Red Lobster 2002 Annual Report Download

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Great Food Produces 1Great Results in 2002
Bottom Line
2002 Annual Report
This is the Bottom Line
Darden Restaurants, Inc. 2002 Annual Report

Table of contents

  • Page 1
    Darden Restaurants, Inc. 2002 Annual Report This is the Bottom Line Great Food Produces 2002 Annual Report 1 Great Results in 2002

  • Page 2
    ... dining. (In this year's Annual Report we'll focus on our Culinary and Beverage Excellence strategic imperative.) Service and Hospitality Excellence The restaurant business is a people business, and we intend to establish and achieve the industry's very highest service and hospitality standards...

  • Page 3
    ... world, serving more than 300 million meals a year at 1,211 restaurants in 49 states across the United States and in Canada. The Company, which operates four distinct restaurant concepts, has annual sales of $4.4 billion. The ï¬,agship brands, Red Lobster ® and Olive Garden ®, are the market share...

  • Page 4
    ... and atmosphere. But in the restaurant business, it all starts with what's on the plate and in the glass. If it's good, guests will keep coming back. Sales, growth and profits will follow. Sound simple? Sure. Turn the page to read how we combine terrific teams of people, fresh ingredients, tasty...

  • Page 5
    ... leader carries high expectations. Red Lobster's fresh fish program is meeting those high expectations for both customers and shareholders. And don't worry...the popcorn shrimp are still there, too! Ã' We often have to be opportunistic with seafood. We start our planning for Lobsterfest one year...

  • Page 6
    This is a Market Leader Great Food and Beverage 3 Produce Great Results in 2002

  • Page 7
    This is a Source of Growth Great Food and Beverage 4 Produce Great Results in 2002

  • Page 8
    .... We plan to add an additional 20 to 25 locations by the end of fiscal 2003 - making Smokey Bones not only a great place for barbecue, but also a great growth vehicle for Darden with what we believe has the eventual sales potential of Olive Garden or Red Lobster. SMOKEY BONES BBQ RESTAURANT GROWTH...

  • Page 9
    ... sell more than one million of these drinks each year. This level of volume, combined with a higher average guest check at generally lower cost of sales, adds up to what we believe will be industry-leading profit margins. This makes Bahama Breeze not only a memorable dining destination, but a highly...

  • Page 10
    This is a Margin Builder Great Food and Beverage 7 Produce Great Results in 2002

  • Page 11
    This is Inspiration Great Food and Beverage 8 Produce Great Results in 2002

  • Page 12
    ...Spaghetti delle Rocca and Lobster Spaghetti. The result is that guests can enjoy the best menu in casual dining, as rated by Restaurant Business magazine. Developing new dishes is just one of the many ways that 20-year-old Olive Garden is bringing innovation, quality and value to the marketplace. In...

  • Page 13
    ..., Darden was able to produce another year of record financial results, fueled by strong performance at each of our operating companies. • Revenues increased 9% to $4.37 billion because of continued same-restaurant sales growth at Red Lobster and Olive Garden and accelerated new restaurant growth...

  • Page 14
    ... flow and balance sheet, share repurchase remained meaningful. We purchased 9 million shares of our common stock in fiscal 2002, even as we invested in growth. With yet another year of excellent operating and financial performance, we remain excited about what is possible here at Darden. We believe...

  • Page 15
    ... asset - we have the financial resources to fund our growth strategy, in good times and bad. Our excellent cash flows and solid balance sheet are reflected in the Company's investment-grade credit ratings. These provide us with flexible access to capital at a relatively attractive cost. We intend to...

  • Page 16
    ... value. In addition to the great variety of seafood we serve every day, much of our success during the year centered on well-executed features, such as "30 Shrimp for $9.99," our signature "Lobsterfest" and a "Festival of Crab" celebration. These advertised campaigns emphasized Red Lobster's classic...

  • Page 17
    ...GROWTH vs. CASUAL DINING AVERAGE (as a percentage) 9.8 8.1 8.3 6.8 5.3 8.7 7.2 5.6 4.2 7.1 5.9 5.3 With a clearly defined business strategy - "A family of local restaurants focused on delighting every guest with a genuine Italian dining experience" - Olive Garden had a highly successful fiscal 2002...

  • Page 18
    ...presented Island-inspired food and beverages, and positions us to achieve our goal of being the leader in the upper-end of casual dining. During fiscal 2002, sales surpassed $125 million and eight new restaurants opened, to bring the company's total to 29 locations. The Bahama Breeze management team...

  • Page 19
    ... age, gender, ethnicity and income. The combination of these factors creates an expansion potential that we believe could become an operating company with at least $1.5 billion in annual sales in the future. The Smokey Bones team spent much of fiscal 2002 finetuning the concept. This included...

