Red Lobster 2012 Annual Report Download - page 69

Notes to Consolidated Financial Statements
Darden
Darden Restaurants, Inc. 2012 Annual Report 65
The performance stock units issued before fiscal 2010 vest over a period
of five years following the date of grant, where zero percent to 150.0 percent of
one-fifth (20 percent) of the grant is earned or forfeited at the end of each year
in the vesting period. Performance stock units issued during fiscal 2010 and
subsequent will cliff vest 3 years from the date of grant, where zero percent to
150.0 percent of the entire grant is earned or forfeited at the end of 3 years. The
number of units that actually vests will be determined for each year based on the
achievement of Company performance criteria set forth in the award agreement
and may range from zero percent to 150.0 percent of the annual target. These
awards issued before fiscal 2010 may be settled in cash or shares of common
stock at the election of the Company on the date of grant. The performance stock
unit grants for fiscal 2007 and 2008 were designated as equity settled awards,
while the fiscal 2009 grant was designated as a cash-settled award. All awards
issued during fiscal 2010 and subsequent will be cash settled awards. Holders will
receive one share of common stock or its equivalent in cash for each performance
stock unit that vests. For equity-settled awards, compensation expense is measured
based on grant date fair value and amortized over the service period. Cash-settled
awards are measured based on the market price of our common stock each period,
are amortized over the service period and the vested portion is carried as a liability
in our accompanying consolidated balance sheets. As of May 27, 2012, there was
$18.9 million of unrecognized compensation cost related to unvested performance
stock units granted under our stock plans. This cost is expected to be recognized
over a weighted-average period of 1.5 years. The total fair value of performance
stock units that vested in fiscal 2012 was $9.8 million.
We maintain an Employee Stock Purchase Plan to provide eligible employees
who have completed one year of service (excluding senior officers subject to
Section 16(b) of the Securities Exchange Act of 1934, and certain other employees
who are employed less than full time or own 5 percent or more of our capital stock
or that of any subsidiary) an opportunity to invest up to $5.0 thousand per calendar
quarter to purchase shares of our common stock, subject to certain limitations.
Under the plan, up to an aggregate of 3.6 million shares are available for purchase
by employees at a purchase price that is 85.0 percent of the fair market value of
our common stock on either the first or last trading day of each calendar quarter,
whichever is lower. Cash received from employees pursuant to the plan during fiscal
2012, 2011 and 2010 was $7.2 million, $7.4 million and $7.1 million, respectively.
`NOTE 19
COMMITMENTS AND
CONTINGENCIES
As collateral for performance on contracts and as credit guarantees to banks
and insurers, we were contingently liable for guarantees of subsidiary obligations
under standby letters of credit. At May 27, 2012 and May 29, 2011, we had
$99.2 million and $96.4 million, respectively, of standby letters of credit related
to workers’ compensation and general liabilities accrued in our consolidated
financial statements. At May 27, 2012 and May 29, 2011, we had $20.3 million
and $16.8 million, respectively, of standby letters of credit related to contractual
operating lease obligations and other payments. All standby letters of credit are
renewable annually.
At May 27, 2012 and May 29, 2011, we had $5.4 million and $7.4 million,
respectively, of guarantees associated with leased properties that have been
assigned to third parties. These amounts represent the maximum potential
amount of future payments under the guarantees. The fair value of these potential
payments discounted at our pre-tax cost of capital at May 27, 2012 and May 29,
2011, amounted to $4.1 million and $5.4 million, respectively. We did not accrue
for the guarantees, as the likelihood of the third parties defaulting on the assign-
ment agreements was deemed to be less than probable. In the event of default
by a third party, the indemnity and default clauses in our assignment agreements
govern our ability to recover from and pursue the third party for damages incurred
as a result of its default. We do not hold any third-party assets as collateral
related to these assignment agreements, except to the extent that the assignment
allows us to repossess the building and personal property. These guarantees
expire over their respective lease terms, which range from fiscal 2013 through
fiscal 2021.
We are subject to private lawsuits, administrative proceedings and claims
that arise in the ordinary course of our business. A number of these lawsuits, pro-
ceedings and claims may exist at any given time. These matters typically involve
claims from guests, employees and others related to operational issues common
to the restaurant industry, and can also involve infringement of, or challenges to,
our trademarks. While the resolution of a lawsuit, proceeding or claim may have
an impact on our financial results for the period in which it is resolved, we believe
that the final disposition of the lawsuits, proceedings and claims in which we are
currently involved, either individually or in the aggregate, will not have a material
adverse effect on our financial position, results of operations or liquidity.
`NOTE 20
SUBSEQUENT EVENT
On June 20, 2012, the Board of Directors declared a cash dividend of $0.50 per
share to be paid August 1, 2012 to all shareholders of record as of the close of
business on July 10, 2012.
On July 12, 2012, we entered into an agreement to acquire Yard House
USA, Inc. (Yard House), for $585.0 million in an all-cash transaction. After
the acquisition, Yard House will be a wholly-owned subsidiary of Darden.
The transaction has been approved by our Board of Directors and is subject
to the satisfaction of customary closing conditions, including, among others,
the expiration or termination of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. The acquisition is
expected to be completed early in the second quarter of fiscal 2013.