Company Quick10K Filing
Darden Restaurants
Price127.13 EPS6
Shares125 P/E22
MCap15,840 P/FCF15
Net Debt577 EBIT793
TEV16,418 TEV/EBIT21
TTM 2019-08-25, in MM, except price, ratios
10-Q 2020-02-23 Filed 2020-03-31
10-Q 2019-11-24 Filed 2020-01-02
10-Q 2019-08-25 Filed 2019-10-01
10-K 2019-05-26 Filed 2019-07-19
10-Q 2019-02-24 Filed 2019-04-02
10-Q 2018-11-25 Filed 2019-01-02
10-Q 2018-08-26 Filed 2018-10-02
10-K 2018-05-27 Filed 2018-07-20
10-Q 2018-02-25 Filed 2018-04-03
10-Q 2017-11-26 Filed 2018-01-03
10-Q 2017-08-27 Filed 2017-10-03
10-K 2017-05-28 Filed 2017-07-21
10-Q 2017-02-26 Filed 2017-04-04
10-Q 2016-11-27 Filed 2017-01-04
10-Q 2016-08-28 Filed 2016-10-05
10-K 2016-05-29 Filed 2016-07-25
10-Q 2016-02-28 Filed 2016-04-06
10-Q 2015-11-29 Filed 2016-01-06
10-Q 2015-08-30 Filed 2015-10-02
10-K 2015-05-31 Filed 2015-07-24
10-Q 2015-02-22 Filed 2015-03-30
10-Q 2014-11-23 Filed 2014-12-31
10-Q 2014-08-24 Filed 2014-10-03
10-K 2014-05-25 Filed 2014-07-18
10-Q 2014-02-23 Filed 2014-03-31
10-Q 2013-11-24 Filed 2014-01-02
10-Q 2013-08-25 Filed 2013-09-30
10-K 2013-05-26 Filed 2013-07-19
10-Q 2013-02-24 Filed 2013-04-01
10-Q 2012-11-25 Filed 2013-01-02
10-Q 2012-08-26 Filed 2012-09-28
10-K 2012-05-27 Filed 2012-07-20
10-Q 2012-02-26 Filed 2012-04-02
10-Q 2011-11-27 Filed 2012-01-03
10-Q 2011-08-28 Filed 2011-09-30
10-K 2011-05-29 Filed 2011-07-22
10-Q 2011-02-27 Filed 2011-04-04
10-Q 2010-11-28 Filed 2011-01-05
10-Q 2010-08-29 Filed 2010-10-05
10-K 2010-05-30 Filed 2010-07-23
10-Q 2010-02-28 Filed 2010-04-02
10-Q 2009-11-29 Filed 2010-01-06
8-K 2020-05-19 Other Events, Exhibits
8-K 2020-04-20 Other Events, Exhibits
8-K 2020-04-20 Other Events, Exhibits
8-K 2020-04-10 Other Events
8-K 2020-04-06 Enter Agreement, Off-BS Arrangement, Officers, Other Events, Exhibits
8-K 2020-03-19 Regulation FD, Exhibits
8-K 2020-03-17 Earnings, Off-BS Arrangement, Officers, Exhibits
8-K 2019-12-19 Earnings, Exhibits
8-K 2019-09-18 Earnings, Shareholder Vote, Exhibits
8-K 2019-06-19 Earnings, Officers, Exhibits
8-K 2019-03-21 Earnings, Exhibits
8-K 2018-12-18 Earnings, Exhibits
8-K 2018-09-19 Earnings, Shareholder Vote, Exhibits
8-K 2018-07-16 Regulation FD, Exhibits
8-K 2018-06-19 Earnings, Officers, Amend Bylaw, Exhibits
8-K 2018-03-22 Earnings, Exhibits
8-K 2018-03-09 Officers
8-K 2018-02-20 Shareholder Rights, Other Events, Exhibits
8-K 2018-02-12 Other Events, Exhibits
8-K 2018-02-07 Other Events, Exhibits
8-K 2018-02-07 Other Events, Exhibits
8-K 2018-02-06 Other Events, Exhibits
8-K 2018-01-24 Other Events, Exhibits
8-K 2018-01-22 Officers, Exhibits
8-K 2018-01-08 Regulation FD, Exhibits