  • Page 20
    ... Bottom Line Financial Review Management's Discussion and Analysis of Financial Condition and Results of Operations Report of Management Responsibilities Independent Auditors' Report Consolidated Statements of Earnings Consolidated Balance Sheets Consolidated Statements of Changes in Stockholders...

  • Page 21
    ... be read in conjunction with the Company's consolidated financial statements and related notes found elsewhere in this report. As of May 26, 2002, Darden Restaurants, Inc. (Darden or the Company) operated 1,211 Red Lobster, Olive Garden, Bahama Breeze, and Smokey Bones BBQ Sports Bar restaurants in...

  • Page 22
    ... to increases in sales at both Red Lobster and Olive Garden and decreases in food and beverage costs and restaurant labor as a percent of sales. Diluted net earnings per share also reflected a reduction in the average diluted shares outstanding from fiscal 2001 to fiscal 2002 because of the Company...

  • Page 23
    ... on the Company's operations. As operating expenses increase, management believes the Company has historically been able to pass on increased costs through menu price increases and other strategies. Critical Accounting Policies Company's need to recognize an impairment charge on the carrying amount...

  • Page 24
    ...combination of long-term and short-term borrowings to fund its liquidity needs. The Company manages 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...

  • Page 25
    ... during fiscal 2002 as well as an increase in capitalized costs associated with software improvements. Current liabilities increased by $47 million compared to fiscal 2001, primarily as a result of increases in accrued income taxes, gift card and gift certificate payables, and employee benefit...

  • Page 26
    ...to: • the highly competitive nature of the restaurant industry, especially pricing, service, location, personnel, and type and quality of food; • economic, market, and other conditions, including changes in consumer preferences, demographic trends, weather conditions, construction costs, and the...

  • Page 27
    ... policies regarding utilization of Company assets and proper financial reporting. These formally stated and regularly communicated policies set high standards of ethical conduct for all employees. The Audit Committee of the Board of Directors meets regularly to determine that management, internal...

  • Page 28
    ...Line Consolidated Statements of Earnings (In thousands, except per share data) May 26, 2002 $4,368,701 Fiscal Year Ended May 27, 2001 $ 3,992,419 May 28, 2000 $ 3,675,461 Sales Costs and Expenses: Cost of sales: Food and beverage Restaurant labor Restaurant expenses Total Cost of Sales Selling...

  • Page 29
    ... RESTAUR A N T S This is the Bottom Line Consolidated Balance Sheets (In thousands) May 26, 2002 May 27, 2001 Assets Current Assets: Cash and cash equivalents Short-term investments Receivables Inventories Net assets held for disposal Prepaid expenses and other current assets Deferred income...

  • Page 30
    ... ESOP note receivable repayments Income tax benefits credited to equity 24,989 Purchases of common stock for treasury (8,972 shares) Issuance of treasury stock under Employee Stock Purchase Plan and other plans (290 shares) 2,858 Issuance of officer notes, net Balance at May 26, 2002 $1,474,054 See...

  • Page 31
    ... Amortization of unearned compensation and loan costs Change in current assets and liabilities Change in other liabilities Loss on disposal of land, buildings, and equipment Change in cash surrender value of trust-owned life insurance Deferred income taxes Income tax benefits credited to equity Non...

  • Page 32
    ...estimated useful lives ranging from three to ten years. The cost of capitalized software at May 26, 2002, and May 27, 2001, amounted to $38,621 and $17,252, respectively. The increase for fiscal 2002 relates principally to capitalized costs associated with new enterprise reporting and human resource...

  • Page 33
    ... new standards, and therefore, adoption of these standards did not materially impact the Company's consolidated financial statements. The Company uses financial and commodities derivatives in the management of interest rate and commodities pricing risks that are inherent in its business operations...

  • Page 34
    ... Per Share Non-capital expenditures associated with opening new restaurants are expensed as incurred. Advertising Production costs of commercials and programming are charged to operations in the fiscal year the advertising is first aired. The costs of other advertising, promotion, and marketing...

  • Page 35
    ... $25,795, in fiscal 2002, 2001, and 2000, respectively. This pronouncement did not have any impact on net earnings. Future Application of Accounting Standards As of May 26, 2002, the Company operates 1,211 Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones BBQ Sports Bar restaurants in North...

  • Page 36
    ... and net earnings per share effects of these items for fiscal 2002 and 2000 are as follows: Fiscal Year 2002 2000 Carrying costs of buildings and equipment prior to disposal and employee severance costs Lease buy-out provisions Subtotal Impairment of restaurant properties Total restructuring and...

  • Page 37
    ... or a competitively bid rate among the members of the lender consortium, at the option of the Company. The credit facility is available to support the Company's commercial paper borrowing program, if necessary. The Company is required to pay a facility fee of 15 basis points per annum on the average...

