Red Lobster 2016 Annual Report Download - page 22

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DARDEN
18
During fiscal 2016, utilizing the proceeds of the Four Corners cash
dividend, cash proceeds from the sale-leasebacks of restaurant properties
and our corporate headquarters and additional cash on hand, we retired
approximately $1.03 billion aggregate principal of long-term debt
consisting of:
• $285.0 million of our variable-rate term loan, maturing in
August 2017;
• $500.0 million of unsecured 6.200 percent senior notes due in
October 2017;
• $121.9 million of unsecured 4.500 percent senior notes due in
October 2021;
• $111.1 million of unsecured 3.350 percent senior notes due in
November 2022; and
• $10.0 million of unsecured 4.520 percent senior notes due in
August 2024.
During fiscal 2016, we recorded approximately $106.8 million of
expenses associated with the $1.03 billion aggregate principal retirement
including cash costs of approximately $68.7 million for repurchase premiums,
make-whole amounts and hedge settlements and non-cash charges of
approximately $38.1 million associated with hedge and loan cost write-offs.
These amounts were recorded in interest, net, in our consolidated statement
of earnings. Excluding these one-time retirement costs, we expect these
debt retirements to reduce our interest expense by approximately
$50.0 million annually.
The interest rate on our $300.0 million 6.800 percent senior notes due
October 2037 is subject to adjustment from time to time if the debt rating
assigned to such series of notes is downgraded below a certain rating level
(or subsequently upgraded). The maximum adjustment is 2.000 percent
above the initial interest rate and the interest rate cannot be reduced below
the initial interest rate. In October 2014, Moody’s Investors Service down-
graded our senior unsecured ratings to “Ba1” from “Baa3” resulting in an
increase of 0.250 percent in the interest rates on our senior notes due in
October 2037. In April 2016, Moody’s Investors Service subsequently
upgraded our rating to “Baa3” and the interest rate was restored to the
initial rate.
Through our shelf registration statement on file with the SEC,
depending on conditions prevailing in the public capital markets, we may issue
unsecured debt securities from time to time in one or more series, which
may consist of notes, debentures or other evidences of indebtedness in one
or more offerings.
From time to time, we may repurchase our outstanding debt in privately
negotiated transactions. Such repurchases, if any, will depend on prevailing
market conditions, our liquidity requirements and other factors.
From time to time, we enter into interest rate derivative instruments
to manage interest rate risk inherent in our operations. See Note 8 to our
consolidated financial statements.
A summary of our contractual obligations and commercial commitments at May 29, 2016, 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) $1,080.2 $ 30.2 $ 60.3 $ 60.3 $ 929.4
Leases (2) 3,060.9 310.6 585.7 515.3 1,649.3
Purchase obligations (3) 378.6 318.0 50.7 9.9 —
Benefit obligations (4) 379.6 27.1 58.7 73.5 220.3
Unrecognized income tax benefits (5) 15.1 1.3 2.4 11.4 —
Total contractual obligations $4,914.4 $687.2 $757.8 $670.4 $2,799.0
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 (6) $124.9 $124.9 $ — $ — $ —
Guarantees (7) 154.2 36.6 58.3 35.9 23.4
Total commercial commitments $279.1 $161.5 $58.3 $35.9 $23.4
(1) Includes interest payments associated with existing long-term debt, including the current portion. Excludes discount and issuance costs of $10.0 million.
(2) Inclusive of all arrangements accounted for as operating, capital and financing leases. Includes imputed interest of $76.6 million over the life of financing lease obligations and imputed
interest of $27.0 million over the life of capital lease obligations.
(3) I ncludes commitments for food and beverage items and supplies, capital projects, information technology and other miscellaneous commitments.
(4) 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.
(5) 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.
(6) Includes letters of credit for $116.5 million of workers’ compensation and general liabilities accrued in our consolidated financial statements and letters of credit for $8.4 million related to
contractual operating lease obligations and other payments.
(7) 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.