2013 Annual Report - Investor Relations - Darden Restaurants

More documents

Recommendations

Info

$Q:\Public\Darden\RealEstate-Legal Bldg. Information\Olive Garden ...$

Management’s Discussion and Analysisof Financial Condition and Results of OperationsDardenFINANCIAL CONDITIONOur total current assets were $764.9 million at May 26, 2013, compared with$757.6 million at May 27, 2012. The increase was primarily due to an increase incash and cash equivalents, and an increase in deferred income taxes related tocurrent period activity of taxable timing differences, partially offset by lowerinventory levels related to the timing of inventory purchases.Our total current liabilities were $1.42 billion at May 26, 2013, compared with$1.77 billion at May 27, 2012. The decrease was primarily due to the repaymentof $350.0 million of long-term debt during fiscal 2013 which was included incurrent liabilities as current portion of long-term debt at May 27, 2012 and adecrease in short-term debt, partially offset by an increase in unearned revenuesassociated with gift card sales in excess of current-period redemptions and anincrease in accounts payable.QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISKWe are exposed to a variety of market risks, including fluctuations in interestrates, foreign currency exchange rates, compensation and commodity prices. Tomanage this exposure, we periodically enter into interest rate and foreign currencyexchange instruments, equity forwards and commodity instruments for otherthan trading purposes (see Notes 1 and 10 to our consolidated financial statements,in Part II, Item 8 of this report, incorporated herein by reference).We use the variance/covariance method to measure value at risk, over timehorizons ranging from one week to one year, at the 95 percent confidence level.At May 26, 2013, our potential losses in future net earnings resulting from changesin foreign currency exchange rate instruments, commodity instruments, equityforwards and floating rate debt interest rate exposures were approximately$47.4 million over a period of one year (including the impact of the interest rateswap agreements discussed in Note 10 to our consolidated financial statementsin Part II, Item 8 of this report, incorporated herein by reference). The value atrisk from an increase in the fair value of all of our long-term fixed rate debt, overa period of one year, was approximately $160.7 million. The fair value of our longtermdebt during fiscal 2013 averaged $2.41 billion, with a high of $2.79 billionand a low of $1.98 billion. Our interest rate risk management objective is to limitthe impact of interest rate changes on earnings and cash flows by targeting anappropriate mix of variable and fixed rate debt.APPLICATION OF NEW ACCOUNTING STANDARDSIn February 2013, the FASB issued Accounting Standards Update (ASU) 2013-02,Comprehensive Income (Topic 220), Reporting Amounts Reclassified Out ofAccumulated Other Comprehensive Income. This update requires companies toprovide information about the amounts reclassified out of accumulated othercomprehensive income by component. In addition, companies are required topresent, either on the face of the statement where net income is presented or inthe notes, significant amounts reclassified out of accumulated other comprehensiveincome by the respective line items of net income. This update is effectivefor us in our first quarter of fiscal 2014 and will be applied prospectively. Otherthan requiring additional disclosures, adoption of this new guidance will nothave a significant impact on our consolidated financial statements.In July 2012, the FASB issued ASU 2012-02, Intangibles – Goodwill and Other(Topic 350), Testing Indefinite Lived Intangible Assets for Impairment. This updatesimplifies the guidance for testing the decline in the realizable value (impairment)of indefinite-lived intangible assets other than goodwill and allows companiesthe option to first assess qualitative factors to determine whether it is necessaryto perform the quantitative impairment test. Companies electing to perform aqualitative assessment are no longer required to calculate the fair value of anindefinite-lived intangible asset unless the company determines, based on aqualitative assessment, that it is “more likely than not” that the asset is impaired.This update is effective for annual and interim impairment tests performed infiscal years beginning after September 15, 2012, which will require us to adoptthese provisions in fiscal 2014; however, early adoption is permitted. We do notbelieve adoption of this new guidance will have a significant impact on ourconsolidated financial statements.30 Darden Restaurants, Inc. 2013 Annual Report
Management’s Discussion and Analysisof Financial Condition and Results of OperationsDardenFORWARD-LOOKING STATEMENTSStatements set forth in or incorporated into this report regarding the expectednet increase in the number of our restaurants, U.S. same-restaurant sales, totalsales growth, diluted net earnings per share growth, and capital expenditures infiscal 2014, and all other statements that are not historical facts, including withoutlimitation statements with respect to the financial condition, results of operations,plans, objectives, future performance and business of Darden Restaurants, Inc.and its subsidiaries that are preceded by, followed by or that include words suchas “may,” “will,” “expect,” “intend,” “anticipate,” “continue,” “estimate,” “project,”“believe,” “plan” or similar expressions, are forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995 and areincluded, along with this statement, for purposes of complying with the safeharbor provisions of that Act. Any forward-looking statements speak only as ofthe date on which such statements are made, and we undertake no obligation