DRI 10Q Quarterly Report

Part I
Item 1. Financial Statements (Unaudited)
Note 1.Basis of Presentation
Note 2.Revenue Recognition
Note 3.Supplemental Cash Flow Information
Note 4.Income Taxes
Note 5.Net Earnings per Share
Note 6.Segment Information
Note 7.Impairments and Disposal of Assets, Net
Note 8.Stockholders' Equity
Note 9. Retirement Plans
Note 10. Stock - Based Compensation
Note 11. Derivative Instruments and Hedging Activities
Note 12. Fair Value Measurements
Note 13. Commitments and Contingencies
Note 14. Leases
Note 15. Subsequent Events
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 5.Other Information
Item 6.Exhibits
EX-10.43 ex1043dardenltramend.htm
EX-31.A ex31aq3fy20.htm
EX-31.B ex31bq3fy20.htm
EX-32.A ex32aq3fy20.htm
EX-32.B ex32bq3fy20.htm

Darden Restaurants Earnings 2020-02-23

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
2.31.81.40.90.50.02012201420172020
Rev, G Profit, Net Income
0.50.1-0.4-0.8-1.3-1.72012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 23, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
1-13666
Commission File Number
 DARDEN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
 
Florida
 
59-3305930
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
1000 Darden Center Drive
 
 
Orlando,
Florida
 
32837
(Address of principal executive offices)
 
(Zip Code)
407-245-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, without par value
DRI
New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No
Number of shares of common stock outstanding as of March 16, 2020: 120,823,455.



TABLE OF CONTENTS
 
 
 
 
Page
Part I -
Financial Information
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
Part II -
Other Information
 
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 5.
 
Item 6.
 
 

2


Cautionary Statement Regarding Forward-Looking Statements
Statements set forth in or incorporated into this report that are not historical facts, including without limitation 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 such as “may,” “will,” “expect,” “intend,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan”, “outlook” or similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This statement is included for purposes of complying with the safe harbor provisions of that Act. Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements for any reason to reflect events or circumstances arising after such date. By their nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. The most significant of these uncertainties are described in Darden’s Form 10-K, Form 10-Q (including this report) and Form 8-K reports.

3


PART I
FINANCIAL INFORMATION
Item  1. Financial Statements (Unaudited)
DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
February 23,
2020
 
February 24,
2019
 
February 23,
2020
 
February 24,
2019
Sales
$
2,346.5

 
$
2,246.5

 
$
6,536.8

 
$
6,281.3

Costs and expenses:
 
 
 
 
 
 
 
Food and beverage
658.0

 
638.0

 
1,844.3

 
1,784.6

Restaurant labor
753.8

 
711.4

 
2,149.9

 
2,053.1

Restaurant expenses
396.7

 
379.5

 
1,144.7

 
1,098.4

Marketing expenses
71.6

 
62.4

 
206.6

 
186.9

General and administrative expenses
100.3

 
102.8

 
289.6

 
302.4

Depreciation and amortization
87.7

 
85.3

 
261.5

 
248.8

Impairments and disposal of assets, net
0.1

 
1.6

 
0.2

 
4.4

Total operating costs and expenses
$
2,068.2

 
$
1,981.0

 
$
5,896.8

 
$
5,678.6

Operating income
278.3

 
265.5

 
640.0

 
602.7

Interest, net
13.2

 
12.4

 
37.4

 
38.3

Other (income) expense, net

 

 
153.3

 

Earnings (loss) before income taxes
265.1

 
253.1

 
449.3

 
564.4

Income tax expense
31.8

 
28.0

 
18.8

 
54.5

Earnings from continuing operations
$
233.3

 
$
225.1

 
$
430.5

 
$
509.9

Losses from discontinued operations, net of tax benefit of $0.7, $0.8, $1.6 and $1.3, respectively
(1.0
)
 
