Red Lobster 2001 Annual Report Download - page 29

NOTE 1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying 2001, 2000, and 1999 consolidated
financial statements include the operations of Darden
Restaurants, Inc. and its wholly owned subsidiaries (Darden
or the Company). All significant intercompany balances
and transactions have been eliminated in consolidation.
FISCAL YEAR
Darden’s fiscal year ends on the last Sunday in May. Fiscal
years 2001, 2000, and 1999 each consisted of 52 weeks.
INVENTORIES
Inventories are valued at the lower of weighted average
cost or market.
LAND, BUILDINGS, AND EQUIPMENT
All land, buildings, and equipment are recorded at cost.
Building components are depreciated over estimated
useful lives ranging from seven to 40 years using the
straight-line method. Equipment is depreciated over
estimated useful lives ranging from three to ten years also
using the straight-line method. Accelerated depreciation
methods are generally used for income tax purposes.
INTANGIBLE ASSETS
The cost of intangible assets at May 27, 2001, and May 28,
2000, amounted to $26,818 and $16,412, respectively.
Intangibles are amortized using the straight-line method
over their estimated useful lives ranging from three to
40 years. Costs capitalized principally represent software
and related development costs and the purchase costs of
leases with favorable rent terms. Accumulated amortiza-
tion on intangible assets as of May 27, 2001, and May 28,
2000, amounted to $6,199 and $5,201, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Restaurant sites and certain identifiable intangibles 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 an asset to future net cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recog-
nized is measured by the amount by which the carrying
amount of the assets exceeds their fair value. Restaurant
sites and certain identifiable intangibles to be disposed
of are reported at the lower of their carrying amount or
fair value, less estimated costs to sell.
LIQUOR LICENSES
The costs of obtaining non-transferable liquor licenses
that are directly issued by local government agencies for
nominal fees are expensed in the year incurred. The costs
of purchasing transferable liquor licenses through open
markets in jurisdictions with a limited number of author-
ized liquor licenses are capitalized. If there is permanent
impairment in the value of a liquor license due to market
changes, the asset is written down to its net realizable
value. Annual liquor license renewal fees are expensed.
FOREIGN CURRENCY TRANSLATION
The Canadian dollar is the functional currency for
Darden’s Canadian restaurant operations. Assets and lia-
bilities 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
the period. Translation gains and losses are reported as a
separate component of accumulated other comprehen-
sive income in stockholders’ equity. Gains and losses
from foreign currency transactions are included in the
consolidated statements of earnings for each period.
PRE-OPENING COSTS
Non-capital expenditures associated with opening new
restaurants are expensed as incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
27
2001
DARDEN RESTAURANTS