Red Lobster 2015 Annual Report Download - page 24

20
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DARDEN
A summary of our contractual obligations and commercial commitments at May 31, 2015, is as follows:
Payments Due by Period
(in millions) Less Than 1-3 3-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
Long-term debt (1) $2,299.0 $ 92.5 $ 904.6 $ 79.6 $1,222.3
Operating leases (2) 1,324.5 196.4 359.3 290.1 478.7
Purchase obligations (3) 328.7 314.0 14.7 — —
Capital lease obligations (4) 84.8 5.7 11.9 12.2 55.0
Benefit obligations (5) 372.2 27.8 64.4 75.4 204.6
Unrecognized income tax benefits (6) 14.4 0.8 5.5 8.1 —
Total contractual obligations $4,423.6 $637.2 $1,360.4 $465.4 $1,960.6
Amount of Commitment Expiration per Period
(in millions) Total Amounts Less Than 1-3 3-5 More Than
Other Commercial Commitments Committed 1 Year Years Years 5 Years
Standby letters of credit (7) $138.2 $138.2 $ — $ — $ —
Guarantees (8) 147.7 34.0 54.4 32.5 26.8
Total commercial commitments $285.9 $172.2 $54.4 $32.5 $26.8
(1) Includes interest payments associated with existing long-term debt, including the current portion. Variable-rate interest payments associated with the term loan were estimated based on an average
interest rate of 2.1 percent. Excludes discount and issuance costs of $14.3 million.
(2) Includes financing lease obligations and associated imputed interest of $76.9 million over the life of the obligations.
(3) Includes commitments for food and beverage items and supplies, capital projects, information technology and other miscellaneous commitments.
(4) Includes total imputed interest of $30.3 million over the life of the capital lease obligations.
(5) Includes expected contributions associated with our defined benefit plans and payments associated with our postretirement benefit plan and our non-qualified deferred compensation plan through
fiscal 2026.
(6) Includes interest on unrecognized income tax benefits of $0.7 million, $0.1 million of which relates to contingencies expected to be resolved within one year.
(7) Includes letters of credit for $124.2 million of workers’ compensation and general liabilities accrued in our consolidated financial statements, letters of credit for $0.3 million of lease payments
included in the contractual operating lease obligation payments noted above and other letters of credit totaling $13.7 million.
(8) Consists solely of guarantees associated with leased properties that have been assigned to third parties and are primarily related to the disposition of Red Lobster. We are not aware of any
non-performance under these arrangements that would result in our having to perform in accordance with the terms of the guarantees.
Share Repurchase Program
In July 2014, as part of the previously authorized share repurchase program,
we entered into accelerated share repurchase (ASR) agreements with Goldman,
Sachs & Co. and Wells Fargo Bank, National Association (Dealers). The ASR
program provided for the repurchase of an aggregate of $500.0 million of
our common stock. Under the ASR agreements, we paid an aggregate of
$500.0 million to the Dealers in August 2014 and received an initial delivery
of approximately 8.6 million shares on October 1, 2014. In December 2014,
the ASR program was completed and we received the final delivery of approxi-
mately 1.3 million shares. The total number of shares we purchased in connection
with the ASR transactions was based on a combined discounted volume-weighted
average price (VWAP) of $50.12 per share which was determined based on the
average of the daily VWAP of our common stock over the duration of the program,
less an agreed discount. Upon receipt, the repurchased shares were retired
and restored to authorized but unissued shares of common stock.
Our fixed-charge coverage ratio, which measures the number of times each
year that we earn enough to cover our fixed charges, amounted to 1.7 times
and 1.9 times, on a continuing operations basis, for the fiscal years ended
May 31, 2015 and May 25, 2014, respectively. Our adjusted debt to adjusted
total capital ratio (which includes 6.25 times the total annual minimum rent
on a consolidated basis of $182.1 million and $186.4 million for the fiscal
years ended May 31, 2015 and May 25, 2014, respectively, as components
of adjusted debt and adjusted total capital) was 55 percent and 65 percent as
of May 31, 2015 and May 25, 2014, respectively. We include the lease-debt
equivalent and contractual lease guarantees in our adjusted debt to adjusted
total capital ratio reported to shareholders, as we believe its inclusion better
represents the optimal capital structure that we target from period to period
and because it is consistent with the calculation of the covenant under our
Revolving Credit Agreement.