Red Lobster 2007 Annual Report Download - page 23

M
Darden Restaurants, Inc. Annual Report 2007 21
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Selling, general and administrative expenses increased
$29.9 million, or 5.9 percent, from $504.8 million in fiscal 2006 to
$534.6 million in fiscal 2007. Selling, general and administrative
expenses increased $37.5 million, or 8.0 percent, from $467.3 million
in fiscal 2005 to $504.8 million in fiscal 2006. As a percent of sales,
selling, general and administrative expenses increased in fiscal 2007
primarily as a result of the recognition of stock-based compensation
expense due to the adoption of SFAS No. 123R in fiscal 2007 and
increased marketing expenses, partially offset by the favorable
impact of higher sales volumes and a decrease in litigation related
costs. As a percent of sales, selling, general and administrative
expenses were comparable in fiscal 2006 and fiscal 2005.
Depreciation and amortization expense increased $3.4 million,
or 1.7 percent, from $197.0 million in fiscal 2006 to $200.4 million
in fiscal 2007. Depreciation and amortization expense increased
$2.3 million, or 1.2 percent, from $194.7 million in fiscal 2005 to
$197.0 million in fiscal 2006. As a percent of sales, depreciation and
amortization decreased from fiscal 2006 to fiscal 2007 and from fiscal
2005 to fiscal 2006 primarily as a result of the continued use of fully
depreciated, well-maintained equipment and the favorable impact
of higher sales volumes, which were only partially offset by new
restaurant and remodel activities.
Net interest expense decreased $3.8 million or 8.7 percent from
$43.9 million in fiscal 2006 to $40.1 million in fiscal 2007. Net interest
expense decreased $0.8 million, or 1.8 percent, from $44.7 million
in fiscal 2005 to $43.9 million in fiscal 2006. As a percent of sales, net
interest expense decreased in fiscal 2007 compared with fiscal 2006,
as a result of the favorable impact of higher sales volumes and lower
average long-term debt balances in fiscal 2007. As a percent of sales,
net interest expense decreased in fiscal 2006 compared with fiscal
2005, primarily as a result of higher interest income in fiscal 2006
and the favorable impact of higher sales volumes, partially offset by
increased interest costs associated with higher average long-term
debt balances in fiscal 2006.
During fiscal 2007, 2006 and 2005, we recognized asset
impairment charges of $2.6 million, $1.5 million and $4.8 million,
respectively, related to the planned closure, relocation or rebuilding
of certain restaurants reported in continuing operations. Asset
impairment credits related to the sale of assets that were previously
impaired amounted to $0.2 million, $0.2 million and $2.8 million in
fiscal 2007, 2006 and 2005, respectively.
Income Taxes
The effective income tax rates for fiscal 2007, 2006 and 2005
continuing operations were 29.0 percent, 30.8 percent and
32.1 percent, respectively. The rate decreases in fiscal 2007 and
fiscal 2006 were primarily due to an increase in FICA tax credits for
employee-reported tips and a decrease in our federal effective
income tax rate resulting from the favorable resolution of prior
year tax matters expensed in prior years.
Net Earnings and Net Earnings Per
Share from Continuing Operations
Net earnings from continuing operations for fiscal 2007 were
$377.1 million ($2.53 per diluted share) compared with net earnings
from continuing operations for fiscal 2006 of $351.8 million ($2.24 per
diluted share) and net earnings from continuing operations for fiscal
2005 of $299.9 million ($1.84 per diluted share).
Net earnings from continuing operations for fiscal 2007
increased 7.2 percent and diluted net earnings per share from
continuing operations increased 13.0 percent compared with fiscal
2006. The increases in net earnings and diluted net earnings per
share from continuing operations were primarily due to decreases
in food and beverage costs, restaurant expenses, depreciation and
amortization expenses and interest expenses as a percent of sales,
which were only partially offset by increases in restaurant labor and
selling, general and administrative expenses as a percent of sales.
The increase in diluted net earnings per share from continuing
operations was also due to a reduction in the average diluted shares
outstanding from fiscal 2006 to fiscal 2007, primarily as a result of
our continuing repurchase of our common stock.
Fiscal 2006 net earnings from continuing operations increased
17.3 percent and diluted net earnings per share increased 21.7
percent compared with fiscal 2005. The increases in net earnings and
diluted net earnings per share were primarily due to decreases in
food and beverage costs, depreciation and amortization expenses
and interest expenses as a percent of sales, which were only partially
offset by increases in restaurant labor expenses and restaurant
expenses as a percent of sales.