Red Lobster 2010 Annual Report Download - page 45

NOTE 1
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the operations
of Darden Restaurants, Inc. and its wholly owned subsidiaries (Darden, the
Company, we, us or our). We own and operate the Red Lobster®, Olive
Garden®, LongHorn Steakhouse®, The Capital Grille®, Bahama Breeze® and
Seasons 52® restaurant brands located in the United States and Canada.
Through subsidiaries, we own and operate all of our restaurants in the United
States and Canada, except three. Those three restaurants are located in
Central Florida and are owned by joint ventures managed by us. The joint
ventures pay management fees to us, and we control the joint ventures’ use
of our service marks. None of our restaurants in the United States or Canada
are franchised. As of May 30, 2010, we franchised five LongHorn Steakhouse
restaurants in Puerto Rico to an unaffiliated franchisee, and 25 Red Lobster
restaurants in Japan to an unaffiliated Japanese corporation, under area
development and franchise agreements. All significant inter-company
balances and transactions have been eliminated in consolidation.
BASIS OF PRESENTATION
During the second quarter of fiscal 2008, we completed the acquisition of
RARE Hospitality International, Inc. (RARE) for $1.27 billion in total purchase
price. RARE owned two principal restaurant brands, LongHorn Steakhouse
and The Capital Grille, of which 288 and 29 locations, respectively, were in
operation as of the date of acquisition. The acquisition was completed on
October 1, 2007 and the acquired operations are included in our consolidated
financial statements from the date of acquisition.
During fiscal 2007 and 2008 we closed or sold all Smokey Bones
Barbeque & Grill (Smokey Bones) and Rocky River Grillhouse restaurants and
we closed nine Bahama Breeze restaurants. These restaurants and their
related activities have been classified as discontinued operations. Therefore,
for fiscal 2010, 2009 and 2008, all impairment losses and disposal costs,
gains and losses on disposition, along with the sales, costs and expenses
and income taxes attributable to these restaurants have been aggregated
in a single caption entitled “(Losses) earnings from discontinued operations,
net of tax (benefit) expense” on the accompanying consolidated statements
of earnings.
During fiscal 2010, we sold Hemenway’s Seafood Grille & Oyster Bar
and The Old Grist Mill Tavern to third parties for $0.8 million and $1.2 million,
respectively, and recognized a loss of $0.1 million and a gain of $0.4 million,
respectively.
Unless otherwise noted, amounts and disclosures throughout these
notes to consolidated financial statements relate to our continuing operations.
FISCAL YEAR
We operate on a 52/53 week fiscal year, which ends on the last Sunday in
May. Fiscal 2010 and 2008 consisted of 52 weeks of operation, while fiscal
2009 consisted of 53 weeks of operation.
USE OF ESTIMATES
We prepare our consolidated financial statements in conformity with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts
of sales and expenses during the reporting period. Actual results could differ
from those estimates.
CASH EQUIVALENTS
Cash equivalents include highly liquid investments such as U.S. treasury bills,
taxable municipal bonds and money market funds that have an original maturity
of three months or less. Amounts receivable from credit card companies are
also considered cash equivalents because they are both short-term and
highly liquid in nature and are typically converted to cash within three days of
the sales transaction.
ACCOUNTS RECEIVABLE
Accounts receivable, net of the allowance for doubtful accounts, represents
their estimated net realizable value. Provisions for doubtful accounts are
recorded based on historical collection experience and the age of the
receivables. Accounts receivable are written off when they are deemed
uncollectible.฀See฀Note฀3฀–฀Receivables,฀Net฀for฀additional฀information.
INVENTORIES
Inventories consist of food and beverages and are valued at the lower of
weighted-average cost or market.
MARKETABLE SECURITIES
Available-for-sale securities are carried at fair value. Classification of
marketable securities as current or noncurrent is dependent upon man-
agement’s intended holding period, the security’s maturity date, or both.
Unrealized gains and losses, net of tax, on available-for-sale securities
are carried in accumulated other comprehensive income (loss) within the
consolidated financial statements and are reclassified into earnings when
the securities mature or are sold.
LAND, BUILDINGS AND EQUIPMENT, NET
Land, buildings and equipment are recorded at cost less accumulated
depreciation. Building components are depreciated over estimated useful lives
ranging from seven to 40 years using the straight-line method. Leasehold
improvements, which are reflected on our consolidated balance sheets as a
component of buildings in land, buildings and equipment, net, are amortized
over the lesser of the expected lease term, including cancelable option periods,
or the estimated useful lives of the related assets using the straight-line method.
Equipment is depreciated over estimated useful lives ranging from two to ten
years also using the straight-line method. Depreciation and amortization
expense from continuing operations associated with buildings and equipment
amounted to $293.2 million, $273.2 million and $235.5 million, in fiscal 2010,
2009 and 2008, respectively. In fiscal 2010, 2009 and 2008, we had losses
on disposal of land, buildings and equipment of $0.3 million, $1.1 million and
$2.2 million, respectively, which were included in selling, general and admin-
istrative expenses in our accompanying consolidated statements of earnings.
See฀Note฀5฀–฀Land,฀Buildings฀and฀Equipment,฀Net฀for฀additional฀information.
DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT 43
Notes to Consolidated Financial Statements
Darden