  • Page 38
    ... are reported as other comprehensive income. These changes in fair value are subsequently reclassified into earnings when the natural gas and coffee are purchased and used by the Company in its operations. Net losses of $276 related to these derivatives were recognized in earnings during fiscal 2002...

  • Page 39
    ...Stock Purchase/ Loan Program (1998 Program) under its Stock Option and Long-Term Incentive Plan of 1995. The 1998 Program provides loans to executives and awards two options for every new share purchased, up to a maximum total share value equal to On March 21, 2002, the Company's Board of Directors...

  • Page 40
    ... on sales levels or changes in the Consumer Price Index. Many of the Company's leases have renewal periods totaling five to 20 years, exercisable at the option of the Company, and require payment of property taxes, insurance, and maintenance costs in addition to the rent payments. The annual non...

  • Page 41
    DARDEN RESTAUR A N T S This is the Bottom Line Notes to Consolidated Financial Statements During fiscal 2002, 2001, and 2000, the Company paid income taxes of $56,839, $63,893, and $53,688, respectively. The following table is a reconciliation of the U.S. statutory income tax rate to the effective...

  • Page 42
    ... the Plan's Funded Status: Funded status at end of year Unrecognized transition asset Unrecognized prior service cost Unrecognized actuarial loss (gain) Contributions for March to May Prepaid (accrued) benefit costs Components of the Consolidated Balance Sheets: Prepaid benefit costs Accrued benefit...

  • Page 43
    DARDEN RESTAUR A N T S This is the Bottom Line Notes to Consolidated Financial Statements Components of net periodic benefit cost (income) are as follows: 2002 Service cost Interest cost Expected return on plan assets Amortization of unrecognized transition asset Amortization of unrecognized prior...

  • Page 44
    ... market value equal to the value of the foregone retainer and meeting fees. The per share weighted-average fair value of stock options granted during fiscal 2002, 2001, and 2000 was $12.25, $11.69, and $4.31, respectively. These amounts were determined using the Black Scholes option-pricing model...

  • Page 45
    ... have completed one year of service an opportunity to purchase shares of its common stock, subject to certain limitations. Under the plan, employees may elect to purchase shares at the lower of 85 percent of the fair market value of the Company's common stock as of the first or last trading days of...

  • Page 46
    ... Company's consolidated financial statements. NOTE 18 Q U A R T E R LY D ATA ( U N A U D I T E D ) The following table summarizes unaudited quarterly data for fiscal 2002 and 2001: Aug. 26 Sales Restaurant Operating Profit (1) Earnings before Income Taxes (2) Net Earnings (2) Net Earnings per Share...

  • Page 47
    ... Stockholders' Equity per Share Other Statistics Cash Flow from Operations Capital Expenditures Dividends Paid Dividends Paid per Share Advertising Expense Stock Price: High Low Close Number of Employees Number of Restaurants May 26, 2002 $4,368,701 May 27, 2001 $3,992,419 Fiscal Year Ended May 28...

  • Page 48
    ... New York City police officers and a server from the Times Square Olive Garden carry donated food headed for relief workers at "Ground Zero," site of the World Trade Center disaster. particularly interested in supporting programs and organizations in which our employees volunteer. In communities...

  • Page 49
    ... food, build community gardens and operate inner-city farmer's markets. The annual Taste of the Nation fundraiser held in 70 cities across the United States and Canada is SOS's premier benefit. One hundred percent of the funds raised go to fight hunger. Again this year, Darden is a proud corporate...

  • Page 50
    Corporate Responsibility and a speaker series that will bring outstanding lecturers to the campus to discuss current diversity and business ethics issues. GIVING BACK TO THE INDUSTRY ProStart Each year Darden Restaurants awards grants and other support to hospitality industry programs in colleges, ...

  • Page 51
    ...sporting goods chain Blaine Sweatt, III President, New Business Development and Executive Vice President, Darden Restaurants, Inc. Rita P. Wilson Retired President, Allstate Indemnity Company, a subsidiary of Allstate Insurance Company CorporateOfficers Row 1 , left to right Richard J. Walsh Senior...

  • Page 52
    ... New York Stock Exchange Stock Exchange Symbol: DRI Form 10-K Report Shareholders may request a free copy of the Company's Form 10-K, including schedules but excluding exhibits, by writing to Investor Relations, Darden Restaurants, Inc., P.O. Box 593330, Orlando, FL 32859-3330. Web Site Addresses...

  • Page 53
    This is the Bottom Line Darden Restaurants, Inc. 5900 Lake Ellenor Drive Orlando, Florida 32809 (407) 245-4000 www.darden.com