Red Lobster 2015 Annual Report Download - page 62

58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DARDEN
The following table presents a summary of our performance stock unit
activity as of and for the fiscal year ended May 31, 2015:
Units Weighted-Average
(All units settled in cash) (in millions) Fair Value Per Unit
Outstanding beginning of period 0.31 $49.55
Units granted 0.14 44.95
Units vested (0.21) 48.35
Units canceled (0.24) 47.86
Performance unit adjustment 0.38 49.26
Outstanding end of period 0.38 $65.54
As of May 31, 2015, our total performance stock unit liability was
$15.9 million, including $11.2 million recorded in other current liabilities and
$4.7 million recorded in other liabilities on our consolidated balance sheets.
As of May 25, 2014, our total performance stock unit liability was $9.5 million,
including $5.3 million recorded in other current liabilities and $4.2 million
recorded in other liabilities on our consolidated balance sheets.
Performance stock units cliff vest three years from the date of grant, where
0.0 percent to 150.0 percent of the entire grant is earned or forfeited at the
end of three 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 0.0 percent to 150.0 percent
of the annual target. All awards will be settled in cash. The 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 31, 2015, there was
$3.9 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 1.7 years. The total fair value of performance
stock units that vested in fiscal 2015 was $10.2 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 avail-
able 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 2015, 2014 and 2013 was $5.2 million,
$7.2 million and $7.3 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 obliga-
tions under standby letters of credit. At May 31, 2015 and May 25, 2014, we
had $124.2 million and $113.5 million, respectively, of standby letters of
credit related to workers’ compensation and general liabilities accrued in our
consolidated financial statements. At May 31, 2015 and May 25, 2014, we
had $14.0 million and $17.8 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 31, 2015 and May 25, 2014, we had $147.7 million and
$3.4 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 weighted-average cost of capital at
May 31, 2015 and May 25, 2014, amounted to $113.4 million and $2.7 million,
respectively. We did not record a liability for the guarantees, as the likelihood
of the third parties defaulting on the assignment agreements was deemed to
be remote. 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 2015 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,
proceedings 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 17, 2015, the Board of Directors declared a cash dividend of $0.55
per share to be paid August 3, 2015 to all shareholders of record as of the
close of business on July 10, 2015.
On June 23, 2015, our Board of Directors announced approval of a strategic
real estate plan to pursue transfer of approximately 430 of our owned restaurant
properties into a real estate investment trust (REIT), with substantially all of the
REIT’s initial assets being leased back to Darden. We expect to complete the
REIT transaction during fiscal 2016. The REIT supplements the previously
announced sale-leaseback transactions of approximately 75 restaurant
properties and our corporate headquarters that were listed during the fourth
quarter of fiscal 2015. We expect to utilize the proceeds generated from these
transactions to pay down our long-term debt. We have conducted substantial
analysis of the feasibility of implementing a REIT transaction, however, a
significant amount of work remains and there can be no assurance we will
be able to successfully complete the transaction and establish a REIT.