Red Lobster 2001 Annual Report Download - page 30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADVERTISING
Production costs of commercials and programming are
charged to operations in the year the advertising is first
aired. The costs of other advertising, promotion, and
marketing programs are charged to operations in the year
incurred. Advertising expense was $196,314, $182,220,
and $180,563, in 2001, 2000, and 1999, respectively.
INCOME TAXES
The Company provides 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
income in the period that includes the enactment date.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash
flows, amounts receivable from credit card companies
and investments purchased with a maturity of three
months or less are considered cash equivalents.
NET EARNINGS PER SHARE
Basic earnings per share is computed by dividing income
available to common stockholders by the weighted
average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or con-
verted into common stock. Outstanding stock options
issued by the Company represent the only dilutive effect
reflected in diluted weighted average shares.
Options to purchase 2,412,600, 3,586,200, and
120,200 shares of common stock were excluded from
the calculation of diluted earnings per share for the years
ended May 27, 2001, May 28, 2000, and May 30, 1999,
respectively, because their exercise prices exceeded the
average market price of common shares for the period.
DERIVATIVE FINANCIAL AND
COMMODITY INSTRUMENTS
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 program as
described in Note 10. Such instruments are not held or
issued for trading or speculative purposes. The Company
may, from time to time, use interest rate swap and cap
agreements in the management of interest rate exposure.
The interest rate differential to be paid or received is
normally accrued as interest rates change and is recog-
nized as a component of interest expense over the life of
the agreements. If an agreement is terminated prior to
the maturity date and is characterized as a hedge, any
accrued rate differential would be deferred and recog-
nized as interest expense over the life of the hedged item.
The Company uses commodities hedging instruments,
including forwards, futures, and options, to reduce the
risk of price fluctuations related to future raw materials
requirements for commodities such as coffee, soybean
oil, and natural gas. The terms of such instruments
generally do not exceed 12 months and depend on the
commodity and other market factors. Deferred gains
and losses are subsequently recorded as cost of products
sold in the consolidated statements of earnings when
the inventory is sold. If the inventory is not acquired
and the hedge is disposed of, the deferred gain or loss
is recognized immediately in cost of products sold. The
Company believes that it does not have material risk
from any of the above financial instruments, and the
Company does not anticipate any material losses from
the use of such instruments.
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2001
DARDEN RESTAURANTS