Red Lobster 2014 Annual Report Download - page 18

Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Darden
16 Darden Restaurants, Inc.
Our fixed-charge coverage ratio, which measures the number of times
each year that we earn enough to cover our fixed charges, amounted to
1.9 times and 2.5 times, on a continuing operations basis, for the fiscal
years ended May 25, 2014 and May 26, 2013, respectively. Our adjusted
debt to adjusted total capital ratio (which includes 6.25 times the total
annual minimum rent on a consolidated basis of $186.4 million and
$164.3 million for the fiscal years ended May 25, 2014 and May 26, 2013,
respectively, as components of adjusted debt and adjusted total capital)
was 65 percent as of May 25, 2014 and May 26, 2013. We include the
lease-debt equivalent and contractual lease guarantees in our adjusted debt
to adjusted total capital ratio reported to shareholders, as we believe its
inclusion better represents the optimal capital structure that we target from
period to period and because it is consistent with the calculation of the
covenant under our Revolving Credit Agreement.
Based on these ratios, we believe our financial condition is strong.
The composition of our capital structure is shown in the following table.
May 25, May 26,
(in millions, except ratios) 2014 2013
CAPITAL STRUCTURE
Short-term debt $ 207.6 $ 164.5
Current portion long-term debt 15.0 –
Long-term debt, excluding unamortized discounts 2,486.6 2,501.9
Capital lease obligations 54.3 54.4
Total debt $2,763.5 $2,720.8
Stockholders’ equity 2,156.9 2,059.5
Total capital $4,920.4 $4,780.3
CALCULATION OF ADJUSTED CAPITAL
Total debt $2,763.5 $2,720.8
Lease-debt equivalent 1,165.0 1,026.9
Guarantees 3.4 4.2
Adjusted debt $3,931.9 $3,751.9
Stockholders’ equity 2,156.9 2,059.5
Adjusted total capital $6,088.8 $5,811.4
CAPITAL STRUCTURE RATIOS
Debt to total capital ratio 56% 57%
Adjusted debt to adjusted total capital ratio 65% 65%
Net cash flows provided by operating activities from continuing operations
were $555.4 million, $594.4 million and $513.5 million in fiscal 2014, 2013
and 2012, respectively. Net cash flows provided by operating activities include
net earnings from continuing operations of $183.2 million, $237.3 million
and $279.2 million in fiscal 2014, 2013 and 2012, respectively. Net cash
flows provided by operating activities from continuing operations decreased
in fiscal 2014 primarily due to lower net earnings, current period activity of
taxable timing differences and the timing of inventory purchases. Net cash
flows provided by operating activities reflect income tax payments of
$90.0 million, $98.5 million and $123.5 million in fiscal 2014, 2013 and
2012, respectively. The lower tax payments in fiscal 2014, as compared with
tax payments in fiscal 2013 and 2012, primarily relates to the recognition
of tax benefits related to the timing of deductions for fixed-asset related
expenditures and the application of the overpayment of income taxes in
prior years to fiscal 2014 tax liabilities.
Net cash flows used in investing activities from continuing operations
were $436.3 million, $1.11 billion and $539.1 million in fiscal 2014, 2013 and
2012, respectively. Net cash flows used in investing activities from continuing
operations included capital expenditures incurred principally for building new
restaurants, remodeling existing restaurants, replacing equipment, and tech-
nology initiatives. Capital expenditures related to continuing operations were
$414.8 million in fiscal 2014, compared to $510.1 million in fiscal 2013
and $457.6 million in fiscal 2012. The decreasing trend of expenditures
from fiscal 2013 to fiscal 2014 results primarily from decreases in remodel
and new restaurant activity. Additionally, net cash used in the acquisitions
of Yard House in fiscal 2013 and Eddie V’s in fiscal 2012 was $577.4 million
and $58.5 million, respectively.
Net cash flows used in financing activities from continuing operations
were $179.2 million in fiscal 2014, compared to net cash flows provided by
financing activities from continuing operations of $355.4 million in fiscal
2013 and net cash flows used in financing activities from continuing
operations of $40.4 million in fiscal 2012. During fiscal 2013, we closed on
the issuance of $300.0 million of senior notes, received funding from a
$300.0 million term loan and completed the offering of $450.0 million of
senior notes, resulting in net proceeds of $445.3 million, which were used to
effectively refinance the $350.0 million of long-term notes that we repaid at
maturity during fiscal 2013. Repayments of long-term debt were $0.0 million,
$355.9 million and $2.1 million in fiscal 2014, 2013 and 2012, respectively.
Net proceeds from the issuance of short-term debt were $43.1 million in
fiscal 2014 and $77.2 million in fiscal 2012 while net repayments of short-
term debt were $98.1 million in fiscal 2013. For fiscal 2014, net cash flows
used in financing activities included our repurchase of 9.9 thousand shares
of our common stock for $0.5 million, compared to 1.0 million shares of
our common stock for $52.4 million in fiscal 2013 and 8.2 million shares of
our common stock for $375.1 million in fiscal 2012. As of May 25, 2014,
our Board of Directors had authorized us to repurchase up to 187.4 million
shares of our common stock and a total of 171.9 million shares had been
repurchased under the authorization. The repurchased common stock
reduces stockholders’ equity. As of May 25, 2014, our unused authorization
was 15.5 million shares. We received proceeds primarily from the issuance
of common stock upon the exercise of stock options of $58.1 million,
$64.4 million and $70.2 million in fiscal 2014, 2013 and 2012, respectively.
Net cash flows used in financing activities also included dividends paid to
stockholders of $288.3 million, $258.2 million and $223.9 million in fiscal
2014, 2013 and 2012, respectively. The increase in dividend payments
reflects the increase in our annual dividend rate from $1.72 per share in
fiscal 2012, to $2.00 per share in fiscal 2013 and to $2.20 per share in
fiscal 2014. In June 2014, our Board of Directors approved a quarterly
dividend of $0.55 per share payable on August 1, 2014, which indicates
an annual dividend of $2.20 per share in fiscal 2015.