Red Lobster 2000 Annual Report Download - page 37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DARDEN RESTAURANTS
certain Darden inventory items are sold to these com-
panies at a predetermined price when they are shipped
to their storage facilities. These items are repurchased at
the same price by Darden when the inventory is subse-
quently delivered to Company restaurants. These trans-
actions do not impact the consolidated statements of
earnings. Receivables from national distribution com-
panies amounted to $24,692 and $12,022 at May 28,
2000, and May 30, 1999, respectively.
Note 3
Restructuring and
Asset Impairment Credit, Net
Darden recorded asset impairment charges of $2,629
and $158,987 in 2000 and 1997, respectively, repre-
senting the difference between fair value and carrying
value of impaired assets. The asset impairment charges
relate to low-performing restaurant properties and
other long-lived assets, including restaurants that have
been closed. Fair value is generally determined based
on appraisals or sales prices of comparable properties.
In connection with the closing of certain restaurant
properties, the Company recorded other restructuring
expenses of $70,900 in 1997. The related liabilities are
included in other current liabilities in the accompany-
ing consolidated balance sheets and were established to
accrue for estimated carrying costs of buildings and
equipment prior to disposal, employee severance costs,
lease buy-out provisions and other costs associated with
the restructuring action. All restaurant closings under
this restructuring action have been completed. The
remaining restructuring actions, including disposal of
the closed owned properties and the lease buy-outs
related to the closed leased properties, are expected to
be substantially completed during 2001.
During 2000 and 1999, the Company reversed
portions of its 1997 restructuring liability totaling $8,560
and $8,461, respectively. The reversals primarily resulted
from favorable lease terminations in 2000 and the
Company’s decision in 1999 to close fewer restaurants
than identified for closure as part of the restructuring
action. No restructuring or asset impairment expense or
credit was charged to operating results during 1998.
The components of the restructuring and asset
impairment credit, net and the after-tax and earnings
per share effects of these items for 2000 and 1999 are
as follows:
Fiscal Year
2000 1999
Carrying costs of buildings and
equipment prior to disposal and
employee severance costs $$(3,907)
Lease buy-out provisions (8,560) (4,554)
Subtotal (8,560) (8,461)
Impairment of restaurant properties 2,629
Total restructuring and asset
impairment credit, net (5,931) (8,461)
Less related income tax effect 2,308 3,236
Restructuring and asset impairment
credit, net, net of income taxes (3,623) $(5,225)
Earnings per share effect –
basic and diluted $ (0.03) $ (0.04)
As of May 28, 2000, approximately $39,800 of
carrying, employee severance and lease buy-out costs
associated with the 1997 restructuring had been paid
and charged against the restructuring liability.
A summary of restructuring liability activity for
2000 is as follows:
Balance at May 30, 1999 $ 37,139
Non-cash Adjustments:
Restructuring credit (8,560)
Reclassification of asset impairment
(described below) (12,000)
Cash Payments:
Carrying costs and employee severance payments (2,744)
Lease payments including lease buy-outs (5,271)
Balance at May 28, 2000 $ 8,564
Asset impairment charges of $12,000 included
in the May 30, 1999 restructuring liability have been
reclassified to reduce the carrying value of land for all
periods presented. This reclassification related to asset
impairment charges recorded in 1997 for long-lived
assets associated with Canadian restaurants.
34 DARDEN RESTAURANTS 2000 ANNUAL REPORT