of return on plan assets for our defined benefit
plans from 8.0 percent used in fiscal 2014 to 7.0 percent used in fiscal
2015 and then to 6.5 percent for fiscal 2016 in connection with our current
expectations for long-term returns and target asset fund allocation. In devel-
oping our expected rate of return assumption, we have evaluated the actual
historical performance and long-term return projections of the plan assets,
which give consideration to the asset mix and the anticipated timing of the
pension plan outflows. We employ a total return investment approach whereby
a mix of equity and fixed-income investments are used to maximize the long-
term return of plan assets for what we consider a prudent level of risk. Our
historical 10-year, 15-year and 20-year rates of return on plan assets,
calculated using the geometric method average of returns, are approximately
6.8 percent, 7.6 percent and 8.7 percent, respectively, as of May 29, 2016.
Our Benefit Plans Committee sets the investment policy for the Defined
Benefit Plans and oversees the investment allocation, which includes setting
long-term strategic targets. Our overall investment strategy is to achieve
appropriate diversification through a mix of equity investments, which may
include U.S., international, and private equities, as well as long-duration bonds
and real estate investments. Currently, our target asset fund allocation is
40.0 percent high-quality, long-duration fixed-income securities, 31.0 percent
U.S. equities, 16.0 percent international equities, 10.0 percent absolute-
return funds and 3.0 percent real estate securities. The investment policy
establishes a re-balancing band around the established targets within which
the asset class weight is allowed to vary. Equity securities, absolute-return
funds, international equities and fixed-income securities include investments
in various industry sectors. Investments in real estate securities follow differ-
ent strategies designed to maximize returns, allow for diversification and
provide a hedge against inflation. Our current positioning is neutral on
investment style between value and growth companies and large and small
cap companies. We monitor our actual asset fund allocation to ensure that
it approximates our target allocation and believe that our long-term asset
fund allocation will continue to approximate our target allocation. Investments
held in the U.S. commingled fund, U.S. corporate securities, U.S. Treasury
securities, an international commingled fund, a global fixed-income com-
mingled fund and public sector utility securities represented approximately
31.1 percent, 15.6 percent, 10.7 percent, 10.3 percent, 10.1 percent and
6.1 percent respectively, of total plan assets and represents the only significant
concentrations of risk related to a single entity, sector, country, commodity or
investment fund. No other single sector concentration of assets exceeded
5.0 percent of total plan assets.
137248_DardenAR_FINCL.r2.indd 47
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
Components of net periodic benefit cost included in earnings are as follows:
(in millions)
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized prior service cost
Recognized net actuarial loss
Settlement loss recognized
Curtailment gain recognized
Net pension and postretirement cost (benefit)
2016
$ —
10.6
(14.5)
—
2.8
—
—
$ (1.1)
Defined Benefit Plans
2015
2014
$ 1.1
10.0
(15.2)
—
2.6
6.1
—
$ 4.6
$ 4.4
10.2
(17.1)
0.1
9.0
—
(0.5)
$ 6.1
Postretirement Benefit Plan
2015
2014
2016
$ 0.2
0.8
—
(4.8)
1.2
—
—
$(2.6)
$ 0.5
1.0
—
(2.8)
0.8
—
—
$(0.5)
$ 0.7
1.4
—
(0.1)
—
—
—
$ 2.0
The amortization of the net actuarial gain (loss) component of our fiscal 2017 net periodic benefit cost for the defined benefit plans and postretirement
benefit plan is expected to be approximately $(3.2) million and $(1.7) million, respectively.
The fair values of the defined benefit pension plans assets at their measurement dates of May 29, 2016 and May 31, 2015, are as follows:
(in millions)
Equity:
U.S. Commingled Funds (1)
International Commingled Fund (2)
Emerging Market Commingled Funds (3)
Emerging Market Mutual Fund (4)
Real Estate Commingled Fund (5)
Fixed-Income:
U.S. Treasury Securities (6)
U.S. Corporate Securities (6)
International Securities (6)
Public Sector Utility Securities (6)
Global Fixed-Income Commingled Fund (7)
U.S. Fixed-Income Commingled Funds (8)
Cash & Accruals
Total
Items Measured at Fair Value at May 29, 2016
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)
$ 75.3
24.9
6.8
5.9
7.5
25.9
37.8
6.3
14.8
24.4
10.3
2.1
$242.0
$ —
—
—
5.9
—
25.9
—
—
—
—
—
2.1
$33.9
$ 75.3
24.9
6.8
—
7.5
—
37.8
6.3
14.8
24.4
10.3
—
$208.1
$ —
—
—
—
—
—
—
—
—
—
—
—
$ —
48
137248_DardenAR_FINCL.r2.indd 48
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
(in millions)
Equity:
U.S. Commingled Funds (1)
International Commingled Fund (2)
Emerging Market Commingled Funds (3)
Real Estate Commingled Fund (5)
Fixed-Income:
U.S. Treasury Securities (6)
U.S. Corporate Securities (6)
International Securities (6)
Public Sector Utility Securities (6)
Global Fixed-Income Commingled Fund (7)
Cash & Accruals
Total
Items Measured at Fair Value at May 31, 2015
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)
$ 75.8
25.7
13.1
6.9
25.1
41.4
8.3
14.5
24.0
1.8
$236.6
$ —
—
—
—
25.1
—
—
—
—
1.8
$26.9
$ 75.8
25.7
13.1
6.9
—
41.4
8.3
14.5
24.0
—
$209.7
$ —
—
—
—
—
—
—
—
—
—
$ —
(1) U.S. commingled funds are comprised of investments in funds that purchase publicly traded U.S. common stock for total return purposes. Investments are valued using a unit price
or net asset value (NAV) based on the fair value of the underlying investments of the funds. There are no redemption restrictions associated with these funds.