(1.5
)
 
(2.9
)
 
(4.5
)
Net earnings
$
232.3

 
$
223.6

 
$
427.6

 
$
505.4

Basic net earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
1.92

 
$
1.83

 
$
3.53

 
$
4.12

Losses from discontinued operations

 
(0.02
)
 
(0.03
)
 
(0.03
)
Net earnings
$
1.92

 
$
1.81

 
$
3.50

 
$
4.09

Diluted net earnings per share:
 
 
 
 
 
 
 
Earnings from continuing operations
$
1.90

 
$
1.80

 
$
3.48

 
$
4.06

Losses from discontinued operations
(0.01
)
 
(0.01
)
 
(0.02
)
 
(0.04
)
Net earnings
$
1.89

 
$
1.79

 
$
3.46

 
$
4.02

Average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
121.3

 
123.3

 
122.1

 
123.7

Diluted
122.8

 
125.0

 
123.7

 
125.6


See accompanying notes to our unaudited consolidated financial statements.

4


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
February 23,
2020
 
February 24,
2019
 
February 23,
2020
 
February 24,
2019
Net earnings
$
232.3

 
$
223.6

 
$
427.6

 
$
505.4

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency adjustment

 
(0.3
)
 
5.5

 
0.3

Change in fair value of derivatives and amortization of unrecognized gains and losses on derivatives, net of taxes of $0.0, $(0.1), $(0.1) and $(0.1), respectively
0.7

 
(1.9
)
 
(4.9
)
 
4.4

Net unamortized gain (loss) arising during the period, including amortization of unrecognized net actuarial (loss) gain, net of taxes of $(0.1), $0.0, $32.3 and $0.0, respectively, related to pension and other post-employment benefits
(0.6
)
 
(0.1
)
 
97.2

 
(0.5
)
Other comprehensive income (loss)
$
0.1

 
$
(2.3
)
 
$
97.8

 
$
4.2

Total comprehensive income
$
232.4

 
$
221.3

 
$
525.4

 
$
509.6

See accompanying notes to our unaudited consolidated financial statements.


5



DARDEN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
 
February 23,
2020
 
May 26,
2019
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
321.7

 
$
457.3

Receivables, net
51.2

 
88.3

Inventories
229.6

 
207.3

Prepaid income taxes
19.6

 
41.6

Prepaid expenses and other current assets
63.9

 
98.1

Total current assets
$
686.0

 
$
892.6

Land, buildings and equipment, net of accumulated depreciation and amortization of $2,615.5 and $2,482.6, respectively
2,794.9

 
2,552.6

Operating lease right-of-use assets
4,030.4

 

Goodwill
1,205.5

 
1,183.7

Trademarks
950.8

 
950.8

Other assets
305.7

 
313.1

Total assets
$
9,973.3

 
$
5,892.8

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
360.1

 
$
332.6

Accrued payroll
155.2

 
175.3

Accrued income taxes
5.4

 
11.6

Other accrued taxes
52.2

 
54.2

Unearned revenues
475.7

 
428.5

Other current liabilities
634.5

 
471.9

Total current liabilities
$
1,683.1

 
$
1,474.1

Long-term debt
928.5

 
927.7

Deferred income taxes
188.5

 
156.9

Operating lease liabilities - non-current
4,317.4

 

Deferred rent

 
354.4

Other liabilities
514.6

 
587.1

Total liabilities
$
7,632.1

 
$
3,500.2

Stockholders’ equity:
 
 
 
Common stock and surplus
$
1,693.0

 
$
1,685.0

Retained earnings
648.6

 
806.6

Accumulated other comprehensive income (loss)
(0.4
)
 
(98.2
)
Unearned compensation

 
(0.8
)
Total stockholders’ equity
$
2,341.2

 
$
2,392.6

Total liabilities and stockholders’ equity
$
9,973.3

 
$
5,892.8


See accompanying notes to our unaudited consolidated financial statements.

