Red Lobster 2008 Annual Report Download - page 43

DARDEN RESTAURANTS, INC. 39
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future
material effect on our financial condition, changes in financial
condition, sales or expenses, results of operations, liquidity,
capital expenditures or capital resources.
FINANCIAL CONDITION
Our total current assets were $467.9 million at May 25, 2008,
compared with $545.4 million at May 27, 2007. The decrease
resulted primarily from a decrease in assets held for sale
related primarily to the sale of Smokey Bones to BII, partially
offset by increases in current liabilities related to the addition
of RARE.
Our total current liabilities were $1.14 billion at May 25,
2008, compared with $1.07 billion at May 27, 2007. The increase
in current liabilities resulted primarily from an increase in our
level of operations due to the acquisition of RARE, partially
offset by the effects of the adoption of FIN 48 and the related
reclassification of reserves for uncertain tax positions to non-
current liabilities, and a reduction in liabilities associated with
assets held for sale related to the sale of Smokey Bones to BII.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are exposed to a variety of market risks, including fluctuations
in interest rates, foreign currency exchange rates, compensa-
tion and commodity prices. To manage this exposure, we
periodically enter into interest rate, foreign currency exchange,
equity forwards and commodity instruments for other than
trading purposes (see Notes 1 and 11 of the Notes to Consolidated
Financial Statements, included elsewhere in this report).
We use the variance/covariance method to measure value
at risk, over time horizons ranging from one week to one
year, at the 95 percent confidence level. At May 25, 2008, our
potential losses in future net earnings resulting from changes
in foreign currency exchange rate instruments, commodity
instruments, equity forwards and floating rate debt interest
rate exposures were approximately $12.5 million over a
period of one year (including the impact of the interest
rate swap agreements discussed in Note 11 of the Notes to
Consolidated Financial Statements, included elsewhere in this
report). The value at risk from an increase in the fair value of
all of our long-term fixed rate debt, over a period of one year,
was approximately $159.4 million. The fair value of our long-
term fixed rate debt during fiscal 2008 averaged $1.22 billion,
with a high of $1.69 billion and a low of $468.4 million. Our
interest rate risk management objective is to limit the impact
of interest rate changes on earnings and cash flows by target-
ing an appropriate mix of variable and fixed rate debt.
APPLICATION OF NEW ACCOUNTING STANDARDS
In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measures.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and enhances disclosures
about fair value measures required under other accounting
pronouncements, but does not change existing guidance as
to whether or not an instrument is carried at fair value. For
financial assets and liabilities, SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, which will require
us to adopt these provisions in fiscal 2009. For nonfinancial
assets and liabilities, SFAS No. 157 is effective for fiscal years
beginning after November 15, 2008, which will require us to
adopt these provisions in fiscal 2010. We do not believe the
adoption of SFAS No. 157 will have a significant impact on
our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 “The
Fair Value Option for Financial Assets and Financial Liabilities.”
SFAS No. 159 provides companies with an option to report
selected financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings at each
subsequent reporting date. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007, which will require
us to adopt these provisions in fiscal 2009. We do not believe
the adoption of SFAS No. 159 will have a significant impact on
our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
“Business Combinations.” SFAS No. 141R provides
companies with principles and requirements on how an
acquirer recognizes and measures in its financial statements
the identifiable assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree as well as the recogni-
tion and measurement of goodwill acquired in a business
combination. SFAS No. 141R also requires certain disclosures
to enable users of the financial statements to evaluate the
nature and financial effects of the business combination.
Acquisition costs associated with the business combination
will generally be expensed as incurred. SFAS No. 141R is
effective for business combinations occurring in fiscal years
beginning after December 15, 2008, which will require us to
adopt these provisions for business combinations occurring
in fiscal 2010 and thereafter. Early adoption of SFAS No.
141R is not permitted. We do not believe the adoption of
SFAS No. 141R will have a significant impact on our consoli-
dated financial statements; however, the application of this
standard will significantly change how we account for future
business combinations.