toupdate such statements for any reason to reflect events or circumstances arisingafter such date. By their nature, forward-looking statements involve risks anduncertainties that could cause actual results to differ materially from those setforth in or implied by such forward-looking statements. In addition to the risksand uncertainties of ordinary business obligations, and those described in informationincorporated into this report, the forward-looking statements containedin this report are subject to the risks and uncertainties described in Part I, Item 1A“Risk Factors” in our Annual Report on Form 10-K for the year ended May 26,2013, which are summarized as follows:• Food safety and food-borne illness concerns throughout the supply chain;• Litigation, including allegations of illegal, unfair or inconsistentemployment practices;• Unfavorable publicity, or a failure to respond effectively to adverse publicity;• Risks relating to public policy changes and federal, state and localregulation of our business, including in the areas of health care reform,environmental matters, minimum wage, unionization, data privacy,menu labeling, immigration requirements and taxes;• Labor and insurance costs;• Insufficient guest or employee facing technology, or a failure to maintaina continuous and secure cyber network, free from material failure, interruptionor security breach;• Our inability or failure to execute a comprehensive business continuityplan following a major natural disaster such as a hurricane or manmadedisaster, including terrorism;• Health concerns arising from food-related pandemics, outbreaks of fluviruses or other diseases;• Intense competition, or an insufficient focus on competition and theconsumer landscape;• Our failure to drive both short-term and long-term profitable salesgrowth through brand relevance, operating excellence, openingnew restaurants of existing brands and developing or acquiringnew dining brands;• Failure to successfully integrate the Yard House business, and the risksassociated with the additional indebtedness incurred to finance theYard House acquisition;• Our plans to expand our smaller brands Bahama Breeze, Seasons 52 andEddie V’s, and the testing of synergy restaurants and other new businessventures, that have not yet proven their long-term viability;• A lack of suitable new restaurant locations or a decline in the quality ofthe locations of our current restaurants;• Higher-than-anticipated costs to open, close, relocate or remodel restaurants;• A failure to identify and execute innovative marketing and customerrelationship tactics, ineffective or improper use of social media or othermarketing initiatives, and increased advertising and marketing costs;• A failure to recruit, develop and retain effective leaders or the loss orshortage of key personnel, or an inability to adequately monitor andrespond to employee dissatisfaction;• A failure to address cost pressures, including rising costs for commodities,health care and utilities used by our restaurants, and a failure to effectivelydeliver cost management activities and achieve economies of scalein purchasing;• The impact of shortages or interruptions in the delivery of food and otherproducts from third-party vendors and suppliers;• Adverse weather conditions and natural disasters;• Volatility in the market value of derivatives we use to hedgecommodity prices;• Economic and business factors specific to the restaurant industry andother general macroeconomic factors including unemployment, energyprices and interest rates that are largely out of our control;• Disruptions in the financial markets that may impact consumer spendingpatterns, affect the availability and cost of credit and increase pensionplan expenses;• Risks associated with doing business with franchisees, business partnersand vendors in foreign markets;• Failure to protect our service marks or other intellectual property;• Impairment of the carrying value of our goodwill or other intangible assets;• A failure of our internal controls over financial reporting and futurechanges in accounting standards; and• An inability or failure to recognize, respond to and effectively manage theaccelerated impact of social media.Any of the risks described above or elsewhere in this report or our other filingswith the SEC could have a material impact on our business, financial conditionor results of operations. It is not possible to predict or identify all risk factors.Additional risks and uncertainties not presently known to us or that we currentlybelieve to be immaterial may also impair our business operations. Therefore,the above is not intended to be a complete discussion of all potential risksor uncertainties.Darden Restaurants, Inc. 2013 Annual Report 31
Page 3 and 4: It ComesWith HighExpectations• Ex
Page 5 and 6: Red Lobster ®We’re passionate ab
Page 7 and 8: ConvenienceOur guests lead busy liv
Page 9 and 10: • Total sales growth from continu
Page 11 and 12: factors having nothing to do with l
Page 13 and 14: What We Bringto the New Era...
Page 15 and 16: Red LobsterRed Lobster is focusing
Page 17 and 18: Bahama BreezeBahama Breeze is well-
Page 19 and 20: Restaurant Support CenterEmployees
Page 21 and 22: 18Management’sDiscussion and Anal
Page 23: Management’s Discussion and Analy
Page 26 and 27: Management’s Discussion and Analy
Page 33: Management’s Discussion and Analy
Page 37 and 38: Report of Independent Registered Pu
Page 39 and 40: Management’s Consolidated Discuss
Page 41 and 42: Consolidated Statements of Changes
Page 43 and 44: Notes to Consolidated Financial Sta
Page 71 and 72: Board of DirectorsClarence Otis, Jr
Page 73 and 74: Shareholder InformationCompany Addr

2013 Annual Report - Investor Relations - Darden Restaurants

Create successful ePaper yourself

Delete template?

Save as template?