6


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended February 23, 2020 and February 24, 2019
(In millions)
(Unaudited)
 
 
Common
Stock
And
Surplus
 
Retained
Earnings
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Unearned
Compensation
 
Total
Stockholders’
Equity
Balance at November 24, 2019
$
1,690.0

 
$
584.5

 
$

 
$
(0.5
)
 
$
(0.3
)
 
$
2,273.7

Net earnings

 
232.3

 

 

 

 
232.3

Other comprehensive income (loss)

 

 

 
0.1

 

 
0.1

Dividends declared ($0.88 per share)

 
(107.4
)
 

 

 

 
(107.4
)
Stock option exercises (0.1 shares)
0.7

 

 

 

 

 
0.7

Stock-based compensation
8.7

 

 

 

 

 
8.7

Repurchases of common stock (0.6 shares)
(8.6
)
 
(60.8
)
 

 

 

 
(69.4
)
Issuance of stock under Employee Stock Purchase Plan and other plans (0.0 shares)
2.2

 

 

 

 

 
2.2

Other

 

 

 

 
0.3

 
0.3

Balance at February 23, 2020
$
1,693.0

 
$
648.6

 
$

 
$
(0.4
)
 
$

 
$
2,341.2

 
 
 
 
 
 
 
 
 
 
 
 
Balance at May 26, 2019
$
1,685.0

 
$
806.6

 
$

 
$
(98.2
)
 
$
(0.8
)
 
$
2,392.6

Net earnings

 
427.6

 

 

 

 
427.6

Other comprehensive income (loss)

 

 

 
97.8

 

 
97.8

Dividends declared ($2.64 per share)

 
(324.9
)
 

 

 

 
(324.9
)
Stock option exercises (0.3 shares)
11.5

 

 

 

 

 
11.5

Stock-based compensation
24.3

 

 

 

 

 
24.3

Repurchases of common stock (2.6 shares)
(35.8
)
 
(264.5
)
 

 

 

 
(300.3
)
Issuance of stock under Employee Stock Purchase Plan and other plans (0.1 shares)
6.2

 

 

 

 

 
6.2

Other
1.8

 
3.8

 

 

 
0.8

 
6.4

Balance at February 23, 2020
$
1,693.0

 
$
648.6

 
$

 
$
(0.4
)
 
$

 
$
2,341.2

Balance at November 25, 2018
$
1,675.5

 
$
662.5

 
$
(7.8
)
 
$
(78.7
)
 
$
(1.2
)
 
$
2,250.3

Net earnings

 
223.6

 

 

 

 
223.6

Other comprehensive income (loss)

 

 

 
(2.3
)
 

 
(2.3
)
Dividends declared ($0.75 per share)

 
(93.6
)
 

 

 

 
(93.6
)
Stock option exercises (0.0 shares)
1.8

 

 

 

 

 
1.8

Stock-based compensation
7.2

 

 

 

 

 
7.2

Repurchases of common stock (0.7 shares)
(9.6
)
 
(64.1
)
 

 

 

 
(73.7
)
Issuance of stock under Employee Stock Purchase Plan and other plans (0.0 shares)
1.9

 

 

 

 
0.4

 
2.3

Other

 

 

 

 
0.1

 
0.1

Balance at February 24, 2019
$
1,676.8

 
$
728.4

 
$
(7.8
)
 
$
(81.0
)
 
$
(0.7
)
 
$
2,315.7

 
 
 
 
 
 
 
 
 
 
 
 
Balance at May 27, 2018
$
1,631.9

 
$
657.6

 
$
(7.8
)
 
$
(85.2
)
 
$
(1.7
)
 
$
2,194.8

Net earnings

 
505.4

 

 

 

 
505.4

Other comprehensive income (loss)

 

 

 
4.2

 

 
4.2

Dividends declared ($2.25 per share)

 
(280.2
)
 

 

 

 
(280.2
)
Stock option exercises (0.9 shares)
40.2

 

 

 

 

 
40.2

Stock-based compensation
20.0

 

 

 

 

 
20.0

Repurchases of common stock (1.6 shares)
(21.2
)
 
(144.8
)
 

 

 

 
(166.0
)
Issuance of stock under Employee Stock Purchase Plan and other plans (0.1 shares)
5.2

 

 

 

 
0.8

 
6.0

Other
0.7

 
(9.6
)
 

 

 
0.2

 
(8.7
)
Balance at February 24, 2019
$
1,676.8

 
$
728.4

 
$
(7.8
)
 
$
(81.0
)
 
$
(0.7
)
 
$
2,315.7

See accompanying notes to our unaudited consolidated financial statements.