(2) International commingled fund is comprised of investments in funds that purchase publicly traded non-U.S. common stock for total return purposes. Investments are valued using
a unit price or NAV based on the fair value of the underlying investments of the fund. There are no redemption restrictions associated with this fund.
(3) Emerging market commingled funds and developed market securities are comprised of investments in funds that purchase publicly traded common stock of non-U.S. companies in
emerging economies for total return purposes. Funds are valued using a unit price or NAV based on the fair value of the underlying investments of the funds. There are no redemption
restrictions associated with these funds.
(4) Emerging market mutual fund is comprised of securities associated with emerging markets and frontier markets. Fund is valued using quoted market prices from national exchanges.
(5) Real estate commingled fund is comprised of investments in funds that purchase publicly traded common stock of real estate companies for purposes of total return. These investments
are valued using a unit price or NAV based on the fair value of the underlying investments of the fund. There are no redemption restrictions associated with this fund.
(6) Fixed-income securities are comprised of investments in government and corporate debt securities. These securities are valued by the trustee at closing prices from national
exchanges or pricing vendors on the valuation date.
(7) Global fixed-income commingled fund is comprised of investments in U.S. and non-U.S. government fixed-income securities. Investments are valued using a unit price or NAV based
on the fair value of the underlying investments of the fund. There are no redemption restrictions associated with this fund.
(8) U.S. fixed-income commingled funds are comprised of a diversified portfolio of U.S. investment-grade corporate and government securities. Investments are valued using a unit price
or NAV based on the fair value of the underlying investments of the funds. There are no redemption restrictions associated with these funds.
The following benefit payments are expected to be paid between fiscal 2017 and fiscal 2026:
(in millions)
2017
2018
2019
2020
2021
2022-2026
Defined Benefit Plans
Postretirement Benefit Plan
$12.5
12.6
13.0
13.7
14.2
79.3
$1.3
1.3
1.3
1.3
1.3
6.2
137248_DardenAR_FINCL.r2.indd 49
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
POSTEMPLOYMENT SEVERANCE PLAN
We accrue for postemployment severance costs in our consolidated financial
statements and recognize actuarial gains and losses as well as prior service
credits related to our postemployment severance accrual as a component of
accumulated other comprehensive income (loss). As of May 29, 2016 and
May 31, 2015, $4.3 million and $2.3 million, respectively, of unrecognized
actuarial losses related to our postemployment severance plan were included
in accumulated other comprehensive income (loss) on a net of tax basis.
DEFINED CONTRIBUTION PLAN
We have a defined contribution (401(k)) plan covering most employees age 21
and older. We match contributions for participants with at least one year of
service up to 6 percent of compensation, based on our performance. The
match ranges from a minimum of $0.25 to $1.20 for each dollar contributed
by the participant. The plan had net assets of $643.3 million at May 29, 2016,
and $610.9 million at May 31, 2015. Expense recognized in fiscal 2016,
2015 and 2014 was $15.1 million, $0.6 million and $0.7 million, respectively.
Employees classified as “highly compensated” under the IRC are not eligible
to participate in this plan. Instead, highly compensated employees are
eligible to participate in a separate non-qualified deferred compensation
(FlexComp) plan. This plan allows eligible employees to defer the payment of
part of their annual salary and all or part of their annual bonus and provides
for awards that approximate the matching contributions and other amounts
that participants would have received had they been eligible to participate in
our defined contribution and defined benefit plans. Amounts payable to highly
compensated employees under the FlexComp plan totaled $194.0 million
and $209.6 million at May 29, 2016 and May 31, 2015, respectively. These
amounts are included in other current liabilities.
The defined contribution plan includes an Employee Stock Ownership
Plan (ESOP). The ESOP borrowed $16.9 million from us at a variable rate of
interest in July 1996. At May 29, 2016, the ESOP’s original debt to us had
a balance of $2.3 million with a variable rate of interest of 0.43 percent and
is due to be repaid no later than December 2019. At the end of fiscal 2005,
the ESOP borrowed an additional $1.6 million (Additional Loan) from us at a
variable interest rate and acquired an additional 0.05 million shares of our
common stock, which were held in suspense within the ESOP at that time.
At May 29, 2016, the Additional Loan had a balance of $1.2 million with a
variable interest rate of 0.63 percent and is due to be repaid no later than
December 2018. Compensation expense is recognized as contributions are
accrued. Fluctuations in our stock price impact the amount of expense to
be recognized. Contributions to the plan, plus the dividends accumulated on
unallocated shares held by the ESOP, are used to pay principal, interest and
expenses of the plan. As loan payments are made, common stock is allocated
to ESOP participants. In each of the fiscal years 2016, 2015 and 2014, the
ESOP used dividends received of $0.7 million, $1.1 million and $0.9 million,
respectively, and contributions received from us of $0.1 million, $0.0 million
and $0.0 million, respectively, to pay principal and interest on our debt.
