Red Lobster 2016 Annual Report Download - page 58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DARDEN
54
NOTE 16
WORKFORCE REDUCTION
During fiscal 2014 and 2015, we performed reviews of our operations and support structure resulting in changes in our growth plans and related support
structure needs. As a result, we had workforce reductions and program spending cuts throughout fiscal 2014 and 2015. In accordance with these actions,
we incurred employee termination benefits costs and other costs, which are included in general and administrative expenses in our consolidated statement
of earnings as follows:
Fiscal Year
(in millions) 2016
(3) 2015 2014
Employee termination benefits (1) $ 0.2 $37.4 $17.2
Other (2) (0.1) 0.5 0.9
Total $ 0.1 $37.9 $18.1
(1) Includes salary and stock-based compensation expense.
(2) Includes postemployment medical, outplacement and relocation costs.
(3) Reflects subsequent adjustments to the fiscal 2014 and 2015 plans based on updated information.
The following table summarizes the accrued employee termination benefits and other costs, which are primarily included in other current liabilities on our
consolidated balance sheet as of May 29, 2016:
Fiscal Year Fiscal Year Balance at
(in millions) 2014 Plans 2015 Plans Payments Adjustments May 29, 2016
Employee termination benefits (1) $13.4 $24.2 $(35.9) $ 0.9 $2.6
Other 1.1 0.6 (1.3) (0.3) 0.1
Total $14.5 $24.8 $(37.2) $ 0.6 $2.7
(1) Excludes costs associated with stock options and restricted stock that will be settled in shares upon vesting.
We expect the remaining liability to be paid by the second quarter of fiscal 2017.
NOTE 17
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 29, 2016, and May 31, 2015,
we had $116.5 million and $124.2 million, respectively, of standby letters of
credit related to workers’ compensation and general liabilities accrued in
our consolidated financial statements. At May 29, 2016, and May 31, 2015,
we had $8.4 million and $14.0 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 29, 2016, and May 31, 2015, we had $154.2 million and
$147.7 million, respectively, of guarantees associated with leased properties
that have been assigned to third parties. These amounts represent the maxi-
mum 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 29, 2016, and May 31, 2015, amounted to $119.3 million
and $113.4 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 2017 through fiscal 2027.
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 18
SUBSEQUENT EVENT
On June 29, 2016, the Board of Directors declared a cash dividend of
$0.56 per share to be paid August 1, 2016, to all shareholders of record
as of the close of business on July 11, 2016.