7


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Nine Months Ended
 
February 23,
2020
 
February 24,
2019
Cash flows—operating activities
 
 
 
Net earnings
$
427.6

 
$
505.4

Losses from discontinued operations, net of tax
2.9

 
4.5

Adjustments to reconcile net earnings from continuing operations to cash flows:
 
 
 
Depreciation and amortization
261.5

 
248.8

Impairments and disposal of assets, net
0.2

 
4.4

Stock-based compensation expense
42.6

 
45.3

Change in current assets and liabilities
50.2

 
59.3

Contributions to pension and postretirement plans
(14.0
)
 
(1.3
)
Deferred income taxes
(1.9
)
 
15.9

Change in deferred rent

 
26.5

Change in other assets and liabilities
14.7

 
5.7

Pension settlement charge
147.1

 

Other, net
(8.5
)
 
5.5

Net cash provided by operating activities of continuing operations
$
922.4

 
$
920.0

Cash flows—investing activities
 
 
 
Purchases of land, buildings and equipment
(374.5
)
 
(346.9
)
Proceeds from disposal of land, buildings and equipment
4.3

 
12.7

Cash used in business acquisitions, net of cash acquired
(50.1
)
 

Purchases of capitalized software and other assets
(16.9
)
 
(17.4
)
Other, net
(10.2
)
 
1.9

Net cash used in investing activities of continuing operations
$
(447.4
)
 
$
(349.7
)
Cash flows—financing activities
 
 
 
Proceeds from issuance of common stock
17.7

 
45.4

Dividends paid
(322.3
)
 
(278.4
)
Repurchases of common stock
(300.3
)
 
(166.0
)
Proceeds from issuance of short-term debt

 
137.5

Repayments of short-term debt

 
(137.5
)
Principal payments on capital and financing leases
(3.8
)
 
(4.9
)
Other, net
0.6

 
0.1

Net cash used in financing activities of continuing operations
$
(608.1
)
 
$
(403.8
)
Cash flows—discontinued operations
 
 
 
Net cash used in operating activities of discontinued operations
(2.5
)
 
(10.5
)
Net cash used in discontinued operations
$
(2.5
)
 
$
(10.5
)
 
 
 
 
Increase (decrease) in cash and cash equivalents
(135.6
)
 
156.0

Cash and cash equivalents - beginning of period
457.3

 
146.9

Cash and cash equivalents - end of period
$
321.7

 
$
302.9

 
 
 
 

8


DARDEN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In millions)
(Unaudited)
 
Nine Months Ended
 
February 23,
2020
 
February 24,
2019
Cash flows from changes in current assets and liabilities
 
 
 
Receivables, net
12.8

 
16.5

Inventories
(22.1
)
 
(4.2
)
Prepaid expenses and other current assets
(2.1
)
 
(5.8
)
Accounts payable
20.7

 
26.3

Accrued payroll
(20.1
)
 
(14.2
)
Prepaid/accrued income taxes
15.7

 
17.9

Other accrued taxes
(2.1
)
 
(6.1
)
Unearned revenues
47.1

 
54.6

Other current liabilities
0.3

 
(25.7
)
Change in current assets and liabilities
$
50.2

 
$
59.3


See accompanying notes to our unaudited consolidated financial statements.