ESOP shares are included in weighted-average common shares
outstanding for purposes of calculating net earnings per share with the
exception of those shares acquired under the Additional Loan, which are
accounted for in accordance with FASB ASC Subtopic 718-40, Employee
Stock Ownership Plans. Fluctuations in our stock price are recognized as
adjustments to common stock and surplus when the shares are committed
to be released. The ESOP shares acquired under the Additional Loan are
not considered outstanding until they are committed to be released and,
therefore, unreleased shares have been excluded for purposes of calculating
basic and diluted net earnings per share. As of May 29, 2016, the ESOP
shares included in the basic and diluted net earnings per share calculation
totaled 2.7 million shares, representing 2.2 million allocated shares and
0.5 million suspense shares.
50
137248_DardenAR_FINCL.r2.indd 50
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NOTE 15
STOCK-BASED COMPENSATION
In September 2015, our shareholders approved the Darden Restaurants, Inc.
2015 Omnibus Incentive Plan (2015 Plan). All equity grants subject to
ASC Topic 718 after the date of approval are made under the 2015 Plan.
No further equity grants after that date are permitted under the Darden
Restaurants, Inc. 2002 Stock Incentive Plan, the RARE Hospitality
International, Inc. Amended and Restated 2002 Long-Term Incentive Plan
or any other prior stock option and/or stock grant plans (collectively, the
Prior Plans). The 2015 Plan and the Prior Plans are administered by the
Compensation Committee of the Board of Directors. The 2015 Plan provides
for the issuance of up to 7.6 million common shares in connection with the
granting of non-qualified stock options, incentive stock options, stock
appreciation rights, restricted stock, restricted stock units (RSUs), stock
awards and other stock-based awards including performance stock units
and Darden stock units to employees, consultants and non-employee
directors. There are outstanding awards under the Prior Plans that may still
vest and be exercised in accordance with their terms. As of May 29, 2016,
approximately 6.6 million shares may be issued under outstanding awards
that were granted under the Prior Plans. Pursuant to the provisions of our
stock plans, in connection with the separation of Four Corners (see Note 2)
we made certain adjustments to the exercise price and number of our share-
based compensation awards, with the intention of preserving the intrinsic
value of the awards immediately prior to the separation. These adjustments
are reflected in the activity tables that follow. The separation-related adjust-
ments did not have a material impact on either compensation expense or the
potentially dilutive securities to be considered in the calculation of diluted
earnings per share of common stock.
Stock-based compensation expense included in continuing operations
was as follows:
(in millions)
Stock options (1)
Restricted stock/restricted stock units
Darden stock units
Cash-settled performance stock units (2)
Equity-settled performance stock units
Employee stock purchase plan
Director compensation program/other
Fiscal Year
2015
$20.9
2.0
13.3
14.5
—
1.3
1.7
$53.7
2014
$19.3
0.9
12.3
2.5
—
1.8
1.9
$38.7
2016
$ 7.8
1.6
15.9
6.5
2.7
1.1
1.7
$37.3
(1) The higher expense in fiscal 2015 and fiscal 2014 is primarily attributable to the
workforce reduction efforts (see Note 16) and a change in mix of equity awards granted.
(2) The higher expense in fiscal 2015 is primarily attributable to the workforce reduction
efforts (see Note 16) and the impact of improved financial performance.
The weighted-average fair value of non-qualified stock options and the
related assumptions used in the Black-Scholes model to record stock-based
compensation are as follows:
Stock Options
Granted in Fiscal Year
2015
2014
2016
Weighted-average fair value (1)
Dividend yield
Expected volatility of stock
Risk-free interest rate
Expected option life (in years)
Weighted-average exercise price
per share (1)
$12.72
3.3%
28.0%
1.9%
6.5
$ 9.41
4.5%
37.3%
2.1%
6.5
$10.71
4.4%
39.6%
1.9%
6.4
$64.85
$40.43
$42.93
(1) Weighted-averages were adjusted for the impact of the separation of Four Corners.
137248_DardenAR_FINCL.r2.indd 51
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
The following table presents a summary of our stock option activity as of and for the year ended May 29, 2016:
Outstanding beginning of period
Awards issued in conversion as a result of the
separation of Four Corners
Options granted
Options exercised
Options canceled
Outstanding end of period
Exercisable
Options
(in millions)
7.71
0.97
0.44
(2.61)
(0.19)
6.32
4.66
The total intrinsic value of options exercised during fiscal 2016, 2015
and 2014 was $73.6 million, $90.2 million and $39.9 million, respectively.
Cash received from option exercises during fiscal 2016, 2015 and 2014
was $94.4 million, $154.6 million and $50.9 million, respectively. Stock
options generally vest over 4 years and have a maximum contractual period
of 10 years from the date of grant. We settle employee stock option exercises
with authorized but unissued shares of Darden common stock or treasury
shares we have acquired through our ongoing share repurchase program.
As of May 29, 2016, there was $8.9 million of unrecognized
compensation cost related to unvested stock options granted under our
stock plans. This cost is expected to be recognized over a weighted-average
period of 1.5 years. The total fair value of stock options that vested during
fiscal 2016 was $7.0 million.
Restricted stock and RSUs are granted at a value equal to the market
price of our common stock on the date of grant. Restrictions lapse with regard
to restricted stock, and RSUs are settled in shares, at the end of their vesting
periods, which generally range from one to four years.
