Red Lobster 2007 Annual Report Download - page 49

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Darden Restaurants, Inc. Annual Report 2007 47
Notes to Consolidated Financial Statements
units vest, we will effectively de-designate that portion of the equity
forward contract that no longer qualifies for hedge accounting and
changes in fair value associated with that portion of the equity
forward contract will be recognized in current earnings. Gains of
$2.5 million, $1.0 million and $0.5 million were recognized in earn-
ings as a component of restaurant labor during fiscal 2007, 2006
and 2005, respectively.
During May 2006, we entered into an equity forward contract
to hedge the risk of changes in future cash flows associated with
employee directed investments in Darden stock within the non-
qualified deferred compensation plan (see Note 16 – Retirement
Plans for additional information). The equity forward contract is
indexed to 0.1 million shares of our common stock at a forward rate
of $37.44 per share, has a $3.7 million notional amount, can only be
net settled in cash and expires in May 2011. We did not elect hedge
accounting with the expectation that changes in the fair value of
the equity forward contract would offset changes in the fair value
of the Darden stock investments in the non-qualified deferred
compensation plan within net earnings in our consolidated state-
ments of earnings. A gain (loss) of $0.9 million and ($0.1) million
related to the equity forward contract was recognized in net earn-
ings during fiscal 2007 and 2006, respectively.
Note11
Financial Instruments
The fair values of cash equivalents, accounts receivable, accounts
payable and short-term debt approximate their carrying amounts
due to their short duration.
The carrying value and fair value of long-term debt at May 27,
2007 was $491.6 million and $496.3 million, respectively. The
carrying value and fair value of long-term debt at May 28, 2006 was
$644.6 million and $645.6 million, respectively. The fair value of
long-term debt is determined based on market prices or, if market
prices are not available, the present value of the underlying cash
flows discounted at our incremental borrowing rates.
Note12
Stockholders’ Equity
Treasury Stock
On June 16, 2006, our Board of Directors authorized an additional
share repurchase authorization totaling 25.0 million shares in addi-
tion to the previous authorization of 137.4 million shares, bringing
our total authorizations to 162.4 million. In fiscal 2007, 2006 and
2005, we purchased treasury stock totaling $371.2 million,
$434.2 million and $311.7 million, respectively. At May 27, 2007, a
total of 141.9 million shares have been repurchased under the
authorizations. The repurchased common stock is reflected as
a reduction of stockholders’ equity.
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 conjunc-
tion 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 interest 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, respectively. Effective July 30, 2002, and in compliance
with the Sarbanes-Oxley Act of 2002, we no longer issue new loans
under the Loan Program. We account for outstanding officer notes
receivable as a reduction of stockholders’ equity.
Stockholders’ Rights Plan
Under our Rights Agreement dated May 16, 2005, each share of
our common stock has associated with it one right to purchase
one-thousandth of a share of our Series A Participating Cumulative
Preferred Stock at a purchase price of $120 per share, subject to
adjustment under certain circumstances to prevent dilution. The
rights are exercisable when, and are not transferable apart from our
common stock until, a person or group has acquired 15 percent
or more, or makes a tender offer for 15 percent or more, of our
common stock. If the specified percentage of our common stock is