9

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1.Basis of Presentation
Darden Restaurants, Inc. (we, our, Darden or the Company) owns and operates full-service dining restaurants in the United States and Canada under the trade names Olive Garden®, LongHorn Steakhouse®, Cheddar’s Scratch Kitchen®, Yard House®, The Capital Grille®, Seasons 52®, Bahama Breeze®, and Eddie V’s Prime Seafood®. As of February 23, 2020, through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except for 3 joint venture restaurants managed by us and 31 franchised restaurants. We also have 32 franchised restaurants in operation located in Latin America and the Middle East.
We have prepared these consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. We operate on a 52/53-week fiscal year which ends on the last Sunday in May. Our fiscal year ending May 31, 2020 will contain 53 weeks of operation, with the 53rd week occurring in our fiscal fourth quarter. Operating results for interim periods presented are not necessarily indicative of results that may be expected for the full fiscal year.
These statements should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 26, 2019. We prepare our consolidated financial statements in conformity with GAAP. 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 costs and expenses during the reporting period. Actual results could differ from those estimates.
We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.
On July 29, 2019, we completed the acquisition of five Cheddar's Scratch Kitchen restaurants (four operating and one closed) and certain assets and liabilities from an existing franchisee. The acquisition was funded with cash on hand for $37.8 million in total consideration, of which approximately $19.0 million was allocated to land, buildings and equipment. The results of operations of these restaurants are included in our consolidated financial statements from the date of acquisition.
On December 2, 2019, we completed the acquisition of two Cheddar's Scratch Kitchen restaurants and certain assets and liabilities from two existing franchisees. The acquisition was funded with cash on hand for $14.0 million in total consideration, of which approximately $7.0 million was allocated to land, buildings and equipment. The results of operations of these restaurants are included in our consolidated financial statements from the date of acquisition.
Pro-forma financial information of the combined entities for periods prior to the acquisitions is not presented due to the immaterial impact, both individually and in the aggregate, of the financial results of the acquired restaurants on our consolidated financial statements.
Recently Adopted Accounting Standards
As of May 27, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASC 842) which replaced existing lease guidance with comprehensive lease measurement and recognition guidance and expanded disclosure requirements. This new guidance requires lessees to recognize on the balance sheet a liability based on the present value of minimum lease payments and a corresponding right-of-use asset. We adopted this guidance using the modified retrospective transition method which means we did not adjust the balance sheet for comparative periods but recorded a $3.8 million cumulative-effect adjustment to retained earnings as of May 27, 2019. We elected the package of practical expedients which allowed us to not reassess previous accounting conclusions regarding lease identification, lease classification and initial direct costs. We elected the land easement practical expedient which allowed us to not evaluate our existing land easements for lease accounting treatment. We elected the short-term lease recognition exemption which provided the option to not recognize right-of-use assets and related liabilities that arise from certain leases with terms of 12 months or less. We also elected the accounting policy election to not separate lease and non-lease components for real estate leases entered into after adoption. See Note 14.
As of May 27, 2019, we adopted FASB ASU 2017-12, Derivatives and Hedging (Topic 815). The amendments in this update better align an entity’s risk management activities and financial reporting for hedging relationships through changes to

10

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The adoption of this guidance did not have a material impact on our consolidated financial statements.



Note 2.Revenue Recognition  
Deferred revenue liabilities from contracts with customers included on our accompanying consolidated balance sheets is comprised of the following:
(in millions)
 
February 23, 2020
 
May 26, 2019
Unearned revenues
 
 
 
 
Deferred gift card revenue
 
$
505.4

 
$
453.6

Deferred gift card discounts
 
(31.1
)
 
(26.4
)
Other
 
1.4

 
1.3

Total
 
$
475.7

 
$
428.5

 
 
 
 
 
Other liabilities
 
 
 
 
Deferred franchise fees - non-current
 
$
2.3

 
$
3.9

The following table presents a rollforward of deferred gift card revenue.
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
February 23, 2020
 
February 24, 2019
 
February 23, 2020
 
February 24, 2019
Beginning balance
 
$
412.4

 
$
411.6

 
$
453.6

 
$
443.1

Activations
 
362.7

 
363.5

 
606.5

 
615.1

Redemptions and breakage
 
(269.7
)
 