The following table presents a summary of our restricted stock and
RSU activity as of and for the fiscal year ended May 29, 2016:
Outstanding beginning of period
Shares granted
Shares vested
Shares canceled
Outstanding end of period
Shares
(in millions)
Weighted-Average
Grant Date Fair
Value Per Share
0.10
0.06
(0.03)
(0.02)
0.11
$51.19
62.38
47.95
61.97
$55.46
As of May 29, 2016, there was $2.9 million of unrecognized
compensation cost related to unvested restricted stock and RSUs granted
under our stock plans. This cost is expected to be recognized over a
weighted-average period of 2.3 years. The total fair value of restricted stock
and RSUs that vested during fiscal 2016, 2015 and 2014 was $1.6 million,
$4.8 million and $2.3 million, respectively.
Weighted-Average
Exercise Price
Per Share
$44.18
Weighted-Average
Remaining
Contractual Life (Yrs)
6.08
Aggregate
Intrinsic Value
(in millions)
$164.6
64.85
36.21
46.77
$42.04
$40.23
6.00
5.29
$160.6
$127.0
Darden stock units are granted at a value equal to the market price of
our common stock on the date of grant and will be settled in cash at the end
of their vesting periods, which range between four and five years, at the then
market price of our common stock. Compensation expense is measured
based on the market price of our common stock each period, is amortized
over the vesting period and the vested portion is carried as a liability on our
accompanying consolidated balance sheets. We also entered into equity for-
ward contracts to hedge the risk of changes in future cash flows associated
with the unvested, unrecognized Darden stock units granted (see Note 8 for
additional information).
The following table presents a summary of our Darden stock unit activity
as of and for the fiscal year ended May 29, 2016:
(All units settled in cash)
Outstanding beginning of period
Awards issued in conversion as a result
of the separation of Four Corners
Units granted
Units vested
Units canceled
Outstanding end of period
Units
(in millions)
Weighted-Average
Fair Value Per Unit
1.37
0.18
0.32
(0.34)
(0.10)
1.43
$65.54
64.75
63.91
47.75
$67.48
As of May 29, 2016, our total Darden stock unit liability was $50.7 million,
including $17.1 million recorded in other current liabilities and $33.6 million
recorded in other liabilities on our consolidated balance sheets. As of May 31,
2015, our total Darden stock unit liability was $46.1 million, including
$16.2 million recorded in other current liabilities and $29.9 million recorded
in other liabilities on our consolidated balance sheets.
Based on the value of our common stock as of May 29, 2016, there was
$33.7 million of unrecognized compensation cost related to Darden stock
units granted under our incentive plans. This cost is expected to be recognized
over a weighted-average period of 2.8 years. The total fair value of Darden
stock units that vested during fiscal 2016 was $21.5 million.
52
137248_DardenAR_FINCL.r2.indd 52
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
The following table presents a summary of our cash-settled performance
The following table presents a summary of our equity-settled
stock unit activity as of and for the fiscal year ended May 29, 2016:
(All units settled in cash)
Outstanding beginning of period
Awards issued in conversion as a result
of the separation of Four Corners
Units granted
Units vested
Units canceled
Performance unit adjustment
Outstanding end of period
Units
(in millions)
Weighted-Average
Fair Value Per Unit
0.38
$65.54
0.05
—
(0.17)
(0.10)
0.05
0.21
—
67.17
43.35
43.84
$67.48
As of May 29, 2016, our cash-settled performance stock unit liability
was $10.4 million, including $7.1 million recorded in other current liabilities
and $3.3 million recorded in other liabilities on our consolidated balance
sheets. As of May 31, 2015, our cash-settled performance stock unit liability
was $15.9 million, including $11.2 million recorded in other current liabilities
and $4.7 million recorded in other liabilities on our consolidated balance sheets.
Cash-settled performance stock units cliff vest three years from the
date of grant, where 0.0 percent to 150.0 percent of the entire grant is
earned or forfeited at the end of three years. The number of units that actually
vests will be determined for each year based on the achievement of Company
performance criteria set forth in the award agreement and may range from
0.0 percent to 150.0 percent of the annual target. All awards will be settled
in cash. The awards are measured based on the market price of our
common stock each period, are amortized over the service period and the
vested portion is carried as a liability in our accompanying consolidated
balance sheets. As of May 29, 2016, there was $2.4 million of unrecognized
compensation cost related to unvested performance stock units granted
under our stock plans. This cost is expected to be recognized over a
weighted-average period of 1.1 years. The total fair value of cash-settled
performance stock units that vested in fiscal 2016 was $11.4 million.
performance stock unit activity as of and for the fiscal year ended
May 29, 2016:
Outstanding beginning of period
Units granted
Units vested
Units canceled
Outstanding end of period
Units
(in millions)
Weighted-Average
Grant Date
Fair Value Per Unit
—
0.19
—
(0.02)
0.17
$
—
65.23
—
65.42
$65.21
Beginning in fiscal 2016, two new types of equity-settled
performance-based restricted stock units were issued, where 0.0 percent
to 150.0 percent of the entire grant is earned or forfeited at the end of the
respective vesting periods, which range from three to four years. The number
of units that actually vest will be determined based on the achievement of
performance criteria set forth in the award agreements and may range from
0.0 percent to 150.0 percent of target. Half of these performance awards,
which are measured against company-specific targets, are granted at a
value equal to the market price of our common stock on the date of grant,
and amortized over the service period. The other half of these awards, which
are measured against market-based targets, are measured based on esti-
mated fair value as of the date of grant using a Monte Carlo simulation, and
amortized over the service period. As of May 29, 2016, there was $8.5 mil-
lion of unrecognized compensation cost related to unvested equity-settled
performance stock units granted under our stock plans. This cost is expected
to be recognized over a weighted-average period of 2.7 years. The total fair
value of equity-settled performance stock units that vested during fiscal
2016 was $0.0 million.
