Red Lobster 2010 Annual Report Download - page 37

DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT 35
Notes to Consolidated Financial Statements
Darden Restaurants
DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT 35
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Darden
statements but does require that all references to authoritative accounting
literature be referenced in accordance with the FASB ASC.
In January 2010, the FASB issued Accounting Standards Update (ASU)
2010-06, Fair Value Measurements and Disclosures (Topic 820), Improving
Disclosures about Fair Value Measurements, which required additional
disclosure of significant transfers in and out of instruments categorized as
Level 1 and 2 in the Fair Value hierarchy. This update also clarified existing
disclosure requirements by defining the level of disaggregation of instruments
into classes as well as additional disclosure around the valuation techniques and
inputs used to measure fair value. This update is effective for interim and annual
reporting periods beginning after December 15, 2009, which required us to
adopt this update during the fourth quarter of 2010. The additional disclosures
are included in Note 11 of the notes to the consolidated financial statements
included elsewhere in this report and incorporated herein by reference.
FORWARD-LOOKING STATEMENTS
Statements set forth in or incorporated into this report regarding the expected
net increase in the number of our restaurants, U.S. same-restaurant sales,
total sales growth, diluted net earnings per share growth, and capital expenditures
in fiscal 2011, and all other statements that are not historical facts, including
without limitation statements with respect to the financial condition, results
of operations, plans, objectives, future performance and business of Darden
Restaurants, Inc. and its subsidiaries that are preceded by, followed by or
that include words such as “may,” “will,” “expect,” “intend,” “anticipate,”
“continue,” “estimate,” “project,” “believe,” “plan” or similar expressions,
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and are included, along with this statement, for
purposes of complying with the safe harbor provisions of that Act. Any forward-
looking statements speak only as of the date on which such statements are
made, and we undertake no obligation to update such statements for any
reason to reflect events or circumstances arising after such date. By their
nature, forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those set forth in or implied by
such forward-looking statements. In addition to the risks and uncertainties of
ordinary business obligations, and those described in information incorporated
into this report, the forward-looking statements contained in this report are
subject to the risks and uncertainties described in Part I, Item 1A “Risk Factors”
in our Annual Report on Form 10-K for the year ended May 30, 2010, which
are summarized as follows:
฀ •฀฀฀฀Food฀safety฀and฀food-borne฀illness฀concerns฀throughout฀the฀supply฀chain;
฀ •฀฀฀฀Litigation,฀including฀allegations฀of฀illegal,฀unfair฀or฀inconsistent฀
employment practices, by employees, guests, suppliers, shareholders
or others, regardless of whether the allegations made against us are
valid฀or฀we฀are฀ultimately฀found฀liable;
฀ •฀฀฀฀Unfavorable฀publicity,฀or฀a฀failure฀to฀respond฀effectively฀to฀adverse฀
publicity, relating to food safety or other concerns that could harm
our฀reputation;
฀ •฀฀฀฀Federal,฀state฀and฀local฀regulation฀of฀our฀business,฀including฀laws฀and฀
regulations relating to food safety, minimum wage and other labor issues
including unionization, health care reform, menu labeling, building and
zoning requirements, zoning, land use and environmental laws including
climate฀change฀regulations,฀and฀liquor฀laws;฀
฀ •฀฀฀฀Labor฀and฀insurance฀costs,฀including฀increased฀labor฀costs฀as฀a฀result฀
of federal and state-mandated increases in minimum wage rates
and increased insurance costs as a result of increases in our current
insurance฀premiums;
฀ •฀฀฀฀A฀material฀information฀technology฀failure,฀inadequacy,฀interruption฀or฀
breach฀of฀security;
฀ •฀฀฀฀The฀health฀concerns฀arising฀from฀food-related฀pandemics,฀outbreaks฀
of฀flu฀viruses฀or฀other฀diseases;
฀ •฀฀฀฀The฀intensely฀competitive฀nature฀of฀the฀restaurant฀industry,฀especially฀
pricing,฀service,฀location,฀personnel฀and฀type฀and฀quality฀of฀food;฀
฀ •฀฀฀฀Factors฀impacting฀our฀ability฀to฀drive฀sufficient฀profitable฀sales฀growth฀
through brand relevance, operating excellence, opening new restaurants
and developing or acquiring new dining brands, including lower-than-
expected฀sales฀of฀newly-opened฀restaurants฀and฀acquisition฀risks;฀
฀ •฀฀฀฀The฀impact฀of฀the฀substantial฀indebtedness฀we฀incurred฀in฀connection฀
with฀the฀acquisition฀of฀RARE;
฀ •฀฀฀฀Our฀plans฀to฀expand฀newer฀brands฀like฀Bahama฀Breeze฀and฀Seasons฀52฀
that have not yet proven their long-term viability may not be successful
and could require us to make substantial further investments in these
brands฀and฀result฀in฀losses฀and฀impairments;
฀ •฀฀฀฀A฀lack฀of฀suitable฀new฀restaurant฀locations฀or฀a฀decline฀in฀the฀quality฀
of฀the฀locations฀of฀our฀current฀restaurants;฀
฀ •฀฀฀฀Higher-than-anticipated฀costs฀to฀open,฀close,฀relocate฀or฀
remodel฀restaurants;
฀ •฀฀฀฀Increased฀advertising฀and฀marketing฀costs;
฀ •฀฀฀฀A฀failure฀to฀develop฀and฀recruit฀effective฀leaders฀or฀the฀loss฀of฀
key฀personnel;
฀ •฀฀฀฀The฀price฀and฀availability฀of฀key฀food฀products,฀ingredients฀and฀
utilities used by our restaurants and a failure to achieve economies
of฀scale฀in฀purchasing;฀
฀ •฀฀฀฀The฀impact฀of฀shortages฀or฀interruptions฀in฀the฀delivery฀of฀food฀and฀
other฀products฀from฀third฀party฀vendors฀and฀suppliers;
฀ •฀฀฀฀The฀impact฀of฀volatility฀in฀the฀market฀value฀of฀derivatives฀we฀use฀to฀
hedge฀commodity฀prices;
฀ •฀฀฀฀Economic฀and฀business฀factors฀specific฀to฀the฀restaurant฀industry฀
and other general macroeconomic factors including unemployment,
energy prices and interest rates, severe weather conditions including
hurricanes, and public safety conditions, including actual or threatened
armed฀conflicts฀or฀terrorist฀attacks;
฀ •฀฀฀฀The฀impact฀of฀disruptions฀in฀the฀financial฀markets,฀including฀the฀availability฀
and฀cost฀of฀credit฀and฀an฀increase฀in฀pension฀plan฀expenses;฀
฀ •฀฀฀฀The฀negative฀effect฀of฀a฀possible฀impairment฀in฀the฀carrying฀value฀of฀
our฀goodwill฀or฀other฀intangible฀assets;฀and
฀ •฀฀฀฀A฀failure฀of฀our฀internal฀control฀over฀financial฀reporting.
Any of the risks described above or elsewhere in this report or our other
filings with the SEC could have a material impact on our business, financial
condition or results of operations. It is not possible to predict or identify all
risk factors. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business
operations. Therefore, the above is not intended to be a complete discussion
of all potential risks or uncertainties.