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Know a good place?
2001 ANNUAL REPORT
Darden Restaurants, Inc. 2001 Annual Report

Table of contents

  • Page 1
    Darden Restaurants, Inc. Know a good place? 2001 Annual Report 2001 ANNUAL REPORT

  • Page 2
    ... is headquartered in Orlando, Florida. The Company trades on the New York Stock Exchange under the symbol "DRI." Darden's newest concept, Smokey Bones BBQ Sports Bar, was introduced in September 1999. Having completed a second successful test phase, the restaurant will begin national expansion in...

  • Page 3
    ... and close-tohome places, some plainly visible and out-of-sight places, some physical locations and state-of-mind places - places that make our Company and our restaurants not just good, but great. After you learn what's happening at Darden, the next time someone asks you, "Know a good place?" you...

  • Page 4
    ...Lee Chairman and Chief Executive Officer To Our Shareholders, Employees, and Guests: Fiscal 2001 was Darden's best year ever. Building on our record financial results in the prior year, this year's outstanding performance reflects wide-ranging and fundamental improvements in our businesses. It also...

  • Page 5
    ... "getting better" to "becoming the best," Darden's strategy remains the same. We intend to: • Keep Red Lobster and Olive Garden fresh and vibrant, enabling these well-established businesses to provide sustained same-restaurant sales growth and engage in steady new restaurant expansion. • Expand...

  • Page 6
    ... resources to building the leadership skills we need to continue growing Darden. This includes specifically tailored leadership assessment and development processes for leaders throughout the organization. From the frontline employees and managers in our restaurants, to the executive teams...

  • Page 7
    ... Great Place Melba Bassett's 50th Birthday Party Melba personifies one of the most compelling growth drivers for Darden and the casual dining industry - terrific demographics. Over the next decade, the industry's most frequent diners will be the fastest growing segments of the population. The number...

  • Page 8
    .... Industry-leading restaurant concepts, fresh menus, and innovative recipes - it's a lot easier to accomplish when you start by asking questions and listening to the answers. A Great Place: The Test Kitchen In The Culinary Center 6 The pudding: Jerk chicken with fresh asparagus and mushrooms in...

  • Page 9
    ... grade credit ratings and flexible access to capital - also enables us to invest in keeping Red Lobster and Olive Garden fresh and vibrant, expanding each of our existing companies, and developing new businesses to propel growth for years to come. "Six years ago, DRI spun-out from General Mills...

  • Page 10
    ... where many of the chefs from our restaurants train in an authentic Tuscan environment. Whether it's helping us enter a new seafood market through Thai Royal, improving our loss8 prevention program with Liberty Mutual, or developing a new recipe alongside Kettle Cooked Foods, we have these and many...

  • Page 11
    ... Place: A Training Room at 7101 Lake Ellenor Drive It goes without saying that a great restaurant must have great service and hospitality. But what's the best way to achieve this goal? Simple. Create a great place to work; attract skilled employees by offering attractive compensation and benefits...

  • Page 12
    ... focus on beverages. It's all paying off in the form of higher sales for cocktails and specialty drinks. In restaurants with new bars, drink sales increased 14 percent over the prior year. To date, the remodeled bar space is in 137 of 661 Red Lobster locations, which translates into a significant...

  • Page 13
    ... Place: A Tuscan Farmhouse In Sanford, Florida With the successful repositioning of the Company, Olive Garden is opening new restaurants in even more communities to further our already strong growth, and the centerpiece is an exciting new Olive Garden prototype. The new restaurants are the closest...

  • Page 14
    ... great ambiance extends to great food consisting of critically acclaimed island dishes. Bahama Breeze had 21 locations at the end of fiscal 2001, and with every restaurant generating about double the sales of the average casual dining restaurant, it's positioned to be a major growth contributor. 12

  • Page 15
    A Great Place: Booth #10 at Smokey Bones During The NBA Finals A slam dunk? We think so! As our newest casual dining concept completed the second phase of testing and prepares for national expansion, we're feeling really good about it. Smokey Bones BBQ Sports Bar combines one of the nation's ...

  • Page 16
    ... safe, positive places where kids of all races, religions and cultures can go to have fun, learn, grow, and build life-long relationships. The idea is to nurture our youth, especially those from disadvantaged circumstances, and help them realize their full potential. It's an idea Darden Restaurants...