We maintain an Employee Stock Purchase Plan to provide eligible
employees who have completed one year of service (excluding senior officers
subject to Section 16(b) of the Securities Exchange Act of 1934, and certain
other employees who are employed less than full time or own 5 percent or
more of our capital stock or that of any subsidiary) an opportunity to invest
up to $5.0 thousand per calendar quarter to purchase shares of our common
stock, subject to certain limitations. Under the plan, up to an aggregate of
3.6 million shares are available for purchase by employees at a purchase
price that is 85.0 percent of the fair market value of our common stock on
either the first or last trading day of each calendar quarter, whichever is
lower. Cash received from employees pursuant to the plan during fiscal 2016,
2015 and 2014 was $4.8 million, $5.2 million and $7.2 million, respectively.
137248_DardenAR_FINCL.r2.indd 53
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NOTE 16
WORKFORCE REDUCTION
During fiscal 2014 and 2015, we performed reviews of our operations and support structure resulting in changes in our growth plans and related support
structure needs. As a result, we had workforce reductions and program spending cuts throughout fiscal 2014 and 2015. In accordance with these actions,
we incurred employee termination benefits costs and other costs, which are included in general and administrative expenses in our consolidated statement
of earnings as follows:
(in millions)
Employee termination benefits (1)
Other (2)
Total
(1) Includes salary and stock-based compensation expense.
(2) Includes postemployment medical, outplacement and relocation costs.
(3) Reflects subsequent adjustments to the fiscal 2014 and 2015 plans based on updated information.
2016 (3)
$ 0.2
(0.1)
$ 0.1
Fiscal Year
2015
$37.4
0.5
$37.9
2014
$17.2
0.9
$18.1
The following table summarizes the accrued employee termination benefits and other costs, which are primarily included in other current liabilities on our
consolidated balance sheet as of May 29, 2016:
(in millions)
Employee termination benefits (1)
Other
Total
Fiscal Year
2014 Plans
Fiscal Year
2015 Plans
$13.4
1.1
$14.5
$24.2
0.6
$24.8
Payments
Adjustments
$(35.9)
(1.3)
$(37.2)
$ 0.9
(0.3)
$ 0.6
Balance at
May 29, 2016
$2.6
0.1
$2.7
(1) Excludes costs associated with stock options and restricted stock that will be settled in shares upon vesting.
We expect the remaining liability to be paid by the second quarter of fiscal 2017.
NOTE 17
COMMITMENTS AND CONTINGENCIES
As collateral for performance on contracts and as credit guarantees to banks
and insurers, we were contingently liable for guarantees of subsidiary obliga-
tions under standby letters of credit. At May 29, 2016, and May 31, 2015,
we had $116.5 million and $124.2 million, respectively, of standby letters of
credit related to workers’ compensation and general liabilities accrued in
our consolidated financial statements. At May 29, 2016, and May 31, 2015,
we had $8.4 million and $14.0 million, respectively, of standby letters of
credit related to contractual operating lease obligations and other payments.
All standby letters of credit are renewable annually.
At May 29, 2016, and May 31, 2015, we had $154.2 million and
$147.7 million, respectively, of guarantees associated with leased properties
that have been assigned to third parties. These amounts represent the maxi-
mum potential amount of future payments under the guarantees. The fair
value of these potential payments discounted at our weighted-average cost
of capital at May 29, 2016, and May 31, 2015, amounted to $119.3 million
and $113.4 million, respectively. We did not record a liability for the
guarantees, as the likelihood of the third parties defaulting on the assignment
agreements was deemed to be remote. In the event of default by a third
party, the indemnity and default clauses in our assignment agreements
govern our ability to recover from and pursue the third party for damages
incurred as a result of its default. We do not hold any third-party assets as
collateral related to these assignment agreements, except to the extent that
the assignment allows us to repossess the building and personal property.
These guarantees expire over their respective lease terms, which range from
fiscal 2017 through fiscal 2027.
We are subject to private lawsuits, administrative proceedings and
claims that arise in the ordinary course of our business. A number of these
lawsuits, proceedings and claims may exist at any given time. These matters
typically involve claims from guests, employees and others related to
operational issues common to the restaurant industry, and can also involve
infringement of, or challenges to, our trademarks. While the resolution of a
lawsuit, proceeding or claim may have an impact on our financial results for
the period in which it is resolved, we believe that the final disposition of the
lawsuits, proceedings and claims in which we are currently involved, either
individually or in the aggregate, will not have a material adverse effect on our
financial position, results of operations or liquidity.
NOTE 18
SUBSEQUENT EVENT
On June 29, 2016, the Board of Directors declared a cash dividend of
$0.56 per share to be paid August 1, 2016, to all shareholders of record
as of the close of business on July 11, 2016.
