Red Lobster 2006 Annual Report Download - page 47
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Please find page 47 of the 2006 Red Lobster annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.under the terms of the lease. 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. Percentage rent expense is generally
based on sales levels and is accrued at the point in
time we determine that it is probable that such sales
levels will be achieved.
Pre-Opening Expenses
Non-capital expenditures associated with opening
new restaurants are expensed as incurred.
Advertising
Production costs of commercials are charged to opera-
tions in the fiscal period the advertising is first aired.
The costs of programming and other advertising, pro-
motion and marketing programs are charged to opera-
tions in the fiscal period incurred. Advertising expense,
included in selling, general and administrative expenses,
amounted to $229,693, $214,608 and $210,989, in
fiscal 2006, 2005 and 2004, respectively.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS)
No. 123, “Accounting for Stock-Based Compensation,”
encourages the use of a fair-value method of account-
ing for stock-based awards under which the fair value
of stock options is determined on the date of grant
and expensed over the vesting period. As allowed by
SFAS No. 123, we have elected to account for our
stock-based compensation plans under an intrinsic
value method that requires compensation expense to
be recorded only if, on the date of grant, the current
market price of our common stock exceeds the exer-
cise price the employee must pay for the stock. Our
policy is to grant stock options at the fair market
value of our underlying stock on the date of grant.
Accordingly, no compensation expense has been rec-
ognized for stock options granted under any of our
stock plans because the exercise price of all options
granted was equal to the current market value of our
stock on the grant date.
Had we determined compensation expense
for our stock options based on the fair value at
the grant date as prescribed under SFAS No. 123,
our net earnings and net earnings per share would
have been reduced to the pro forma amounts indi-
cated below:
FiscalYear
2006 2005 2004
Net earnings, as reported $338,194 $290,606 $227,173
Add: Stock-based
compensation expense
included in reported net
earnings, net of related
tax effects 5,366 5,134 3,158
Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of related tax effects (19,648) (22,719) (17,980)
Pro forma $323,912 $273,021 $212,351
Basic net earnings per share
As reported $ 2.26 $ 1.85 $ 1.39
Pro forma $ 2.16 $ 1.74 $ 1.30
Diluted net earnings per share
As reported $ 2.16 $ 1.78 $ 1.34
Pro forma $ 2.06 $ 1.67 $ 1.25
To determine pro forma net earnings, reported
net earnings have been adjusted for compensation
expense associated with stock options granted that are
expected to vest. The preceding pro forma results were
determined using the Black Scholes option-pricing
model, which values options based on the stock price at
the grant date, the expected life of the option, the esti-
mated volatility of the stock, expected dividend pay-
ments and the risk-free interest rate over the expected
life of the option. The weighted-average fair value of
non-qualified stock options granted during fiscal 2006,
2005 and 2004 used in computing pro forma compen-
sation expense was $10.68, $7.75 and $6.83, respec-
tively. The dividend yield was calculated by dividing the
current annualized dividend by the option exercise price
for each grant. The expected volatility was determined
considering stock prices for the fiscal year the grant
occurred and prior fiscal years, as well as considering
industry volatility data. The risk-free interest rate was
the rate available on zero coupon U.S. government obli-
gations with a term equal to the expected life of each
grant. The expected life of the option was estimated
based on the exercise history from previous grants.
Darden Restaurants 2006 Annual Report
Notes to Consolidated Financial Statements
Financial Review 2006
42