Red Lobster 2016 Annual Report Download - page 24

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DARDEN
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We have a recognized net loss of $87.9 million (net of tax) and a
recognized net gain of $2.4 million (net of tax) as components of accumu-
lated other comprehensive income (loss) for the defined benefit plans and
postretirement benefit plan, respectively, as of May 29, 2016. These net
gains and losses represent changes in the amount of the projected benefit
obligation and plan assets resulting from differences in the assumptions
used and actual experience. The amortization of the net loss component of
our fiscal 2017 net periodic benefit cost for the defined benefit plans is
expected to be approximately $2.0 million (net of tax). The amortization of
the net gain component of our fiscal 2017 net periodic benefit cost for the
postretirement benefit plan is expected to be approximately $1.9 million
(net of tax).
We believe our defined benefit and postretirement benefit plan
assumptions are appropriate based upon the factors discussed above.
However, other assumptions could also be reasonably applied that could
differ from the assumptions used. These changes in assumptions would
not significantly impact our funding requirements. We expect to contribute
approximately $0.4 million to our defined benefit pension plans and
approximately $1.3 million to our postretirement benefit plan during
fiscal 2017.
We are not aware of any trends or events that would materially affect
our capital requirements or liquidity. We believe that our internal cash-
generating capabilities, the potential issuance of unsecured debt securities
under our shelf registration statement and short-term commercial paper
should be sufficient to finance our capital expenditures, debt maturities,
stock repurchase program and other operating activities through fiscal 2017.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements that have, or are
reasonably likely to have, a current or future material effect on our financial
condition, changes in financial condition, sales or expenses, results of
operations, liquidity, capital expenditures or capital resources.
FINANCIAL CONDITION
Our total current assets were $820.3 million at May 29, 2016, compared
with $1.06 billion at May 31, 2015. The decrease was primarily due to
the decrease in cash and cash equivalents driven by the pay down of our
long-term debt.
Our total current liabilities were $1.19 billion at May 29, 2016,
compared with $1.20 billion at May 31, 2015. The decrease was primarily
due to a decrease in other current liabilities related to the recognition of
contingent proceeds from the sale of Red Lobster offset by an increase in
unearned revenues associated with gift card sales in excess of redemptions.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We are exposed to a variety of market risks, including fluctuations in interest
rates, foreign currency exchange rates, compensation and commodity
prices. To manage this exposure, we periodically enter into interest rate and
foreign currency exchange instruments, equity forwards and commodity
instruments for other than trading purposes (see Notes 1 and 8 to our
consolidated financial statements).
We use the variance/covariance method to measure value at risk,
over time horizons ranging from one week to one year, at the 95 percent
confidence level. At May 29, 2016, our potential losses in future net earn-
ings resulting from changes in foreign currency exchange rate instruments,
commodity instruments, equity forwards and floating-rate debt interest
rate exposures were approximately $25.2 million over a period of one year.
The value at risk from an increase in the fair value of all of our long-term
fixed-rate debt, over a period of one year, was approximately $73.0 million.
The fair value of our long-term fixed-rate debt outstanding as of May 29,
2016, averaged $492.2 million, with a high of $536.8 million and a low
of $462.1 million during fiscal 2016. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and
cash flows by targeting an appropriate mix of variable and fixed-rate debt.
APPLICATION OF NEW ACCOUNTING STANDARDS
See Note 1 to our consolidated financial statements for a discussion of
recently issued accounting standards.