54
137248_DardenAR_FINCL.r2.indd 54
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
NOTE 19
QUARTERLY DATA (UNAUDITED)
The following table summarizes unaudited quarterly data for fiscal 2016 and fiscal 2015:
(in millions, except per share data)
Sales
Earnings before income taxes
Earnings from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net earnings
Basic net earnings per share:
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Diluted net earnings per share:
Earnings from continuing operations
Earnings (loss) from discontinued operations
Net earnings
Dividends paid per share
Stock price:
High
Low
(in millions, except per share data)
Sales
Earnings (loss) before income taxes
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net earnings (loss)
Basic net earnings per share:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations
Net earnings (loss)
Diluted net earnings per share:
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations
Net earnings (loss)
Dividends paid per share
Stock price:
High
Low
Aug. 30
$1,687.0
111.8
81.0
5.4
86.4
0.64
0.04
0.68
0.63
0.04
0.67
0.55
75.60
63.68
Aug. 24
$1,595.8
(43.7)
(19.3)
522.5
503.2
(0.14)
3.95
3.81
(0.14)
3.95
3.81
0.55
51.21
43.56
Fiscal 2016 – Quarters Ended
Feb. 28
May 29
Nov. 29
$1,608.8
24.4
30.1
13.1
43.2
$1,847.5
138.1
108.2
(2.4)
105.8
$1,790.2
175.4
140.4
(0.8)
139.6
0.23
0.11
0.34
0.23
0.10
0.33
0.55
72.11
53.38
0.85
(0.02)
0.83
0.84
(0.02)
0.82
0.50
64.90
55.01
1.11
(0.01)
1.10
1.10
(0.01)
1.09
0.50
68.62
61.90
Total
$6,933.5
449.7
359.7
15.3
375.0
2.82
0.12
2.94
2.78
0.12
2.90
2.10
75.60
53.38
Fiscal 2015 – Quarters Ended
Feb. 22
May 31 (1)
Nov. 23
$1,559.0
(54.6)
(30.8)
(2.0)
(32.8)
$1,730.9
147.1
128.4
5.4
133.8
$1,878.3
126.5
118.1
(12.8)
105.3
Total (2)
$6,764.0
175.3
196.4
513.1
709.5
(0.24)
(0.02)
(0.26)
(0.24)
(0.02)
(0.26)
0.55
56.85
46.70
1.03
0.04
1.07
1.01
0.04
1.05
0.55
62.65
54.96
0.94
(0.11)
0.83
0.92
(0.10)
0.82
0.55
70.38
61.31
1.54
4.02
5.56
1.51
3.96
5.47
2.20
70.38
43.56
(1) The quarter ended May 31, 2015, consisted of 14 weeks, while all other quarters consisted of 13 weeks.
(2) The year ended May 31, 2015, consisted of 53 weeks, while the year ended May 29, 2016, consisted of 52 weeks.
137248_DardenAR_FINCL.r2.indd 55
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDARDEN
FIVE-YEAR FINANCIAL SUMMARY
DARDEN
(Dollars in millions, except per share data)
Operating Results (1)
Sales
Costs and expenses:
Food and beverage
Restaurant labor
Restaurant expenses
Marketing expenses
General and administrative
Depreciation and amortization
Impairments and disposal of assets, net
Total operating costs and expenses
Operating income
Interest, net
Earnings before income taxes
Income tax expense (benefit)
Earnings from continuing operations
Earnings from discontinued operations, net of tax expense
of $3.4, $344.8, $32.3, $72.7 and $84.9
Net earnings
Basic net earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Diluted net earnings per share:
Earnings from continuing operations
Earnings from discontinued operations
Net earnings
Average number of common shares outstanding:
Basic
Diluted
Financial Position
Total assets
Land, buildings and equipment, net
Working capital (deficit)
Long-term debt, less current portion
Stockholders’ equity
Stockholders’ equity per outstanding share
Other Statistics
Cash flows from operations (1)
Capital expenditures (1)
Dividends paid
Dividends paid per share
Advertising expense (1)
Stock price:
High
Low
Close
Number of employees
Number of restaurants (1)
May 29,
2016
May 31,
2015 (2)
Fiscal Year Ended
May 25,
2014
May 26,
2013
May 27,
2012
$ 6,933.5
$ 6,764.0
$ 6,285.6
$ 5,921.0
$ 5,327.1
2,039.7
2,189.2
1,163.5
238.0
384.9
290.2
5.8
$ 6,311.3
622.2
172.5
449.7
90.0
$ 359.7
15.3
$ 375.0
$ 2.82
$ 0.12
$ 2.94
$ 2.78
$ 0.12
$ 2.90
127.4
129.3
$ 4,582.6
$ 2,041.6
$ (366.8)
$ 440.0
$ 1,952.0
$ 15.47
$ 820.4
$ 228.3
$ 268.2
$ 2.10
$ 238.0
$ 75.60
$ 53.38
$ 67.48
150,942
1,536
2,085.1
2,135.6
1,120.8
243.3
430.2
319.3
62.1
$ 6,396.4
367.6
192.3
175.3
(21.1)
$ 196.4
513.1
$ 709.5
$ 1.54
$ 4.02
$ 5.56
$ 1.51
$ 3.96
$ 5.47
1,892.2
2,017.6
1,080.7
252.3
413.1
304.4
16.4
$ 5,976.7
308.9
134.3
174.6
(8.6)
$ 183.2
103.0
$ 286.2
$ 1.40
$ 0.78
$ 2.18
$ 1.38
$ 0.77
$ 2.15
127.7
129.7
131.0
133.2
$ 5,994.7
$ 3,215.8
$ (140.3)
$ 1,452.3
$ 2,333.5
$ 18.42
$ 874.3
$ 296.5
$ 278.9
$ 2.20
$ 243.3
$ 70.38
$ 43.56
$ 65.54
148,892
1,534
$ 7,082.7
$ 3,381.0
$ 357.3
$ 2,463.4
$ 2,156.9
$ 16.30
$ 555.4
$ 414.8
$ 288.3
$ 2.20
$ 252.3
$ 55.25
$ 44.78
$ 49.55
206,489
1,501
1,743.6
1,892.6
980.4
241.1
384.1
278.3
0.9
$ 5,521.0
400.0
126.0
274.0
36.7
$ 237.3
174.6
$ 411.9
$ 1.84
$ 1.35
$ 3.19
$ 1.80
$ 1.33
$ 3.13
129.0
131.6
$ 6,917.3
$ 4,391.1
$ (652.0)
$ 2,476.6
$ 2,059.5
$ 15.81
$ 594.4
$ 510.1
$ 258.2
$ 2.00
$ 241.1
$ 57.93
$ 44.11
$ 52.83
206,578
1,431
1,553.7
1,683.6
851.0
215.6
324.9
241.3
(0.2)
$ 4,869.9
457.2
102.1
355.1
75.9
$ 279.2
196.3
$ 475.5
$ 2.15
$ 1.50
$ 3.65
$ 2.10
$ 1.47
$ 3.57
130.1
133.2
$ 5,928.3
$ 3,951.3
$(1,017.2)
$ 1,437.8
$ 1,842.0
$ 14.28
$ 513.5
$ 457.6
$ 223.9
$ 1.72
$ 215.6
$ 55.84
$ 40.69
$ 53.06
181,468
1,289
(1) Consistent with our consolidated financial statements, information has been presented on a continuing operations basis. Accordingly, the activities related to Red Lobster, two closed
company-owned synergy restaurants, Smokey Bones, Rocky River Grillhouse and the nine Bahama Breeze restaurants closed or sold in fiscal 2007 and 2008 have been excluded.