  • Page 17
    ... manage their own business, and the satisfaction of measuring and being rewarded for their success makes it a great place to work. For our shareholders, strong restaurant-by-restaurant sales and profitability puts us closer to our long-term goals of increasing market share in a growing industry...

  • Page 18
    The Best Place To Dine To Work To Invest

  • Page 19
    ... and Results of Operations Report of Management Responsibilities Independent Auditors' Report Consolidated Statements of Earnings Consolidated Balance Sheets Consolidated Statements of Changes In Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 17

  • Page 20
    ... in the U.S. and Canada are owned and operated by the Company with no franchising. This discussion should be read in conjunction with the business information and the consolidated financial statements and related notes found elsewhere in this report. Darden's fiscal year ends on the last Sunday...

  • Page 21
    .... The Company intends to manage its business and its financial ratios to maintain an investment grade bond rating, which allows access to financing at reasonable costs. Currently, the Company's publicly issued long-term debt carries "Baa1" (Moody's Investors Service), "BBB+" (Standard & Poor...

  • Page 22
    ... shares have been purchased under the various stock buy-back plan authorizations. The Company generated $421 million, $343 million, and $358 million in funds from operating activities during 2001, 2000, and 1999, respectively. The Company requires capital principally for building new restaurants...

  • Page 23
    ...; the ability of the casual dining segment to weather economic downturns; demographic trends; the Company's expansion plans and business development activities; and the Company's long-term goals of increasing market share, expanding margins on incremental sales, and growing earnings 15 percent to...

  • Page 24
    ... and Chief Executive Officer INDEPENDENT AUDITORS' REPORT 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 27, 2001, and May 28, 2000, and the related consolidated...

  • Page 25
    ...Restaurant expenses Total Cost of Sales Selling, general, and administrative Depreciation and amortization Interest, net Restructuring and asset impairment credit, net Total Costs and Expenses Earnings before income taxes Income taxes Net Earnings Net Earnings per Share: Basic Diluted Average Number...

  • Page 26
    ...issued and outstanding Retained earnings Treasury stock, 51,919 and 43,785 shares, at cost Accumulated other comprehensive income Unearned compensation Total Stockholders' Equity Total Liabilities and Stockholders' Equity See accompanying notes to consolidated financial statements. $ 61,814 32,870...

  • Page 27
    ... compensation ESOP note receivable repayments Income tax benefit credited to equity 15,287 Purchases of common stock for treasury (8,440 shares) Issuance of treasury stock under Employee Stock Purchase and other plans (224 shares) 1,661 Balance at May 27, 2001 $1,405,799 $ 48,327 $ (239,876) 140...

  • Page 28
    ...Change in current assets and liabilities Change in other liabilities (Gain) loss on disposal of land, buildings, and equipment Deferred income taxes Income tax benefit credited to equity Non-cash restructuring and asset impairment credit, net Other, net Net Cash Provided by Operating Activities Cash...

  • Page 29
    ... currency for Darden's Canadian restaurant operations. Assets and liabilities denominated in Canadian dollars 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...

  • Page 30
    ... weighted average shares. The Company may, from time to time, use financial and commodities derivatives in the management of interest rate and commodities pricing risks that are inherent in its business operations. The Company may also use financial derivatives as part of its stock repurchase...

  • Page 31
    ..., 2001, the Company operated 1,168 Red Lobster, Olive Garden, Bahama Breeze, and Smokey Bones BBQ Sports Bar restaurants in North America as part of a single operating segment. The restaurants operate principally in the United States within the In June 1998, the Financial Accounting Standards Board...

  • Page 32
    ... 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...

  • Page 33
    .... Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of May 27, 2001, and May 28, 2000, no valuation allowance has been recognized in the accompanying consolidated financial statements...

  • Page 34
    ... in right of payment to all of the Company's future subordinated debt. In November 2000, Darden filed a prospectus supplement with the SEC to offer up to $350,000 of mediumterm notes from time to time as part of the shelf registration process referred to above. In April 2001, under this program, the...

  • Page 35
    ...on quoted market prices or, if market prices are not available, the present value of the underlying cash flows discounted at the Company's incremental borrowing rates. The carrying amounts and fair values of the Company's significant financial instruments are as follows: May 27, 2001 Carrying Amount...

