Red Lobster 2014 Annual Report Download - page 54

Notes to Consolidated Financial Statements
Darden
52 Darden Restaurants, Inc.
The following table presents a summary of our performance stock unit
activity as of and for the fiscal year ended May 25, 2014:
Units Weighted-Average
(All units settled in cash) (in millions) Fair Value Per Unit
Outstanding beginning of period 0.9 $36.83
Units granted 0.3 48.63
Units vested (0.2) 49.08
Units canceled (0.2) 41.74
Performance unit adjustment (0.5) 49.90
Outstanding end of period 0.3 $49.55
As of May 25, 2014, our total performance stock unit liability was
$9.5 million, including $5.3 million recorded in other current liabilities and
$4.2 million recorded in other liabilities on our consolidated balance sheets. As
of May 26, 2013, our total performance stock unit liability was $16.8 million,
including $9.0 million recorded in other current liabilities and $7.8 million
recorded in other liabilities on our consolidated balance sheets.
Performance stock units cliff vest three years from the date of grant,
where 0.0 percent to 150.0 percent of the entire grant is earned or forfeited
at the end of three years. The number of units that actually vests will be
determined for each year based on the achievement of Company performance
criteria set forth in the award agreement and may range from 0.0 percent
to 150.0 percent of the annual target. All awards will be settled in cash.
The awards are measured based on the market price of our common stock
each period, are amortized over the service period and the vested portion is
carried as a liability in our accompanying consolidated balance sheets. As of
May 25, 2014, there was $5.3 million of unrecognized compensation cost
related to unvested performance stock units granted under our stock plans.
This cost is expected to be recognized over a weighted-average period of
1.7 years. The total fair value of performance stock units that vested in fiscal
2014 was $8.8 million.
We maintain an Employee Stock Purchase Plan to provide eligible
employees who have completed one year of service (excluding senior officers
subject to Section 16(b) of the Securities Exchange Act of 1934, and certain
other employees who are employed less than full time or own 5 percent or
more of our capital stock or that of any subsidiary) an opportunity to invest
up to $5.0 thousand per calendar quarter to purchase shares of our common
stock, subject to certain limitations. Under the plan, up to an aggregate of
3.6 million shares are available for purchase by employees at a purchase
price that is 85.0 percent of the fair market value of our common stock on
either the first or last trading day of each calendar quarter, whichever is lower.
Cash received from employees pursuant to the plan during fiscal 2014,
2013 and 2012 was $7.2 million, $7.3 million and $7.2 million, respectively.
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 25, 2014 and May 26, 2013,
we had $113.5 million and $107.0 million, respectively, of standby letters of
credit related to workers’ compensation and general liabilities accrued in our
consolidated financial statements. At May 25, 2014 and May 26, 2013, we
had $17.8 million and $20.6 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 25, 2014 and May 26, 2013, we had $3.4 million and
$4.2 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 25, 2014 and May 26, 2013, amounted to $2.7 million and
$3.4 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 2015 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
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. The following is a brief
description of the more significant of these matters.