Red Lobster 2007 Annual Report Download - page 55

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Darden Restaurants, Inc. Annual Report 2007 53
Notes to Consolidated Financial Statements
Components of net periodic benefit cost are as follows:
Defined Benefit Plans Postretirement Benefit Plan
2007 2006 2005 2007 2006 2005
Service cost $ 6.0 $ 5.2 $ 4.8 $0.7 $0.7 $0.7
Interest cost 9.0 8.1 7.3 1.0 0.9 1.0
Expected return on plan assets (13.7) (13.2) (12.8) – – –
Amortization of unrecognized
prior service cost 0.1 0.1 (0.3) – – –
Recognized net actuarial loss 5.4 5.3 5.0 0.2 0.2 0.3
Net periodic benefit cost $ 6.8 $ 5.5 $ 4.0 $1.9 $1.8 $2.0
The amortization of the net actuarial loss component of our
fiscal 2008 net periodic benefit cost for the defined benefit plans
and postretirement benefit plan is expected to be approximately
$4.3 million and $0.3 million, respectively.
The following benefit payments are expected to be paid:
Defined Benefit Postretirement
Plans Benefit Plan
2008 $ 8.4 $0.4
2009 8.9 0.5
2010 9.5 0.5
2011 9.9 0.6
2012 10.5 0.7
2013-2017 61.3 4.9
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 up to six percent 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 $618.8 million at May 27, 2007 and $527.7 million at May 28, 2006.
Expense recognized in fiscal 2007, 2006 and 2005 was $0.8 million,
$1.4 million and $2.7 million, respectively. Employees classified 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 compensated employees
under the non-qualified deferred compensation plan totaled
$146.9 million and $124.7 million at May 27, 2007 and May 28, 2006,
respectively. These amounts are included in other current liabilities.
The defined contribution plan includes an Employee Stock
Ownership Plan (ESOP). This ESOP originally borrowed $50.0 million
from third parties, with guarantees by us, and borrowed $25.0 million
from us at a variable interest rate. The $50.0 million 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 dividends 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, common stock is allocated to ESOP participants. In fiscal 2007,
2006 and 2005, the ESOP incurred interest expense of $1.2 million,
$1.1 million and $0.7 million, respectively, and used dividends received
of $3.6 million, $3.0 million and $1.2 million, respectively, and contri-
butions received from us of $0.7 million, $1.7 million and $3.4 million,
respectively, to pay principal and interest on our debt.
ESOP shares are included in average common shares outstanding
for purposes of calculating net earnings per share. At May 27, 2007, the
ESOP’s debt to us had a balance of $19.1 million with a variable rate of
interest of 5.645 percent; $2.2 million of the principal balance is due
to be repaid no later than December 2007, with the remaining
$16.9 million due to be repaid no later than December 2014. The
number of our common shares held in the ESOP at May 27, 2007
approximated 7.8 million shares, representing 4.0 million allocated
shares and 3.8 million suspense shares.
At the end of fiscal 2005, the ESOP borrowed $1.6 million from
us at a variable interest rate and acquired an additional 0.05 million
shares of our common stock, which were held in suspense within
the ESOP at May 29, 2005. The loan, which had a variable interest
rate of 5.645 percent at May 27, 2007, is due to be repaid no later
than December 2018. The shares acquired under this loan are
accounted for in accordance with Statement of Position (SOP) 93-6,
“Employers Accounting for Employee Stock Ownership Plans.”
Fluctuations in our stock price are recognized as adjustments to
common stock and surplus when the shares are committed to be
released. These ESOP shares are not considered outstanding until
they are committed to be released and, therefore, have been
excluded for purposes of calculating basic and diluted net earnings
per share at May 27, 2007. The fair value of these shares at May 27,
2007 was $2.1 million.