Red Lobster 2005 Annual Report Download - page 47

Notes to Consolidated Financial Statements
Financial Review 2005
Darden Restaurants 55
Components of net periodic benefit cost (income) are as follows:
Defined Benefit Plans Postretirement Benefit Plan
2005 2004 2003 2005 2004 2003
Service cost $ 4,840 $ 4,516 $ 3,732 $ 699 $ 626 $ 388
Interest cost 7,315 7,076 7,088 1,005 919 648
Expected return on plan assets (12,841) (12,821) (12,739) – – –
Amortization of unrecognized prior service cost (348) (348) (348) – 29 18
Recognized net actuarial loss 4,992 3,710 1,924 346 334 46
Net periodic benefit cost (income) $ 3,958 $ 2,133 $ (343) $ 2,050 $ 1,908 $ 1,100
The following benefit payments are expected to be paid:
Defined Postretirement
Benefit Plans Benefit Plan
2006 $ 5,666 $ 292
2007 6,283 340
2008 6,756 386
2009 7,151 453
2010 7,628 503
2011-2015 46,695 3,696
Defined Contribution Plan
We have a defined contribution plan covering most
employees age 21 and older. We match contributions for
participants with at least one year of service at up to six per-
cent of compensation, based on our performance. The match
ranges from a minimum of $0.25 to $1.20 for each dollar
contributed by the participant. The plan had net assets of
$498,125 at May 29, 2005 and $390,461 at May 30, 2004.
Expense recognized in fiscal 2005, 2004 and 2003, was
$2,713, $2,666 and $1,732, respectively. Employees clas-
sified as “highly compensated” under the Internal Revenue
Code are not eligible to participate in this plan. Instead, highly
compensated employees are eligible to participate in a
separate non-qualified deferred compensation plan. This
plan allows eligible employees to defer the payment of all or
part of their annual salary and bonus and provides for awards
that approximate the matching contributions and other
amounts that participants would have received had they
been eligible to participate in our defined contribution and
defined benefit plans. Amounts payable to highly compen-
sated employees under the non-qualified deferred com-
pensation plan totaled $108,407 and $88,569 at May 29,
2005 and May 30, 2004, respectively. These amounts are
included in other current liabilities.
The defined contribution plan includes an Employee
Stock Ownership Plan (ESOP). This ESOP originally bor-
rowed $50,000 from third parties, with guarantees by us,
and borrowed $25,000 from us at a variable interest rate.
The $50,000 third party loan was refinanced in 1997 by a
commercial bank’s loan to us and a corresponding loan
from us to the ESOP. Compensation expense is recognized
as contributions are accrued. In addition to matching plan
participant contributions, our contributions to the plan are
also made to pay certain employee incentive bonuses.
Fluctuations in our stock price impact the amount of expense
to be recognized. Contributions to the plan, plus the divi-
dends accumulated on allocated and unallocated shares
held by the ESOP, are used to pay principal, interest and
expenses of the plan. As loan payments are made, com-
mon stock is allocated to ESOP participants. In fiscal 2005,
2004 and 2003, the ESOP incurred interest expense of $677,
$473 and $697, respectively, and used dividends received
of $1,235, $454 and $1,002, respectively, and contributions
received from us of $3,389, $4,093 and $4,266, respectively,
to pay principal and interest on our debt.
These ESOP shares are included in average common
shares outstanding for purposes of calculating net earn-
ings per share. At May 29, 2005, the ESOP’s debt to us had
a balance of $26,010 with a variable rate of interest of 3.42
percent; $9,110 of the principal balance is due to be repaid
no later than December 2007, with the remaining $16,900
due to be repaid no later than December 2014. The number
of our common shares held in the ESOP at May 29, 2005
approximated 9,810,000 shares, representing 4,211,000
allocated shares, 9,000 committed-to-be-released shares
and 5,590,000 suspense shares.