  • Page 36
    ...) in 2001, 2000, and 1999, respectively. 34 The Company sponsors defined benefit pension plans for salaried employees with various benefit formulas and a group of hourly employees with a frozen level of benefits. The Company also sponsors a contributory plan that provides health care benefits to...

  • Page 37
    ... weighted-average assumptions used to determine the actuarial present value of the defined benefit plans and the post-retirement benefit plan obligations: Defined Benefit Plans 2001 Post-Retirement Benefit Plan 2001 7.5% 2000 8.0% 2000 8.0% Discount rate Expected long-term rate of return on plan...

  • Page 38
    .... NOTE 15 STOCK PLANS The Company maintains three principal stock option and stock grant plans: the Amended and Restated Stock Option and Long-Term Incentive Plan of 1995 (1995 Plan); the Restaurant Management and Employee Stock Plan of 2000 (2000 Plan); and the Stock Plan for Directors, adopted in...

  • Page 39
    ...,000 common shares out of the Company's treasury in connection with the granting of non-qualified stock options and restricted stock and RSUs to non-employee directors. Under all of the plans, stock options are granted at a price equal to the fair market value of the shares at the date of grant, for...

  • Page 40
    ... regarding exercisable and outstanding options as of May 27, 2001: Weighted Average Exercise Price Per Share $ 9.40 $11.29 $16.75 $21.34 $11.43 Weighted Average Exercise Price Per Share $ 9.29 $11.31 $16.48 $22.03 $14.52 Weighted Average Remaining Contractual Life (Years) 4.76 3.63 8.32 8.13 6.30...

  • Page 41
    ... L S TAT E M E N T S NOTE 16 EMPLOYEE STOCK PURCHASE PLAN Effective January 1, 1999, the Company adopted the Darden Restaurants Employee Stock Purchase Plan to provide eligible employees who have completed one year of service an opportunity to purchase shares of its common stock, subject to certain...

  • Page 42
    ... Working capital (deficit) Long-term debt Stockholders' equity Stockholders' equity per share Other Statistics Cash flow from operations Capital expenditures Dividends paid Dividends paid per share Advertising expense Number of employees Number of restaurants Stock price: High Low Close May 27, 2001...

  • Page 43
    ...sales goes to support the fight against hunger. Darden is proud to be an annual participant in the Central Florida "Taste of the Nation," helping contribute to the nearly $5 million the events raised in 2001. 41 Top and Above: Darden and each of our restaurant companies, like this Red Lobster team...

  • Page 44
    ... by Women Playing for T.I.M.E. and supported by Darden through volunteer involvement and corporate donations help raise awareness about and fund the fight against breast cancer, including $500,000 to help establish a breast diagnostic center at Orlando's M.D. Anderson Cancer Center. Fiscal 2001 was...

  • Page 45
    ...Girls Club of Central Florida on a culinary training program for teens. The program gives at-risk kids the opportunity to learn culinary arts in the state-of-the-art Darden Kitchen at the Southwest Club, then graduates can participate in summer internships at Red Lobster restaurants. Researchers at...

  • Page 46
    ... sporting goods chain Richard E. Rivera President, Red Lobster and Executive Vice President, Darden Restaurants, Inc. Rita P. Wilson Retired President, Allstate Indemnity Company, a subsidiary of Allstate Insurance Company Hector de J. Ruiz, Ph.D. President, Chief Operating Officer, Advanced...

  • Page 47
    ... Web site address at www.darden.com. Annual reports, SEC filings, press releases, and other Company news are readily available on the Web site. Mailing Address Darden Restaurants, Inc. P.O. Box 593330 Orlando, FL 32859-3330 Darden Restaurants Foundation Annual Report To receive a copy of the 2001...

  • Page 48
    Darden Restaurants, Inc. 5900 Lake Ellenor Drive Orlando, FL 32809 (407) 245-4000 www.darden.com

  • Page 49
    ....com. Annual reports, SEC filings, press releases, and other Company news are readily available on the Web site. Mailing Address Darden Restaurants, Inc. P.O. Box 593330 Orlando, FL 32859-3330 In six years of operation, Bahama Breeze has built an exciting brand based on its promise of a two-hour...