(2) Fiscal year 2015 consisted of 53 weeks, while all other fiscal years consisted of 52 weeks.
56
137248_DardenAR_FINCL.r2.indd 56
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NON-GAAP RECONCILIATIONS
DARDEN
Reported to Adjusted Diluted Net Earnings Per Share Reconciliations
ANNUAL
Reported Diluted Net EPS from Continuing Operations
Real Estate Plan Implementation
Debt Retirement Costs
Strategic Action Plan and Other Costs
Adjusted Diluted Net EPS from Continuing Operations
Remove 53rd Week Impact
Adjusted Diluted Net EPS from Continuing Operations (52-Week Basis)
* Fiscal 2015 consisted of 53 weeks.
Fiscal 2014
Fiscal 2015*
Fiscal 2016
$ 1.38
—
—
0.33
$ 1.71
—
$ 1.71
$ 1.51
—
0.42
0.70
$ 2.63
(0.07)
$ 2.56
$ 2.78
0.26
0.51
(0.02)
$ 3.53
—
$ 3.53
Fiscal 2016 vs.
Fiscal 2015
Percent Change
34.2%
37.9%
137248_DardenAR_FINCL.r2.indd 57
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DARDEN RESTAURANTS, INC. • 2016 ANNUAL REPORT 57
SHAREHOLDER INFORMATION
Company Headquarters
Darden Restaurants, Inc.
1000 Darden Center Drive
Orlando, FL 32837
(407) 245-4000
Mailing Address
Darden Restaurants, Inc.
P.O. Box 695011
Orlando, FL 32869-5011
Website Addresses
www.darden.com
www.olivegarden.com
www.longhornsteakhouse.com
www.bahamabreeze.com
www.seasons52.com
www.thecapitalgrille.com
www.eddiev.com
www.yardhouse.com
Independent Registered Public
Accounting Firm
KPMG LLP
111 North Orange Avenue
Suite 1600
Orlando, FL 32801
Phone: (407) 423-3426
Markets
New York Stock Exchange
Stock Exchange Symbol: DRI
Notice of Annual Meeting
The Annual Meeting of Shareholders will be held
at 10:00 a.m. EDT on Thursday, September 29,
2016, at Hilton Orlando, 6001 Destination
Parkway, Orlando, Florida 32819. As of the close of
business on June 30, 2016, there were 33,973
registered shareholders of record.
Forward-Looking Statements
This report contains forward-looking statements.
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.
Additional cautionary and other information with
respect to these forward-looking statements is set
forth in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations –
Forward-Looking Statements.”
C In alignment with Darden’s commitment to
sustainability, parts of this report have been printed
on paper that is manufactured with 10% post-
consumer waste. These forests are certified to a
responsibly managed forest management standard.
Diversity is both a core value and a competitive
advantage for Darden. As an example of our
continuing commitment to diversity, this annual
report was designed by a woman-owned company,
Corporate Reports Inc., Atlanta, GA. Printed by
ColorGraphics, Los Angeles, CA.
Transfer Agent, Registrar and
Dividend Payments
Wells Fargo Shareowner Services
1110 Centre Pointe Curve, Suite 101
MAC N9173-010
Mendota Heights, MN 55120
Phone: (877) 602-7596 or (651) 450-4064
www.shareowneronline.com
Address correspondence as appropriate to the
attention of:
Address Changes
Stock Transfers
Shareholder Services
Form 10-K Report
Shareholders may request a free copy
of our Form 10-K, including schedules
but excluding exhibits, by writing to:
Investor Relations
Darden Restaurants, Inc.
P.O. Box 695011
Orlando, FL 32869-5011
Shareholder Reports/Investor Inquiries
Shareholders seeking information about Darden
Restaurants, Inc. are invited to contact the
Investor Relations Department at (407) 245-4000.
Shareholders may request to receive, free of
charge, copies of quarterly earnings releases.
Information may also be obtained by visiting
our website at www.darden.com. Annual reports,
SEC filings, press releases and other Company
news are readily available on the website.
