Red Lobster 2010 Annual Report Download - page 68

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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
obligations under standby letters of credit. At May 30, 2010 and May 31,
2009, we had $97.3 million and $104.5 million, respectively, of standby
letters of credit related to workers’ compensation and general liabilities
accrued in our consolidated financial statements. At May 30, 2010 and
May 31, 2009, we had $20.1 million and $19.2 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 30, 2010 and May 31, 2009, we had $9.0 million and $8.8 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 pre-tax cost of capital at May 30, 2010
and May 31, 2009, amounted to $6.4 million and $6.3 million, respectively.
We did not accrue for the guarantees, as the likelihood of the third parties
defaulting on the assignment agreements was deemed to be less than probable.
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 2011 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 oper ational 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 22, 2010, the Board of Directors declared a cash dividend of
32 cents per share to be paid August 2, 2010 to all shareholders of record
as of the close of business on July 9, 2010.
66 DARDEN RESTAURANTS, INC. | 2010 ANNUAL REPORT
Notes to Consolidated Financial Statements
Darden