Red Lobster 2012 Annual Report Download - page 66

Notes to Consolidated Financial Statements
Darden
62 Darden Restaurants, Inc. 2012 Annual Report
POSTEMPLOYMENT SEVERANCE PLAN
We accrue for postemployment severance costs in our consolidated financial
statements and recognize actuarial gains and losses related to our postemployment
severance accrual as a component of accumulated other comprehensive income
(loss). As of May 27, 2012 and May 29, 2011, $4.8 million and $2.8 million,
respectively, of unrecognized actuarial losses related to our postemployment
severance plan were included in accumulated other comprehensive income (loss)
on a net of tax basis.
DEFINED CONTRIBUTION PLAN
We have a defined contribution (401(k)) plan covering most employees age 21 and
older. We match contributions for participants with at least one year of service
up to 6 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 $664.9 million at May 27, 2012 and $658.9 million at
May 29, 2011. Expense recognized in fiscal 2012, 2011 and 2010 was $0.9 million,
$0.7 million and $1.2 million, respectively. Employees classified as “highly com-
pensated” under the IRC are not eligible to participate in this plan. Instead, highly
compensated employees are eligible to participate in a separate non-qualified
deferred compensation (FlexComp) plan. This plan allows eligible employees to
defer the payment of part of their annual salary and all or part of their annual
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 FlexComp plan totaled $201.4 million
and $200.1 million at May 27, 2012 and May 29, 2011, 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
loan to us and a corresponding loan from us to the ESOP. Compensation expense
is recognized as contributions are accrued. Fluctuations in our stock price impact
the amount of expense to be recognized. Contributions to the plan, plus the
dividends accumulated on 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 each of the fiscal years 2012, 2011
and 2010, the ESOP incurred interest expense of $0.0 million, $0.1 million and
$0.1 million, respectively, and used dividends received of $1.9 million, $1.4 million
and $1.6 million, respectively, and contributions received from us of $0.5 million,
$0.1 million and $0.2 million, respectively, to pay principal and interest on our debt.
ESOP shares are included in weighted-average common shares outstanding
for purposes of calculating net earnings per share. At May 27, 2012, the ESOP’s
debt to us had a balance of $5.9 million with a variable rate of interest of 0.59
percent and is due to be repaid no later than December 2014. The number of our
common shares held in the ESOP at May 27, 2012 approximated 4.9 million
shares, representing 3.7 million allocated shares and 1.2 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 0.59 percent at May 27, 2012, is due to be repaid
no later than December 2018. The shares acquired under this loan are accounted
for in accordance with FASB ASC Subtopic 718-40, 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, 2012. The fair value of these shares at May 27,
2012 was $2.1 million.