Red Lobster 2013 Annual Report Download - page 43

Notes to Consolidated Financial Statements
Darden
Darden Restaurants, Inc. 2013 Annual Report 39
NOTE 1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
OPERATIONS AND PRINCIPLES OF
CONSOLIDATION
The accompanying consolidated financial statements include the operations of
Darden Restaurants, Inc. and its wholly owned subsidiaries (Darden, the Company,
we, us or our). We own and operate the Olive Garden®, Red Lobster®, LongHorn
Steakhouse®, The Capital Grille®, Yard House®, Bahama Breeze®, Seasons 52®,
Eddie V’s Prime Seafood® and Wildfish Seafood Grille® restaurant brands located
in the United States and Canada. Through subsidiaries, we own and operate all
of our restaurants in the United States and Canada, except for three restaurants
located in Central Florida and three restaurants in California that are owned jointly
by us and third parties, and managed by us, and five franchised restaurants in
Puerto Rico. We also have area development and franchise agreements with
unaffiliated operators to develop and operate our brands in Japan, the Middle East
and Latin America. Pursuant to these agreements, as of May 26, 2013, 37 franchised
restaurants were in operation in Japan, the Middle East, Puerto Rico and Mexico.
All significant inter-company balances and transactions have been eliminated
in consolidation.
BASIS OF PRESENTATION
On August 29, 2012, we completed the acquisition of Yard House USA, Inc.
(Yard House) for $585.0 million in cash. The acquired operations of Yard House
included 40 restaurants that are included in the results of operations in our
consolidated financial statements from the date of acquisition.
The assets and liabilities of Yard House were recorded at their respective
fair values as of the date of acquisition. The following table summarizes the
final allocation of the purchase price as of May 26, 2013:
(in millions) Final
Current assets $ 16.0
Buildings and equipment 152.2
Trademark 109.3
Other assets 9.8
Goodwill 369.8
Total assets acquired $657.1
Current liabilities 40.8
Other liabilities 31.3
Total liabilities assumed $ 72.1
Net assets acquired $585.0
The excess of the purchase price over the aggregate fair value of net assets
acquired was allocated to goodwill. Of the $369.8 million recorded as goodwill,
$37.9 million is expected to be deductible for tax purposes. The portion of the
purchase price attributable to goodwill represents benefits expected as a result
of the acquisition, including sales and unit growth opportunities in addition to
supply-chain and administrative cost synergies. The trademark has an indefinite
life based on the expected use of the asset and the regulatory and economic
environment within which it is being used. The trademark represents a highly
respected brand with positive connotations and we intend to cultivate and protect
the use of this brand. Goodwill and indefinite-lived trademarks are not amortized
but are reviewed annually for impairment or more frequently if indicators of
impairment exist. Buildings and equipment will be depreciated over a period of
7 months to 21 years. Other assets and liabilities include values associated with
favorable and unfavorable market leases that will be amortized over a weighted-
average period of 16 years.
As a result of the acquisition and related integration efforts, we incurred
expenses of approximately $12.3 million (net of tax) during the fiscal year ended
May 26, 2013 which are included in restaurant expenses, selling, general and
administrative expenses and depreciation expense in our consolidated statements
of earnings. Pro-forma financial information for the combined entities for periods
prior to the acquisition is not presented due to the immaterial impact of the
financial results of Yard House on our consolidated financial statements.
During fiscal 2007 and 2008 we closed or sold all Smokey Bones Barbeque &
Grill (Smokey Bones) and Rocky River Grillhouse restaurants and we closed nine
Bahama Breeze restaurants. These restaurants and their related activities have
been classified as discontinued operations. Therefore, for fiscal 2013, 2012 and
2011, all impairment losses and disposal costs, gains and losses on disposition
attributable to these restaurants have been aggregated in a single caption entitled
“Losses from discontinued operations, net of tax benefit” on the accompanying
consolidated statements of earnings.
Unless otherwise noted, amounts and disclosures throughout these notes
to consolidated financial statements relate to our continuing operations.
FISCAL YEAR
We operate on a 52/53 week fiscal year, which ends on the last Sunday in May.
Fiscal 2013, 2012 and 2011 consisted of 52 weeks of operation.
USE OF ESTIMATES
We prepare our consolidated financial statements in conformity with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts
of sales and expenses during the reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments such as U.S. Treasury bills,
taxable municipal bonds and money market funds that have an original maturity
of three months or less. Amounts receivable from credit card companies are
also considered cash equivalents because they are both short term and highly
liquid in nature and are typically converted to cash within three days of the
sales transaction.