Our website also includes corporate governance
information, including our Corporate Governance
Guidelines, Code of Business Conduct and Ethics,
and Board committee charters, including the charters
for our Audit, Compensation and Nominating and
Governance Committees.
Stock Performance
Comparison of Five-Year Total Return for Darden Restaurants, Inc.,
S&P 500 Stock Index and S&P Restaurants Index
• Darden Restaurants, Inc. • S&P 500 Stock Index • S&P Restaurants Index
$300
$200
$100
$ 0
$194.68
$176.24
$170.69
Darden
Restaurants, Inc.
$100.00
S&P 500
Stock Index
$100.00
S&P
Restaurants Index
$100.00
$108.61
$111.08
$107.85
$148.51
$176.24
$100.09
$126.72
$148.13
$167.67
$170.69
$124.51
$136.30
$148.48
$174.24
$194.68
2011
2012
2013
2014
2015
2016
May-11
May-12
May-13
May-14
May-14
May-16
On November 9, 2015 we completed the spin-off of Four Corners Property Trust, Inc. (FCPT) with the pro rata distribution
of one share of FCPT common stock for every three shares of Darden common stock to Darden shareholders. We reflect
the effect of the spin-off of FCPT in the cumulative total return of our common stock as a reinvested dividend. See Note 2
to our Consolidated Financial Statements for further details..
58
137248_DardenAR_FINCL.r2.indd 58
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COMMITTED TO
Our People
We are a restaurant company, so food is always top of mind. But what
we do starts with people. Our 150,000 team members are what make
the difference at Darden — they are at the heart of everything we do.
That’s why we strive to hire the best and create an inclusive environment
where diversity of thought and background is valued — everyone is
treated with respect, and everyone has opportunities to develop and
grow their careers.
We’re extremely proud of our results-oriented people culture — one
filled with energy, passion, opportunity and fun. We work hard to
achieve our goals, and we all win together when we do.
We succeed because of our people,
and with our success comes great
opportunity for our team members.
That’s why who we hire is one of our
most important decisions, and why we
invest in our team members’ careers
every step of the way. We provide our
people with the tools they need to
succeed in their current roles, to grow
personally and professionally, and to
deliver exceptional experiences to our
guests each day.
And the results speak for themselves:
• Our hourly team members, on average, earn nearly $15/hour
• We promote nearly 1,000 team members a year into management
• 50% of all our Restaurant Managers are promoted from hourly positions
• 99% of our General Managers and Managing Partners are promoted from within
• 99% of all Directors of Operations are internal promotions
With more than 7,000 leadership
positions across our restaurants, we
provide a pathway for thousands of
individuals throughout the country
to advance from entry-level jobs into
management roles. It’s one of the
reasons Darden enjoys the lowest
annual turnover rates for hourly team
members in the industry – 30 points
below the industry average.
Board of Directors
DARDEN
Margaret Shân Atkins
Co-Founder and Managing Director
of Chetrum Capital LLC, a private
investment firm.
Bradley D. Blum
Founder and Owner of BLUM Enterprises,
LLC, a restaurant company focused on
restaurant strategy, concept develop-
ment and investing.
Jean M. Birch
Retired Chief Executive Officer and
President of Birch Company, LLC, a
specialized strategy and leadership
consulting firm focused on the
hospitality industry.
James P. Fogarty
Former Chief Executive Officer
of Orchard Brands, a multi-channel
marketer of apparel and home products.
Cynthia T. Jamison
Chairman of the Board of Directors of
Tractor Supply Company, the largest
operator of retail farm and ranch stores.
Eugene I. Lee, Jr.
President
Chief Executive Officer
Darden Restaurants, Inc.
Lionel L. Nowell, III
Former Senior Vice President and
Treasurer of PepsiCo, Inc., one of the
world’s largest food and beverage
companies.
Charles M. Sonsteby
Chairman of the Board
Darden Restaurants, Inc.
Vice Chairman, Chief Financial Officer
and Chief Administrative Officer of
The Michaels Companies, Inc.,
the largest arts and crafts specialty
retailer in North America.
William S. Simon
Former President and
Chief Executive Officer of
Walmart U.S.
Alan N. Stillman
Founder and former Chief Executive
Officer of The Smith & Wollensky
Restaurant Group, Inc., which develops
and operates high-end, high-volume
restaurants in major cities across the
United States.
137248_DardenAR_CVR.r2.indd 2
8/4/16 12:39 PM
1000 Darden Center Drive
Orlando, FL 32837
407-245-4000
www.darden.com
2
0
1
6
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,
OUR
COMMITMENT
TO YOU
2016 ANNUAL REPORT
I
N
C
.
OUR RESTAURANTS
Where people of all ages gather to enjoy the
abundance of great Italian food and wine and
are treated like family.
$3.8 billion in sales
843 units
The place for people who crave a
flavorful, boldly seasoned steak in a
down-to-earth setting that feels like
a rancher’s home.
$1.6 billion in sales
481 units
The restaurant of choice for
conscientious adults celebrating
the goodness of life without
compromise.
$254 million in sales
40 units
The destination to disconnect,
lighten up and have fun.
$218 million in sales
37 units
The modern American gathering place
where beer and food lovers unite.
$507 million in sales
65 units
The ultimate relationship brand,
offering a welcoming and club-like
dining experience.
$408 million in sales
54 units
The destination for a glamorous
night out.
®
$106 million in sales
16 units
137248_DardenAR_CVR.r2.indd 1
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