Red Lobster 2004 Annual Report Download - page 46

Stock Purchase/Loan Program
We have share ownership guidelines for our officers. To assist them
in meeting these guidelines, we implemented the 1998 Stock
Purchase/Option Award Loan Program (Loan Program) in con-
junction with our Stock Option and Long-Term Incentive Plan
of 1995. The Loan Program provided loans to our officers and
awarded two options for every new share purchased, up to a
maximum total share value equal to a designated percentage of
the officer’s base compensation. Loans are full recourse and inter-
est bearing, with a maximum principal amount of 75 percent of
the value of the stock purchased. The stock purchased is held on
deposit with us until the loan is repaid. The interest rate for loans
under the Loan Program is fixed and is equal to the applicable
federal rate for mid-term loans with semi-annual compounding
for the month in which the loan originates. Interest is payable
on a weekly basis. Loan principal is payable in installments with
25 percent, 25 percent, and 50 percent of the total loan due at
the end of the fifth, sixth, and seventh years of the loan. Effective
July 30, 2002, and in compliance with the Sarbanes-Oxley Act of
2002, we no longer issue new loans to our executive-level officers
under the Loan Program. We account for outstanding officer notes
receivable as a reduction of stockholders’ equity.
Stockholders’ Rights Plan
Under our amended Rights Agreement, each share of our common
stock has associated with it two-thirds of a right to purchase one-
hundredth of a share of our Series A Participating Cumulative
Preferred Stock at a purchase price of $62.50, subject to adjustment
under certain circumstances to prevent dilution. The number of
rights associated with each share of our common stock reflects an
adjustment resulting from our three-for-two stock split in May 2002.
The rights are exercisable when, and are not transferable apart from
our common stock until, a person or group has acquired 20 percent
or more, or makes a tender offer for 20 percent or more, of our com-
mon stock. If the specified percentage of our common stock is then
acquired, each right will entitle the holder (other than the acquiring
company) to receive, upon exercise, common stock of either us or
the acquiring company having a value equal to two times the exer-
cise price of the right. The rights are redeemable by our Board of
Directors under certain circumstances and expire on May 24, 2005.
Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income
(loss) are as follows:
฀฀฀฀ ฀ May฀30,฀฀ May฀25,
฀฀ ฀ ฀ ฀ ฀ 2004฀ 2003
Foreign฀currency฀translation฀adjustment฀ ฀ $(9,960)฀ $(10,354)
Unrealized฀gains฀on฀derivatives฀ ฀ 587฀ 382
Minimum฀pension฀liability฀adjustment฀ ฀ (586)฀ (517)
Total฀accumulated฀other฀comprehensive฀฀
฀ income฀(loss)฀ ฀ $(9,959)฀ $(10,489)
Reclassification adjustments associated with pre-tax net deriv-
ative income (losses) realized in net earnings for fiscal 2004, 2003,
and 2002 amounted to $(386), $994, and ($262), respectively.
LEASES
11An analysis of rent expense incurred under
operating leases is as follows:
฀ Fiscal฀Year
฀฀฀฀ 2004฀ 2003฀ ฀฀2002
Restaurant฀minimum฀rent฀ $56,462฀ $48,121฀ $43,113
Restaurant฀percentage฀rent฀ 3,820฀ 3,682฀ 3,550
Restaurant฀equipment฀minimum฀rent฀ 57฀ 5,719฀ 8,386
Restaurant฀rent฀averaging฀expense฀ 300฀ (663)฀ (518)
Transportation฀equipment฀ 2,514฀ 2,665฀ 2,481
Office฀equipment฀ 1,302฀ 1,138฀ 1,526
Office฀space฀ 1,286฀ 1,713฀ 1,387
Warehouse฀space฀ 315฀ 303฀ 237
Total฀rent฀expense฀ $66,056฀ $62,678฀ $60,162
Minimum rental obligations are accounted for on a straight-
line basis over the term of the lease. Percentage rent expense is
generally based on sales levels. Many of our leases have renewal
periods totaling five to 20 years, exercisable at our option, and
require payment of property taxes, insurance, and maintenance
costs in addition to the rent payments. The annual non-cancelable
future lease commitments for each of the five fiscal years subsequent
to May 30, 2004, and thereafter are: $62,070 in 2005, $57,348 in
2006, $50,870 in 2007, $43,651 in 2008, $36,358 in 2009, and
$123,402 thereafter, for a cumulative total of $373,699.
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Notes฀to฀
Consolidated Financial Statements
Financial Review 2004