(273.3
)
 
(554.7
)
 
(556.4
)
Ending balance
 
$
505.4

 
$
501.8

 
$
505.4

 
$
501.8


Note 3.Supplemental Cash Flow Information
Cash paid for interest and income taxes are as follows:
 
Nine Months Ended
(in millions)
 
February 23, 2020
 
February 24, 2019
Interest, net of amounts capitalized
 
$
40.2

 
$
37.1

Income taxes, net of refunds
 
1.1

 
15.0


Non-cash investing activities are as follows:
 
Nine Months Ended
(in millions)
 
February 23, 2020
 
February 24, 2019
Increase in land, buildings and equipment through accrued purchases
 
$
44.7

 
$
37.5


Note 4.Income Taxes
The effective income tax rate for continuing operations for the quarter ended February 23, 2020 was 12.0 percent compared to an effective income tax rate of 11.1 percent for the quarter ended February 24, 2019. The effective income tax rate for continuing operations for the nine months ended February 23, 2020 was 4.2 percent compared to an effective income tax rate of 9.7 percent for the nine months ended February 24, 2019. The effective income tax rate increase for the quarter ended February 23, 2020 was primarily due to higher earnings before income taxes. The effective income tax rate decrease for the

11

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

nine months ended February 23, 2020 was primarily due to lower earnings before income taxes for fiscal 2020 driven primarily by a pension settlement charge.
Included in our remaining balance of unrecognized tax benefits is $5.4 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations or as a result of the expiration of the statute of limitations for specific jurisdictions.
Note 5.Net Earnings per Share
Outstanding stock options, restricted stock and equity-settled performance stock units granted by us represent the only dilutive effect reflected in diluted weighted average shares outstanding, none of which impact the numerator of the diluted net earnings per share computation. Stock options, restricted stock and equity-settled performance stock units excluded from the calculation of diluted net earnings per share because the effect would have been anti-dilutive, are as follows: 
 
 
Three Months Ended
 
Nine Months Ended
(in millions)
 
February 23,
2020
 
February 24,
2019
 
February 23,
2020
 
February 24,
2019
Anti-dilutive stock-based compensation awards
 
0.7

 
0.4

 
0.6

 
0.3



Note 6.Segment Information
We manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze and Eddie V’s in North America as operating segments. The brands operate principally in the U.S. within full-service dining. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. We have four reportable segments: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business.
The Olive Garden segment includes the results of our company-owned Olive Garden restaurants in the U.S. and Canada. The LongHorn Steakhouse segment includes the results of our company-owned LongHorn Steakhouse restaurants in the U.S. The Fine Dining segment aggregates our premium brands that operate within the fine-dining sub-segment of full-service dining and includes the results of our company-owned The Capital Grille and Eddie V’s restaurants in the U.S. The Other Business segment aggregates our remaining brands and includes the results of our company-owned Cheddar’s Scratch Kitchen, Yard House, Seasons 52 and Bahama Breeze restaurants in the U.S and results from our franchise operations.
External sales are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales, and the customers and long-lived assets of our reportable segments are predominantly in the U.S. There were no material transactions among reportable segments.
Our management uses segment profit as the measure for assessing performance of our segments. Segment profit includes revenues and expenses directly attributable to restaurant-level results of operations (sometimes referred to as restaurant-level earnings). These expenses include food and beverage costs, restaurant labor costs, restaurant expenses and marketing expenses (collectively “restaurant and marketing expenses”). In the first quarter of fiscal 2020, we changed our internal management reporting related to non-cash lease-related expenses, as these are expenses for which our operating segments are no longer being evaluated. This change reallocates non-cash lease-related expenses from our operating segments to the corporate level for restaurant expenses (which is a component of segment profit) and depreciation and amortization. Additionally, our lease-related right-of-use assets are not managed or evaluated at the operating segment level, but rather at the corporate level. Fiscal 2019 segment profit and depreciation and amortization have been restated for comparability.

12

DARDEN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP.