10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 28, 2006

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number: 1-13666

DARDEN RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)

Florida	59-3305930
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
5900 Lake Ellenor Drive, Orlando, Florida (Address of principal executive offices)	32809 (Zip Code)
Registrant’s telephone number, including area code: (407) 245-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common Stock, without par value and Preferred Stock Purchase Rights	Name of each exchange on which registered New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes X No ___

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes __ No X .

Indicate by check mark if 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 X No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer X Accelerated filer ____ Non-accelerated filer ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes___ No X .

Aggregate market value of Common Stock held by non-affiliates of the Registrant, based on the closing price of $36.09 per share as reported on the New York Stock Exchange on November 27, 2005: $5,450,113,413.

Number of shares of Common Stock outstanding as of July 6, 2006: 146,101,752 (excluding 129,201,101 shares held in the Company’s treasury).

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders on September 15, 2006, to be filed with the Securities and Exchange Commission no later than 120 days after May 28, 2006, are incorporated by reference into Part III, and portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended May 28, 2006 are incorporated by reference into Parts I and II of this Report.

DARDEN RESTAURANTS, INC.

FORM 10-K

FISCAL YEAR ENDED MAY 28, 2006

TABLE OF CONTENTS

PART I		Page
Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved SEC Comments	15
Item 2.	Properties	16
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	18
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 8.	Financial Statements and Supplementary Data	19
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	19
Item 9A.	Controls and Procedures	19
Item 9B.	Other Information	19
PART III
Item 10.	Directors and Executive Officers of the Registrant	20
Item 11.	Executive Compensation	20
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	20
Item 13.	Certain Relationships and Related Transactions	20
Item 14.	Principal Accountant Fees and Services	20
PART IV
Item 15.	Exhibits and Financial Statement Schedules	21
	Signatures	22

PART I

Item 1. BUSINESS

Introduction

Darden Restaurants, Inc. is the largest publicly held casual dining restaurant company in the world,¹ and served over 300 million meals during fiscal 2006. As of May 28, 2006, we operated 1,427 restaurants in the United States and Canada. In the United States, we operated 1,390 restaurants in 49 states (the exception being Alaska), including 651 Red Lobster®, 576 Olive Garden®, 32 Bahama Breeze®, 126 Smokey Bones Barbeque & Grill® and five Seasons 52®restaurants. In Canada, we operated 37 restaurants, including 31 Red Lobster and six Olive Garden restaurants. We own and operate all of our restaurants in the United States and Canada, with no franchising. Of our 1,427 restaurants open on May 28, 2006, 850 were located on owned sites and 577 were located on leased sites. In Japan, as of May 28, 2006, we licensed 42 Red Lobster restaurants to an unaffiliated Japanese corporation that operates the restaurants under an Area Development and Franchise Agreement.

Darden Restaurants, Inc. is a Florida corporation incorporated in March 1995, and is the parent company of GMRI, Inc., also a Florida corporation. GMRI, Inc. and our other subsidiaries own the operating assets of the restaurants. GMRI, Inc. was originally incorporated in March 1968 as Red Lobster Inns of America, Inc. Our principal executive offices and restaurant support center are located at 5900 Lake Ellenor Drive, Orlando, Florida 32809, telephone (407) 245-4000. Our corporate website address is www.darden.com. We make our reports on Forms 10-K, 10-Q and 8-K, and Section 16 reports on Forms 3, 4 and 5, and all amendments to those reports available free of charge on our website the same day as the reports are filed with or furnished to the Securities and Exchange Commission. Information on our website is not deemed to be incorporated by reference into this Form 10-K. Unless the context indicates otherwise, all references to “Darden,” “we”, “our” or “us” include Darden Restaurants, Inc., GMRI, Inc. and our respective subsidiaries.

We have a 52/53 week fiscal year ending on the last Sunday in May. Our 2006 fiscal year, which ended on May 28, 2006, and our 2005 fiscal year, which ended on May 29, 2005, each had 52 weeks. Our 2004 fiscal year, which ended on May 30, 2004, had 53 weeks.

The following description of our business should be read in conjunction with the information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations incorporated by reference in Item 7 of this Form 10-K and our consolidated financial statements incorporated by reference in Item 8 of this Form 10-K.

Background

We opened our first restaurant, a Red Lobster, in Lakeland, Florida in 1968. Red Lobster was founded by William B. Darden, for whom we are named. We were acquired by General Mills, Inc. in 1970. In May 1995, we became a separate publicly held company when General Mills distributed all outstanding Darden stock to General Mills’ stockholders.

The number of Red Lobster and Olive Garden restaurants open at the end of fiscal 2006 increased by three and 19, respectively, as compared to the end of fiscal 2005. Red Lobster has grown from six restaurants in operation at the end of fiscal 1970 to 682 restaurants in North America by the end of fiscal 2006. Olive Garden, an internally developed concept, opened its first restaurant in Orlando, Florida in fiscal 1983, and by the end of fiscal 2006 had expanded to 582 restaurants in North America.

Bahama Breeze is an internally developed concept that provides a Caribbean escape, offering the food, drinks and atmosphere you would find in the islands. In fiscal 1996, Bahama Breeze opened its first restaurant in Orlando, Florida. At the end of fiscal 2006, there were 32 Bahama Breeze restaurants.

_____________________________

¹Source: Nation’s Restaurant News, “Special Report: Top 100,” June 26, 2006 (based on U.S. revenues from company-owned restaurants).

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                Smokey Bones is also an internally developed concept featuring barbeque and other grilled favorites served in an inviting mountain-lodge setting that features televised sports. The first restaurant was opened in fiscal 2000 in Orlando, Florida. At the end of fiscal 2006, there were 126 Smokey Bones restaurants.

In February 2003, we opened a new test restaurant in Orlando, Florida called Seasons 52. It is a casually sophisticated fresh grill and wine bar with seasonally inspired menus offering fresh ingredients to create great tasting meals that are lower in calories than comparable restaurant meals. At the end of fiscal 2006, there were five Seasons 52 restaurants.

The table below shows our growth and lists the number of restaurants operated by Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and Seasons 52 as of the end of each fiscal year since 1970. The final column in the table lists our total sales for the years indicated.

Company-Operated Restaurants Open at Fiscal Year End

Fiscal Year	Red Lobster	Olive Garden	Bahama Breeze	Smokey Bones	Seasons 52	Total Restaurants (1)	Total Company Sales ($ in Millions) (2)(3)
1970	6					6	3.5
1971	24					24	9.1
1972	47					47	27.1
1973	70					70	48.0
1974	97					97	72.6
1975	137					137	108.5
1976	174					174	174.1
1977	210					210	229.2
1978	236					236	291.4
1979	244					244	337.5
1980	260					260	397.6
1981	291					291	528.4
1982	328					328	614.3
1983	360	1				361	718.5
1984	368	2				370	782.3
1985	372	4				376	842.2
1986	401	14				415	917.3
1987	433	52				485	1,097.7
1988	443	92				535	1,300.8
1989	490	145				635	1,621.5
1990	521	208				729	1,927.7
1991	568	272				840	2,212.3
1992	619	341				960	2,542.0
1993	638	400				1,038	2,737.0
1994	675	458				1,133	2,963.0
1995	715	477				1,192	3,163.3
1996	729	487	1			1,217	3,191.8
1997	703	477	2			1,182	3,171.8
1998	682	466	3			1,151	3,261.6
1999	669	464	6			1,139	3,432.4
2000	654	469	14	2		1,139	3,675.5
2001	661	477	21	9		1,168	3,992.4
2002	667	496	29	19		1,211	4,366.9
2003	673	524	34	39	1	1,271	4,655.0
2004	680	543	32	69	1	1,325	5,003.4
2005	679	563	32	104	3	1,381	5,278.1
2006	682	582	32	126	5	1,427	5,720.6

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(1) Includes only Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and Seasons 52 restaurants. Does not include other restaurant concepts operated by us in these years that are no longer owned or operated by us.

(2) Includes total sales from all of our operations, including sales from restaurant concepts besides Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones and Seasons 52 that are no longer owned or operated by us. Total company sales from 1970 through fiscal 1995 were included in the consolidated operations of our former parent company, General Mills, Inc., prior to our spin-off as a separate publicly traded corporation in May 1995.

(3) Emerging Issues Task Force Issue 00-14 “Accounting for Certain Sales Incentives” requires sales incentives to be classified as a reduction of sales. We adopted Issue 00-14 in the fourth quarter of fiscal 2002. For purposes of this presentation, sales incentives have been reclassified as a reduction of sales for fiscal 1998 through 2006. Sales incentives for fiscal years prior to 1998 have not been reclassified.

Strategy

The restaurant industry is generally considered to be comprised of four segments: quick service, midscale, casual dining and fine dining. The industry is highly fragmented and includes many independent operators and small chains. We believe that capable operators of strong multi-unit concepts have the opportunity to increase their share of the casual dining segment. We plan to grow by increasing the number of restaurants in each of our existing concepts and by developing or acquiring additional concepts that can be expanded profitably.

While we are a leader in the casual dining segment, we know we cannot be successful without a clear sense of who we are. Our core purpose is “To nourish and delight everyone we serve.” This core purpose is supported by our core values:

• Integrity and fairness;

• Respect and caring;

• Diversity;

• Always learning/always teaching;

• Being “of service”

• Teamwork; and

• Excellence.

Our mission is to be “The best in casual dining, now and for generations.” We believe we can achieve this goal by continuing to build on our historical strength as a multi-brand casual dining company, which is grounded in our commitment to combining the following areas:

• A strong culture that inspires and engages our people with firmly held values, a clear mission, and a core purpose to nourish and delight everyone we serve;

• Competitively superior leadership;

• Brand management excellence;

• Restaurant operating excellence; and

• Restaurant support excellence.

Our strategic framework also includes two points that we believe separate us from our competition. We are committed to:

• Being a multi-brand restaurant company that is bound together by common operating practices and a unifying culture which serves to make us stronger than the sum of our parts; and

• Obtaining insights from our guests and employees to create powerful, broadly appealing brands and to develop successful people.

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Restaurant Concepts

Red Lobster

Red Lobster is the largest casual dining, seafood-specialty restaurant operator in the United States. It offers an extensive menu featuring fresh fish, shrimp, crab, lobster, scallops and other seafood in a casual atmosphere. The menu includes a variety of specialty seafood and non-seafood entrées, appetizers and desserts.

Most dinner entrée prices range from $8.75 to $28.99, with certain lobster items available by the pound. Most lunch entrée prices range from $5.99 to $11.99. The price of each entrée includes salad, side items and our signature Cheddar Bay biscuits. During fiscal 2006, the average check per person was $17.00 to $18.00, with alcoholic beverages accounting for approximately 8.1 percent of Red Lobster’s sales. Red Lobster maintains approximately 108 different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a lower-priced children’s menu.

Olive Garden

Olive Garden is the market share leader among casual dining Italian restaurants in the United States. Olive Garden’s menu includes a variety of authentic Italian foods featuring fresh ingredients and an expanded wine list that includes a broad selection of wines imported from Italy. The menu includes antipasti (appetizers); soups, salad and garlic breadsticks; baked pastas; sautéed specialties with chicken, seafood and fresh vegetables; grilled meats; and a variety of desserts. Olive Garden also uses coffee imported from Italy for its espresso and cappuccino. Olive Garden is in the process of accelerating new restaurant growth through the introduction of two new prototypes in the fourth quarter of fiscal 2006, which are expected to deliver the same guest experience while reducing capital investment and improving operating efficiencies.

Most dinner entrée prices range from $7.95 to $19.50, and most lunch entrée prices range from $5.95 to $10.25. The price of each entrée also includes as much fresh salad or soup and breadsticks as a guest desires. During fiscal 2006, the average check per person was $14.00 to $15.00, with alcoholic beverages accounting for approximately 8.3 percent of Olive Garden’s sales. Olive Garden maintains approximately 42 different dinner menus and 36 lunch menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as 13 children’s menus.

Bahama Breeze

Bahama Breeze is a restaurant that brings guests the feeling of a Caribbean escape. It offers the food, drinks and atmosphere you would find in the islands. The menu features distinctive, Caribbean-inspired fresh seafood, chicken and steaks as well as signature specialty drinks. The first Bahama Breeze opened in 1996 and met with strong positive consumer response. We continued to test the concept by opening a limited number of additional restaurants in each of the following years, and began national expansion of the concept in 1998. While the concept continued to be well received by guests, its financial performance did not meet our overall expectations. Bahama Breeze closed six restaurants and wrote down the carrying value of four others during the fourth quarter of fiscal 2004, reducing to 32 the total number of restaurants in operation, and postponed any new restaurant expansion.

Since fiscal 2004, Bahama Breeze has implemented a number of changes to become a more relevant brand for its guests, evolving its menu to make it more approachable yet still distinctive and improving the guest experience. Bahama Breeze will seek to deliver its strong potential by continuing to elevate the guest experience to be competitively superior and by improving restaurant-level returns through structural changes to its operations that remove costs and complexity that do not add value for its guests. Bahama Breeze’s focus now is to accelerate progress in these areas before returning to new restaurant growth.

Most dinner entrée prices at Bahama Breeze range from $9.00 to $22.00, and most lunch entrée prices range from $7.00 to $11.00. During fiscal 2006, the average check per person was $22.00 to $23.00, with alcoholic beverages accounting for approximately 24.3 percent of Bahama Breeze’s sales. Bahama Breeze maintains 11 different lunch and dinner menus to reflect geographic differences in consumer preferences, prices and selections, as well as a children’s menu.

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Smokey Bones

Smokey Bones features barbequed pork, beef and chicken, as well as other grilled favorites, all served in a lively yet comfortable mountain-lodge setting that features televised sports. We opened the first Smokey Bones in September 1999, and began national expansion of the concept in fiscal 2002. We opened 26 new Smokey Bones restaurants during fiscal 2006, and had 126 restaurants in operation at the end of the fiscal year. Softening of sales at Smokey Bones during fiscal 2006, however, led us to reevaluate our new restaurant opening strategy. During the third quarter of fiscal 2006, we recorded an impairment charge for five Smokey Bones restaurants, three of which were permanently closed. We have identified a new direction for Smokey Bones that eliminates the barbeque-centric parts of the brand that we believe are a barrier to greater occasion breadth and increased frequency. During fiscal 2007, we plan to focus on the new direction for the Smokey Bones brand to increase breadth of appeal and to test the new direction in several remodeled restaurants starting in the second quarter of fiscal 2007, while limiting its new restaurant openings to the five locations under construction at the end of fiscal 2006. Depending on test results, we may invest further in a significant repositioning of the Smokey Bones brand, which may include a change of the concept’s name.

Most Smokey Bones dinner entrée prices range from $9.29 to $15.99, and most lunch entrée prices range from $6.49 to $8.99. During fiscal 2006, the average check per person was $14.00 to $15.00, with alcoholic beverages accounting for approximately 10.3 percent of Smokey Bones’ sales. Smokey Bones maintains approximately 14 different menus across its trade areas to reflect geographic differences in consumer preferences, prices and selections, as well as a children’s menu.

Recent and Planned Growth

During fiscal 2006, we opened 60 new restaurants (excluding the relocation of existing restaurants to new sites and the rebuilding of restaurants at existing sites) and closed 11 restaurants. In addition, we had three restaurants closed temporarily at the end of fiscal 2006, two of which we expect to reopen during fiscal 2007, and one we expect to reopen during fiscal 2008. This resulted in a net increase of 46 restaurants in fiscal 2006. We plan to open approximately 39-45 new Red Lobster, Olive Garden, Smokey Bones and Seasons 52 restaurants during fiscal 2007 (excluding relocations and rebuilds). Our actual and projected new openings by concept (excluding relocations and rebuilds) are shown below.

	Actual New Restaurant Openings Fiscal 2006	Projected New Restaurant Openings Fiscal 2007
Red Lobster	8	2-3
Olive Garden	24	30-35
Bahama Breeze	0	0
Smokey Bones	26	5
Seasons 52	2	2
Totals	60	39-45

The actual number of openings for each of our concepts will depend on many factors, including our ability to locate appropriate sites, negotiate acceptable purchase or lease terms, obtain necessary local governmental permits, complete construction, and recruit and train restaurant management and hourly personnel. Our objective is to continue to expand our current portfolio of restaurant concepts, and to develop or acquire additional concepts that can be expanded profitably. We have continued to test new ideas and concepts, and also to evaluate potential acquisition candidates to assess whether they would satisfy our strategic and financial objectives.

We consider location to be a critical factor in determining a restaurant’s long-term success, and we devote significant effort to the site selection process. Prior to entering a market, we conduct a thorough study to determine the optimal number and placement of restaurants. Our site selection process incorporates a variety of analytical techniques to evaluate key factors. These factors include trade area demographics, such as target population density and household income levels; competitive influences in the trade area; the site’s visibility, accessibility and traffic volume; and proximity to activity centers such as shopping malls, hotel/motel complexes, offices and universities. Members of senior management evaluate, inspect and approve each restaurant site prior to its acquisition.

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Constructing and opening a new restaurant typically takes approximately 180 days on average after permits are obtained and the site is acquired.

The following table illustrates the approximate average capital investment, size and dining capacity of the 11 Red Lobster, 24 Olive Garden and 26 Smokey Bones restaurants that were opened during fiscal 2006 (including relocations but excluding rebuilds, in-line spaces, and conversions of existing restaurants).

	Capital Investment(1)	Square Feet(2)	Dining Seats(3)	Dining Tables(4)
Red Lobster	$4,052,000	7,253	213	60
Olive Garden	$3,981,000	7,570	216	59
Smokey Bones	$3,663,000	6,893	210	49

(1) Estimated final cost includes net present value of leases and working capital credit, but excludes internal overhead.

(2) Includes all space under the roof, including the coolers and freezers, but excludes gazebos, pavilions and porte cocheres.

(3) Includes bar dining seats and patio seating, but excludes bar stools.

(4) Includes patio dining tables.

Wesystematically review the performance of our restaurants to ensure that each one meets our standards. When a restaurant falls below minimum standards, we conduct a thorough analysis to determine the causes, and implement marketing and operational plans to improve that restaurant’s performance. If performance does not improve to acceptable levels, the restaurant is evaluated for relocation, closing or conversion to one of our other concepts.

During fiscal 2006, we permanently closed four and relocated three Red Lobster restaurants, permanently closed three and relocated one Olive Garden restaurant, and permanently closed four Smokey Bones restaurants. During fiscal 2006, we also wrote down the carrying value of two Smokey Bones restaurants, which continued to operate. We continue to evaluate our site locations in order to minimize the risk of future asset impairment charges.

Restaurant Operations

We believe that high-quality restaurant management is critical to our long-term success. We also believe that our leadership position, strong success-oriented culture and various short-term and long-term incentive programs, including stock options, restricted stock or stock units, help attract and retain highly motivated restaurant managers.

Our restaurant management structure varies by concept and restaurant size. Each restaurant is led by a general manager and three to five additional managers, depending on the operating complexity and sales volume of the restaurant. Each restaurant also employs approximately 50-180 hourly employees, most of whom work part-time. We issue detailed operations manuals covering all aspects of restaurant operations, as well as food and beverage manuals which detail the preparation procedures of our recipes. The restaurant management teams are responsible for the day-to-day operation of each restaurant and for ensuring compliance with our operating standards. At our three largest concepts, Red Lobster, Olive Garden and Smokey Bones, restaurant general managers report to directors. At Red Lobster and Olive Garden, each director was responsible for six to 11 restaurants at the end of fiscal 2006, which is our target range for each director at established concepts. At Smokey Bones, each director was responsible for four to seven restaurants at the end of fiscal 2006. Restaurants are visited regularly by all levels of supervision to help ensure strict adherence to all aspects of our standards.

Each concept’s vice president or director of training, together with senior operations executives, are responsible for developing and maintaining that concept’s operations training programs. These efforts include a 12 to 15-week training program for management trainees, and continuing development programs for managers, supervisors and directors. The emphasis of the training and development programs varies by restaurant concept, but includes leadership, restaurant business management and culinary skills. We also use a highly structured training program to open new restaurants, including deploying training teams experienced in all aspects of restaurant

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operations. The opening training teams typically begin work one week prior to opening and remain at the new restaurant up to three weeks after the opening. They are re-deployed as appropriate to enable a smooth transition to the restaurant’s operating staff.

Quality Assurance

Our Total Quality Department helps ensure that all restaurants provide safe, high-quality food in a clean and safe environment. Through rigorous physical evaluation and testing at our North American laboratories and through “point source inspection” by our international team of Quality Specialists in several foreign countries, we purchase only seafood that meets or exceeds our specifications. We use independent third parties to inspect and evaluate commodity vendors. In addition, any commodity supplier that produces a “high risk” product is subject to a food safety evaluation by Darden personnel at least annually. We require our suppliers to maintain sound manufacturing practices and operate with the comprehensive HACCP food safety programs in place. Since 1976, we have required routine microbiological testing of seafood and other commodities for quality and microbiological safety. In addition, Darden Total Quality Managers and third party auditors visit each restaurant periodically throughout the year to review food handling and to provide education and training in food safety and sanitation. The Total Quality managers also serve as a liaison to regulatory agencies on issues relating to food safety.

Purchasing and Distribution

Our ability to ensure a consistent supply of high-quality food and supplies at competitive prices to all of our restaurant concepts depends upon procurement from reliable sources. Our purchasing staff sources, negotiates and purchases food and supplies from more than 2,000 suppliers in approximately 45 countries. Suppliers must meet strict quality control standards in the development, harvest, catch and production of food products. Competitive bids, long-term contracts and long-term vendor relationships are routinely used to manage availability and cost of products.

We believe that our seafood purchasing capabilities are a significant competitive advantage. Our purchasing staff travels routinely within the United States and internationally to source more than 100 varieties of top-quality seafood at competitive prices. We believe that we have established excellent long-term relationships with key seafood vendors, and usually source our product directly from producers (not brokers or middlemen). We operate procurement offices in Singapore and Toronto, our only purchasing offices outside of Orlando, to source products directly from Asia and Canada. While the supply of certain seafood species is volatile, we believe we have the ability to identify alternative seafood products and to adjust our menus as necessary. All other essential food products are available, or can be made available upon short notice, from alternative qualified suppliers. Because of the relatively rapid turnover of perishable food products, inventories in the restaurants have a modest aggregate dollar value in relation to sales. Controlled inventories of specified products are distributed to all restaurants through independent national distribution companies.

Our supplier diversity program is an integral part of our purchasing efforts. Through this program, we identify minority and women-owned vendors and assist them in establishing supplier relationships with us. We are committed to the development and growth of minority and women-owned enterprises, and in fiscal 2006 we spent approximately 8 percent and 2.5 percent, respectively, of our purchasing dollars with those firms.

We continue to invest in new technologies to improve our purchasing and restaurant operations. We are in the process of implementing “iKitchen,” a web-based software system, at all of our restaurants. The system is designed to more efficiently handle restaurant product orders, receiving, invoice approval and inventories.

Advertising and Marketing

We believe we have developed significant marketing and advertising capabilities. Our size enables us to be a leading advertiser in the casual dining segment of the restaurant industry. Red Lobster and Olive Garden leverage the efficiency of national network television advertising and supplement it with local television advertising. Bahama Breeze and Smokey Bones do not use national television advertising. Our restaurants appeal to a broad spectrum of consumers and we use advertising and product promotions to attract customers. We implement periodic promotions as appropriate to maintain and increase our sales and profits. We also rely on radio and newspaper advertising, as

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well as newspaper and direct mail coupon programs, as appropriate, to attract customers. We have developed and consistently use sophisticated consumer marketing research techniques to monitor customer satisfaction and evolving expectations.

Employees

At the end of fiscal 2006, we employed approximately 157,300 persons. Of these employees, approximately 1,300 were corporate or restaurant concept personnel located in our restaurant support center in Orlando, Florida, approximately 6,300 were restaurant management personnel in the restaurants or in field offices, and the remainder were hourly restaurant personnel. Of the restaurant support center employees, approximately 60 percent were management personnel and the balance were administrative or office employees. Our operating executives have an average of more than 13 years of experience with us. The restaurant general managers average 12 years with us. We believe that we provide working conditions and compensation that compare favorably with those of our competitors. Most employees, other than restaurant management and corporate management, are paid on an hourly basis. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be good.

Information Technology

We strive for leadership in the restaurant business by using technology as a competitive advantage and as an enabler of our strategy. Since 1975, computers located in the restaurants have been used to assist in the management of the restaurants. We have implemented systems targeted at improved financial control, cost management, enhanced guest service and improved employee effectiveness. Management information systems are designed to be used across restaurant concepts, yet are flexible enough to meet the unique needs of each restaurant concept. Several years ago, we implemented a suite of web-enabled and fully integrated financial and human resource (including payroll and benefits) systems. We also implemented a high-speed data network connecting all restaurants to all current and anticipated future applications. In the past year, we began the implementation of “DASH,” a next generation technology platform for our restaurant point of sale system. We expect to deploy the new platform, including new hardware and software, to all restaurant concepts over the next two years. We are also in the process of implementing “iKitchen,” a web-based software system designed to more efficiently handle restaurant product orders and other related matters, as discussed above under “Purchasing and Distribution.”

Restaurant hardware and software support is provided or coordinated from the restaurant support center in Orlando, Florida, seven days a week, 24 hours a day. A communications network sends and receives critical business data to and from the restaurants throughout the day and night, providing timely and extensive information on business activity in every location. The restaurant support center houses our data center, which contains sufficient computing power to process information from all restaurants quickly and efficiently. Our information is processed in a secured environment to protect both the actual data and the physical assets. We guard against business interruption by maintaining a disaster recovery plan, which includes storing critical business information off-site, testing the disaster recovery plan at a hot-site facility and providing on-site power backup via a large diesel generator. We use internally developed proprietary software, as well as purchased software, with proven, non-proprietary hardware. This allows processing power to be distributed effectively to each of our restaurants.

Our management believes that our current systems and practice of implementing regular updates will position us well to support current needs and future growth. We are committed to maintaining an industry leadership position in information systems and computing technology. We use a strategic information systems planning process that involves senior management and is integrated into our overall business planning. Information systems projects are prioritized based upon strategic, financial, regulatory and other business advantage criteria.

Competition

The restaurant industry is intensely competitive with respect to the type and quality of food, price, service, restaurant location, personnel, concept, attractiveness of facilities, and effectiveness of advertising and marketing. The restaurant business is often affected by changes in consumer tastes; national, regional or local economic conditions; demographic trends; traffic patterns; the type, number and location of competing restaurants; and consumers’ discretionary purchasing power. We compete within each market with national and regional chains and

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locally-owned restaurants for customers, management and hourly personnel and suitable real estate sites. We also face growing competition from the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the deli section. We expect intense competition to continue in all of these areas.

Other factors pertaining to our competitive position in the industry are addressed under the sections entitled “Purchasing and Distribution,” “Advertising and Marketing,” “Information Technology” and “Risk Factors” elsewhere in this report.

Trademarks and Related Agreements

We regard our Darden Restaurants®, Red Lobster®, Olive Garden®, Bahama Breeze®, Smokey Bones Barbeque & Grill® and Seasons 52® service marks, and other service marks related to our restaurant businesses, as having significant value and as being important to our marketing efforts. Our policy is to pursue registration of our important service marks and trademarks and to oppose vigorously any infringement of them. Generally, with appropriate renewal and use, the registration of our service marks will continue indefinitely.

Our only restaurant operations outside of North America are conducted through an Area Development and Franchise Agreement with Reins International, Inc. (“Reins”), an unaffiliated Japanese corporation. Reins operated 42 Red Lobster restaurants in Japan as of May 28, 2006. We do not have an ownership interest in Reins, but we receive royalty income under the Franchise Agreement. The amount of this income is not material to our consolidated financial statements.

Seasonality

Our sales volumes fluctuate seasonally. During fiscal 2006 and 2005, our sales were highest in the spring and winter, followed by summer, and lowest in the fall. During fiscal 2004, our sales were highest in the spring, lowest in the fall, and comparable during winter and summer. Holidays, severe weather and similar conditions may impact sales volumes seasonally in some operating regions.

Government Regulation

We are subject to various federal, state and local laws affecting our business. Each of our restaurants must comply with licensing requirements and regulations by a number of governmental authorities, which include health, safety and fire agencies in the state or municipality in which the restaurant is located. The development and operation of restaurants depend on selecting and acquiring suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. To date, we have not been significantly affected by any difficulty, delay or failure to obtain required licenses or approvals.

During fiscal 2006, approximately 8.9 percent of our sales were attributable to the sale of alcoholic beverages. Regulations governing their sale require licensure by each site (in most cases, on an annual basis), and licenses may be revoked or suspended for cause at any time. These regulations relate to many aspects of restaurant operation, including the minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain or retain these licenses would adversely affect the restaurant’s operations. We also are subject in certain states to “dram-shop” statutes, which generally provide an injured party with recourse against an establishment that serves alcoholic beverages to an intoxicated person, who then causes injury to himself or a third party. We carry liquor liability coverage as part of our comprehensive general liability insurance.

We also are subject to federal and state minimum wage laws and other laws governing such matters as overtime, tip credits, working conditions, safety standards, and hiring and employment practices. Changes in these laws during fiscal 2006 have not had a material effect on our operations.

We currently are operating under a Tip Rate Alternative Commitment (“TRAC”) agreement with the Internal Revenue Service. Through increased educational and other efforts in the restaurants, the TRAC agreement reduces the likelihood of potential chain-wide employer-only FICA assessments for unreported tips.

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                We are subject to federal and state environmental regulations, but these rules have not had a material effect on our operations. During fiscal 2006, there were no material capital expenditures for environmental control facilities and no material expenditures for this purpose are anticipated.

Our facilities must comply with the applicable requirements of the Americans With Disabilities Act of 1990 (“ADA”) and related state accessibility statutes. Under the ADA and related state laws, we must provide equivalent service to disabled persons and make reasonable accommodation for their employment, and when constructing or undertaking significant remodeling of our restaurants, we must make those facilities accessible.

Cautionary Statement Regarding Forward-Looking Statements

This report may contain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Darden Restaurants, Inc. and its subsidiaries. Statements preceded by, followed by or that include words such as “may,” “will,” “expect,” “intend,” “anticipate,” “continue,” “estimate,” “project,” “believe,” “plan” or similar expressions are intended to identify some of the forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are included, along with this statement, for purposes of complying with the safe harbor provisions of that Act. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the risks and uncertainties described in this report, including under the heading “Risk Factors,” and the documents incorporated by reference in this report. We undertake no obligation to update publicly or revise any forward-looking statements for any reason, whether as a result of new information, future events or otherwise.

Executive Officers of the Registrant

Our executive officers as of July 29, 2006 are listed below.

Clarence Otis, Jr., age 50, has been our Chairman of the Board since November 2005, Chief Executive Officer since November 2004, and a Director since September 2004. Mr. Otis was our Executive Vice President from March 2002 until November 2004 and President of Smokey Bones Barbeque & Grill from December 2002 until November 2004. He served as our Senior Vice President from December 1999 until April 2002, and our Chief Financial Officer from December 1999 until December 2002. He joined us in 1995 as Vice President and Treasurer. He served as our Senior Vice President, Investor Relations and Treasurer from July 1997 to July 1998, and as Senior Vice President, Finance and Treasurer from July 1998 until December 1999. From 1991 to 1995, he was employed by Chemical Securities, Inc. (now J.P. Morgan Securities, Inc.), an investment banking firm, where he had been Managing Director and Manager of Public Finance.

Andrew H. (Drew) Madsen, age 50, has been our President and Chief Operating Officer since November 2004, and a Director since September 2004. Mr. Madsen was our Senior Vice President and President of Olive Garden from March 2002 until November 2004, and Executive Vice President of Marketing for Olive Garden from December 1998 to March 2002. From 1997 until joining us, he was President of International Master Publishers, Inc., a company that developed and marketed consumer information products such as magazines and compact discs. From 1993 until 1997, he held various positions at James River Corporation (now part of Georgia-Pacific Corporation, a diversified paper and building products manufacturer), including Vice President and General Manager for the Dixie consumer products unit.

Blaine Sweatt, III, age 58, has been our President, New Business Development since February 1996, Executive Vice President since April 1995, and a Director since 1995. He led teams that developed the Olive Garden, Bahama Breeze, Smokey Bones and Seasons 52 concepts, among others. He joined Red Lobster in 1976 and was named Director of New Restaurant Concept Development in 1981. From 1986 to 1989, he held various positions with General Mills, Inc., a manufacturer and marketer of consumer food products and our former parent company.

James (J.J.) Buettgen, age 46, has been our Senior Vice President and President of Smokey Bones Barbeque & Grill since November 2004. From August 2004 until assuming his current position he was our Senior Vice President and President-designate of Smokey Bones. From July 2003 until August 2004, he was President of Big

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Bowl Asian Kitchen, a casual dining company owned by Brinker International, Inc., a restaurant operator, and from October 2002 until June 2003 he was Senior Vice President of Marketing and Brand Development for Brinker. From 1999 to 2002, he was Senior Vice President of Marketing and Sales for Disneyland Resorts, a division of the Walt Disney Company, where he helped launch Disney’s California Adventure theme park, and from 1998 to 1999 was Senior Vice President of Marketing for Hollywood Entertainment Group, a video retailer. He held several marketing posts with our former parent company, General Mills, Inc., a manufacturer and marketer of consumer food products, from 1989 through 1994, and served first as a director and then as Vice President of Marketing for Olive Garden from 1994 until 1998.

Laurie B. Burns, age 44, has been our Senior Vice President and President of Bahama Breeze since March 2003. She joined us in April 1999 as Vice President of Development for Red Lobster, and served as our Senior Vice President, Development from September 2000 until March 2003. She was a private real estate consultant from October 1998 until joining us in April 1999, and was Regional Vice President for Development for the Eastern United States at Homestead Village, an extended-stay hotel company, from 1995 to 1998.

Linda J. Dimopoulos, age 55, has been our Senior Vice President and Chief Financial Officer since December 2002. She joined us in 1982, and served as Senior Vice President, Financial Operations of Red Lobster from 1993 to July 1998, as our Senior Vice President, Corporate Controller and Business Information Systems from July 1998 to December 1999, and as our Senior Vice President, Chief Information Officer from December 1999 until assuming her current position in December 2002.

Kim A. Lopdrup, age 48, has been our Senior Vice President and President of Red Lobster since May 2004. He joined us in November 2003 as Executive Vice President of Marketing for Red Lobster. From 2001 until 2002, he served as Executive Vice President and Chief Operating Officer for North American operations of Burger King Corporation, an operator and franchiser of fast food restaurants. From 1985 until 2001, he worked for Allied Domecq Quick Service Restaurants (“ADQSR”), a franchiser of quick service restaurants including Dunkin’ Donuts, Baskin-Robbins and Togo’s Eateries, where he held progressively more responsible positions in marketing, strategic and general management roles, eventually serving as Chief Executive Officer of ADQSR International.

Daniel M. Lyons, age 53, has been our Senior Vice President, Human Resources since January 1997. He joined us in 1993 as Senior Vice President of Personnel for Olive Garden. Prior to joining Olive Garden, he spent 18 years with the Quaker Oats Company, an international marketer of food and beverage products, holding increasingly more responsible positions including Vice President Human Resources for the North American Breakfast Food Division.

Barry B. Moullet, age 48, has been our Senior Vice President, Supply Chain & Development since August 2003. He served as our Senior Vice President Purchasing, Distribution and Food Safety from June 1999 until August 2003. He joined us in July 1996 as Senior Vice President, Purchasing and Distribution. Prior to joining us, he spent 15 years in the purchasing field in various positions with Restaurant Services, Inc., a Burger King purchasing co-operative, KFC Corporation and the Pillsbury Company.

David T. Pickens, age 51, has been our Senior Vice President and President of Olive Garden since December 2004. He joined us in 1973 as a Red Lobster hourly employee, and progressed from manager trainee to regional operations manager, director of operations, and ultimately was promoted to a division Senior Vice President of Operations for Red Lobster. He joined Olive Garden in 1995 as Senior Vice President of Operations for the Orlando division and was promoted to Executive Vice President of Operations in September 1999, where he served until his promotion to President of Olive Garden in December 2004.

C. Bradford Richmond, age 47, has been our Senior Vice President, Corporate Controller since August 2005. He served as Senior Vice President Finance, Strategic Planning and Controller of Red Lobster from January 2003 to August 2005, and previously was Senior Vice President, Finance and Controller at Olive Garden from August 1998 to January 2003. He joined us in 1982 as a food and beverage analyst for Casa Gallardo, a restaurant concept formerly owned and operated by us, and from June 1985 to August 1998 held progressively more responsible finance and marketing analyst positions with our York Steak House, Red Lobster and Olive Garden operating companies in both the United States and Canada.

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Paula J. Shives, age 55, has been our Senior Vice President, General Counsel and Secretary since June 1999. Prior to joining us, she served as Senior Vice President, General Counsel and Secretary from 1995 to 1999, and Associate General Counsel from 1985 to 1995, of Long John Silver’s Restaurants, Inc., a seafood restaurant company.

Richard J. Walsh, age 54, has been our Senior Vice President, Corporate Affairs since 1994. He joined General Mills, Inc., a manufacturer and marketer of consumer food products and our former parent company, in 1984 as Manager of Government Affairs for Red Lobster. He served as Vice President of Government and Community Relations for General Mills Restaurants, Inc. from 1987 until assuming his current position in December 1994.

Item 1A. RISK FACTORS

Various risks and uncertainties could affect our business. Any of the risks described below or elsewhere in this report or our other filings with the Securities and Exchange Commission could have a material impact on our business, financial condition or 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 currently believe to be immaterial may also impair our business operations. Therefore, the following is not intended to be a complete discussion of all potential risks or uncertainties.

We face intense competition, and if we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.

The casual dining sector of the restaurant industry is intensely competitive with respect to pricing, service, location, personnel and type and quality of food, and there are many well-established competitors. We compete within each market with national and regional restaurant chains and locally-owned restaurants. We also face growing competition as a result of the trend toward convergence in grocery, deli and restaurant services, particularly in the supermarket industry which offers “convenient meals” in the form of improved entrées and side dishes from the deli section. We compete primarily on the quality, variety and value perception of menu items. The number and location of restaurants, type of concept, quality and efficiency of service, attractiveness of facilities and effectiveness of advertising and marketing programs are also important factors. We anticipate that intense competition will continue with respect to all of these factors. If we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.

Certain economic and business factors specific to the restaurant industry and certain general economic factors that are largely out of our control may adversely affect our results of operations.

Our business results depend on a number of industry-specific and general economic factors, many of which are beyond our control. The casual dining sector of the restaurant industry is affected by changes in national, regional and local economic conditions, seasonal fluctuation of sales volumes, consumer preferences, including changes in consumer tastes and dietary habits and the level of consumer acceptance of our restaurant concepts, and consumer spending patterns. The performance of individual restaurants may also be adversely affected by factors such as demographic trends, severe weather including hurricanes, traffic patterns, the price and availability of gasoline and the type, number and location of competing restaurants.

In addition, general economic conditions, such as recessionary economic cycles, a protracted economic slowdown, a worsening economy or industry-wide cost pressures, could affect consumer behavior and spending for restaurant dining occasions and lead to a decline in sales and earnings. Furthermore, we cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state or group located in a foreign state or heightened security requirements on the economy or consumer confidence in the United States. Any of these events could also affect consumer spending patterns or result in increased costs for us due to security measures.

Unfavorable changes in the above factors or in other business and economic conditions affecting our customers could increase our costs, reduce traffic in some or all of our restaurants or impose practical limits on pricing, any of which could lower our profit margins and have a material adverse affect on our financial condition and results of operations.

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The price and availability of food, ingredients and utilities used by our restaurants could adversely affect our revenues and results of operations.

Our results of operations depend significantly on our ability to anticipate and react to changes in the price and availability of food, ingredients, utilities and other related costs over which we may have little control. Operating margins for our restaurants are subject to changes in the price and availability of food commodities, including shrimp, lobster, crab and other seafood, as well as beef, pork, chicken, cheese and produce. The introduction of or changes to tariffs on imported shrimp or other food products could increase our costs and possibly impact the supply of those products. We are subject to the general risks of inflation. In addition, possible shortages or interruptions in the supply of food items caused by inclement weather or other conditions beyond our control could adversely affect the availability, quality and cost of the items we buy. Our restaurants’ operating margins are also affected by fluctuations in the price of utilities such as natural gas, whether as a result of inflation or otherwise, on which the restaurants depend for their energy supply. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a significant adverse effect on our results of operations.

We may be subject to increased labor and insurance costs.

Our restaurant operations are subject to federal and state laws governing such matters as minimum wages, working conditions, overtime and tip credits. We have a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. Labor shortages and increased employee turnover could also increase our labor costs. If competitive pressures or other factors prevent us from offsetting increased labor costs by increases in prices, our profitability may decline. In addition, the current premiums that we pay for our insurance (including workers’ compensation, general liability, property, health, and directors’ and officers’ liability) may increase at any time, thereby further increasing our costs. The dollar amount of claims that we actually experience under our workers’ compensation and general liability insurance, for which we carry high per-claim deductibles, may also increase at any time, thereby further increasing our costs. Further, the decreased availability of property and liability insurance has the potential to negatively impact the cost of premiums and the magnitude of uninsured losses.

Increased advertising and marketing costs could adversely affect our results of operations.

If our competitors increase their spending on advertising and promotions, if our advertising, media or marketing expenses increase, or if our advertising and promotions become less effective than that of our competitors, we could experience a material adverse effect on our results of operations.

We may experience higher-than-anticipated costs associated with the opening of new restaurants or with the closing, relocating and remodeling of existing restaurants, which may adversely affect our results of operations.

Our revenues and expenses can be impacted significantly by the number and timing of the opening of new restaurants and the closing, relocating and remodeling of existing restaurants. We incur substantial pre-opening expenses each time we open a new restaurant and other expenses when we close, relocate or remodel existing restaurants. The expenses of opening, closing, relocating or remodeling any of our restaurants, may be higher than anticipated. An increase in such expenses could have an adverse effect on our results of operations.

Litigation may adversely affect our business, financial condition and results of operations.

Our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that could decrease customer acceptance of our services, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, financial condition and results of operations.

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Unfavorable publicity could harm our business.

Multi-unit restaurant businesses such as ours can be adversely affected by publicity resulting from complaints or litigation alleging poor food quality, food-borne illness, personal injury, adverse health effects (including obesity) or other concerns. Negative publicity may also result from actual or alleged violations by our restaurants of “dram shop” laws which generally provide an injured party with recourse against an establishment that serves alcoholic beverages to an intoxicated party who then causes injury to himself or to a third party. Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a limited number of our restaurants, or only to a single restaurant, could adversely affect public perception of the entire brand. Adverse publicity and its effect on overall consumer perceptions of food safety could have a material adverse effect on our business.

A lack of availability of suitable locations for new restaurants or a decline in the quality of the locations of our current restaurants may adversely affect our revenues and results of operations.

The success of our restaurants depends in large part on their location. As demographic and economic patterns change, current locations may not continue to be attractive or profitable. Possible declines in neighborhoods where our restaurants are located or adverse economic conditions in areas surrounding those neighborhoods could result in reduced revenues in those locations. In addition, desirable locations for new restaurant openings or for the relocation of existing restaurants may not be available at an acceptable cost when we identify a particular opportunity for a new restaurant or relocation. The occurrence of one or more of these events could have a significant adverse effect on our revenues and results of operations.

We are subject to a number of risks relating to federal, state and local regulation of our business that may increase our costs and decrease our profit margins.

The restaurant industry is subject to extensive federal, state and local laws and regulations, including those relating to building and zoning requirements and those relating to the preparation and sale of food. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards and liquor licenses, federal and state laws governing our relationships with employees (including the Fair Labor Standards Act of 1938 and the Immigration Reform and Control Act of 1986 and applicable requirements concerning the minimum wage, overtime, family leave, tip credits, working conditions, safety standards and immigration status), federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. In addition, we are subject to a variety of federal, state and local laws and regulations relating to the use, storage, discharge, emission, and disposal of hazardous materials. The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations could increase our compliance and other costs of doing business and therefore have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability.

Our growth through the opening of new restaurants and the development or acquisition of new dining concepts may not be successful and could result in poor financial performance.

As part of our business strategy, we intend to continue to expand our current portfolio of restaurant concepts and to develop or acquire additional concepts that can be expanded profitably. This strategy involves numerous risks, and we may not be able to achieve our growth objectives. We may not be able to open all of our planned new restaurants, and the new restaurants that we open may not be profitable or as profitable as our existing restaurants. New restaurants typically experience an adjustment period before sales levels and operating margins normalize, and even sales at successful newly-opened restaurants generally do not make a significant contribution to profitability in their initial months of operation. The opening of new restaurants can also have an adverse effect on sales levels at existing restaurants. There are additional risks involved with expanding newer concepts (such as Bahama Breeze and Smokey Bones) that have not yet proven their long-term viability. Furthermore, we may not be able to develop or acquire additional concepts that are as profitable as our existing restaurants. Growth through acquisitions may involve additional risks. For example, we may pay too much for a concept relative to the actual

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economic return, be required to borrow funds to make our acquisition (which would increase our interest expense) or be unable to integrate an acquired concept into our operations.

The ability to open and profitably operate restaurants is subject to various risks, such as the identification and availability of suitable and economically viable locations, the negotiation of acceptable lease or purchase terms for new locations, the need to obtain all required governmental permits (including zoning approvals and liquor licenses) on a timely basis, the need to comply with other regulatory requirements, the availability of necessary contractors and subcontractors, the ability to meet construction schedules and budgets, the ability to manage union activities such as picketing or hand billing which could delay construction, increases in labor and building materials costs, the availability of financing at acceptable rates and terms, changes in weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time, our ability to hire and train qualified management personnel and general economic and business conditions. At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other resources. If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated revenues and earnings in future periods.

Our plans to improve financial performance at Bahama Breeze and Smokey Bones and reposition the Smokey Bones brand may not be successful, which could require us to make substantial further investments in those concepts and result in further losses and impairments.

While each of our restaurant concepts, as well as each of our individual restaurants, are subject to the risks and uncertainties described above, there is an enhanced level of risk and uncertainty related to the operation and expansion of our newer concepts such as Bahama Breeze and Smokey Bones. These concepts have not yet proven their long-term viability or growth potential. We have made substantial investments in the development and expansion of each of these concepts, and further investment is required in order to bring the financial performance of these concepts to acceptable levels. Until we have improved the financial performance of Bahama Breeze and Smokey Bones, further growth of those concepts has been postponed. While we have identified and continue to implement a number of structural changes to operations at Bahama Breeze, those changes may not be successful in improving guest experience and restaurant-level returns. At Smokey Bones, we believe we have identified significant barriers to greater occasion breadth and increased frequency that we must eliminate or reduce. Our plan to change the direction of Smokey Bones in order to address these issues has not yet been tested and may not be successful. If the test is not successful, we may incur further losses and impairment charges at that concept. Even if the test results are positive, we will need to make substantial additional investments in order to reposition the Smokey Bones brand, and the new brand will be subject to the risks and uncertainties that accompany any emerging restaurant concept.

Item 1B. UNRESOLVED SEC COMMENTS

None.

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Item 2. PROPERTIES

As of May 28, 2006, we operated 1,427 restaurants (including 682 Red Lobster, 582 Olive Garden, 32 Bahama Breeze, 126 Smokey Bones and five Seasons 52 restaurants) in the following locations:

Alabama (23)	Iowa (14)	Nevada (12)	South Dakota (4)
Arizona (31)	Kansas (10)	New Hampshire (6)	Tennessee (35)
Arkansas (11)	Kentucky (18)	New Jersey (31)	Texas (118)
California (97)	Louisiana (13)	New Mexico (11)	Utah (13)
Colorado (26)	Maine (4)	New York (54)	Vermont (1)
Connecticut (9)	Maryland (24)	North Carolina (34)	Virginia (49)
Delaware (6)	Massachusetts (13)	North Dakota (4)	Washington (24)
Florida (150)	Michigan (52)	Ohio (88)	West Virginia (7)
Georgia (60)	Minnesota (24)	Oklahoma (19)	Wisconsin (20)
Hawaii (1)	Mississippi (9)	Oregon (12)	Wyoming (2)
Idaho (6)	Missouri (32)	Pennsylvania (73)	Canada (37)
Illinois (56)	Montana (2)	Rhode Island (3)
Indiana (47)	Nebraska (8)	South Carolina (24)

Of our 1,427 restaurants open on May 28, 2006, 850 were located on owned sites and 577 were located on leased sites. The 577 leases are classified as follows:

Land-Only Leases (we own buildings and equipment)	459
Ground and Building Leases	66
Space/In-Line/Other Leases	52
Total	577

During fiscal 1999, we formed two subsidiary corporations, each of which elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code. These elections limit the activities of both corporations to holding certain real estate assets. The formation of these two REITs is designed primarily to assist us in managing our real estate portfolio and possibly to provide a vehicle to access capital markets in the future.

Both REITs are non-public REITs. Through our subsidiary companies, we indirectly own 100 percent of all voting stock and greater than 99.5 percent of the total value of each REIT. For financial reporting purposes, both REITs are included in our consolidated financial statements.

Of the 15 buildings that make up our executive offices, culinary center, training facilities and supporting warehouses in Orange County (Orlando metro area), Florida, we currently own 10 and lease five. On June 20, 2006, we entered into an agreement to sell and lease back the 10 owned buildings. Subject to certain conditions, the sale is expected to close in August 2006. The initial term of the leases would be three years, with two one-year renewal options. We also have assembled several adjacent parcels of vacant land in Orange County, Florida, and have announced our intention to relocate our headquarters to this site. We expect it will take three or more years to design and build a new Restaurant Support Center campus, and no definitive timetable has as yet been established.

Except in limited instances, our present restaurant sites and other facilities are not subject to mortgages or encumbrances securing money borrowed by us from outside sources. In our opinion, our current buildings and equipment generally are in good condition, suitable for their purposes and adequate for our current needs, but we expect the new Restaurant Support Center campus to offer a more collaborative and unified environment with additional room for future growth. See also Note 4 “Land, Buildings and Equipment, Net” and Note 12 “Leases” under Notes to Consolidated Financial Statements in our 2006 Annual Report to Shareholders, incorporated herein by reference.

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Item 3. LEGAL PROCEEDINGS

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. In view of the inherent uncertainties of litigation, the outcome of any unresolved matter described below cannot be predicted at this time, nor can the amount of any potential loss be reasonably estimated.

Like other restaurant companies and retail employers, we have been faced in a few states with allegations of purported class-wide wage and hour violations. In March 2002 and March 2003, two purported class action lawsuits were brought against us in the Superior Court of Orange County, California by three current and former hourly restaurant employees alleging violations of California labor laws with respect to providing meal and rest breaks. Although we continue to believe we provided the required meal and rest breaks to our employees, to avoid potentially costly and protracted litigation, we agreed during the second quarter of fiscal 2005 to settle both lawsuits and a similar case filed in Sacramento County, for approximately $9.5 million. Terms of the settlement did not include any admission of liability by us, and all settlement proceeds were paid as of the end of the third quarter of fiscal 2006.

In August 2003, three former employees in Washington filed a similar purported class action in Washington State Superior Court in Spokane County alleging violations of Washington labor laws with respect to providing rest breaks. The Court stayed the action and ordered the plaintiffs into our mandatory arbitration program. We believe we provided the required meal and rest breaks to our employees, and we intend to vigorously defend our position in this case.

Beginning in 2002, a total of five purported class action lawsuits were filed in Superior Courts of California (two each in Los Angeles County and Orange County, and one in Sacramento County) in which the plaintiffs allege that they and other current and former service managers, beverage and hospitality managers and culinary managers were improperly classified as exempt employees under California labor laws. The plaintiffs sought unpaid overtime wages and penalties. Two of the cases were removed to arbitration under our mandatory arbitration program, one was stayed to allow consideration of judicial coordination with the other cases, one is proceeding as an individual claim, and one remains a purported class action litigation matter. Although we continue to believe we correctly classified these employees, to avoid potentially costly and protracted litigation, we agreed in February 2006 to a tentative settlement. Without admitting any liability, we agreed to pay up to a maximum total of $11 million to settle all five cases, of which $9 million was recognized during fiscal 2006 and is included in selling, general and administrative expenses. The tentative settlement will be documented in a full settlement agreement and must have court approval. We cannot predict when the settlement will be final but estimate preliminary court approval will occur in the first half of fiscal 2007, with final court approval and payment of the settlement proceeds no earlier than the second quarter of fiscal 2007.

On March 23, 2006, we received a notice that the staff of the U.S. Federal Trade Commission (FTC) was conducting an inquiry into the marketing of our gift cards. We have been cooperating with the staff, providing information and making some voluntary adjustments to the disclosure of dormancy fees that may be imposed on the cards. On July 26, 2006, we were notified that the FTC staff had concluded that we had violated Section 5 of the FTC Act, which prohibits unfair or deceptive acts and practices. The staff asserts that we did not give adequate notice to consumers that our gift cards, if not used for 24 consecutive months, are subject to a gradual reduction in value by a dormancy fee. The notice included a proposed consent order, and indicated that if negotiations based on the order were not successful within 30 days, the staff would recommend to the FTC Bureau Director that a complaint, a copy of which was enclosed, be filed in federal district court. The proposed consent order included, among other things for negotiation, an opening suggestion that we provide equitable monetary relief in the amount of $31,006,630, suspend the collection of dormancy fees on previously issued gift cards, and make certain disclosures relating to dormancy fees. We believe that our gift card marketing practices comply with applicable laws. We have not yet determined a course of action, but have continued to discuss the matter with the FTC staff.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal United States market on which our common shares are traded is the New York Stock Exchange, where our shares are traded under the symbol DRI. As of July 24, 2006, there were approximately 37,327 record holders of our common shares. The information concerning the dividends and high and low intraday sales prices for our common shares traded on the New York Stock Exchange for each full quarterly period during fiscal 2005 and 2006 contained in Note 19 “Quarterly Data (Unaudited)” under Notes to Consolidated Financial Statements in our 2006 Annual Report to Shareholders is incorporated herein by reference. We have not sold any securities during the last fiscal year that were not registered under the Securities Act of 1933.

The table below provides information concerning our repurchase of shares of our common stock during the quarter ended May 28, 2006. Since commencing our repurchase program in December 1995, through May 28, 2006 we have repurchased a total of 132.5 million shares under authorizations from our Board of Directors.

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (2)
February 27, 2006 through April 2, 2006	1,219,226	$41.18	1,219,226	6,026,826
April 3, 2006 through April 30, 2006	775,178	$39.74	775,178	5,251,648
May 1, 2006 through May 28, 2006	379,685	$37.53	379,685	4,871,963
Total	2,374,089	$40.13	2,374,089	4,871,963

(1) All of the shares purchased during the quarter ended May 28, 2006 were purchased as part of our repurchase program, the authority for which was increased to an aggregate of 137.4 million shares by our Board of Directors on September 28, 2004 and announced publicly in a press release issued that same day. On June 16, 2006, our Board of Directors authorized an additional share repurchase authorization totaling 25 million shares, bringing the total shares authorized to be repurchased to 162.4 million shares. This additional authorization was announced publicly in a press release issued on June 20, 2006. There is no expiration date for our program. The number of shares purchased includes shares withheld for taxes on vesting of restricted stock, and shares delivered or deemed to be delivered to us on tender of stock in payment for the exercise price of options. These shares are included as part of our repurchase program and reduce the repurchase authority granted by our Board. The number of shares repurchased excludes shares we reacquired pursuant to tax withholding on option exercises or forfeiture of restricted stock.

(2) Repurchases are subject to prevailing market prices, may be made in open market or private transactions, and may occur or be discontinued at any time. There can be no assurance that we will repurchase any additional shares. The figures in this column do not include the additional 25 million shares that were authorized to be repurchased by our Board on June 16, 2006.

Item 6. SELECTED FINANCIAL DATA

The information for fiscal 2002 through 2006 contained in the Five-Year Financial Summary in our 2006 Annual Report to Shareholders is incorporated herein by reference.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information set forth in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Annual Report to Shareholders is incorporated herein by reference.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The text under the heading “Quantitative and Qualitative Disclosures About Market Risk” contained within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 Annual Report to Shareholders is incorporated herein by reference.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Report of Management Responsibilities, Management’s Report on Internal Control Over Financial Reporting, Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, Report of Independent Registered Public Accounting Firm, Consolidated Statements of Earnings, Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements in our 2006 Annual Report to Shareholders are incorporated herein by reference.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of May 28, 2006, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of May 28, 2006.

During the fiscal quarter ended May 28, 2006, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The annual report of our management on internal control over financial reporting, and the attestation report of KPMG LLP, our independent registered public accounting firm, regarding our internal control over financial reporting in our 2006 Annual Report to Shareholders, are incorporated herein by reference.

Item 9B. OTHER INFORMATION.

Not applicable.

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PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in the sections entitled “Who Are This Year’s Nominees?”, “What Board Committees Do You Have?” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders is incorporated herein by reference. Information regarding executive officers is contained in Part I above under the heading “Executive Officers of the Registrant.”

All of our employees are subject to our Code of Business Conduct and Ethics. Appendix A to the Code provides a special Code of Ethics with additional provisions that apply to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions (the “Senior Financial Officers”). Appendix B to the Code provides a Code of Business Conduct and Ethics for members of our Board of Directors. These documents are posted on our internet website at www.darden.com and are available in print free of charge to any shareholder who requests them. We will disclose any amendments to or waivers of these Codes for directors, executive officers or Senior Financial Officers on our website.

We also have adopted a set of Corporate Governance Guidelines and charters for all of our Board Committees, including the Audit, Compensation, and Nominating and Governance Committees. The Corporate Governance Guidelines and committee charters are available on our website at www.darden.com and in print free of charge to any shareholder who requests them. Written requests for our Code of Business Conduct and Ethics, Corporate Governance Guidelines and committee charters should be addressed to Darden Restaurants, Inc., 5900 Lake Ellenor Drive, Orlando, FL 32809, Attention: Corporate Secretary.

Item 11. EXECUTIVE COMPENSATION

The information contained in the sections entitled “How Are Directors Compensated?” “Summary Compensation Table” “Option Grants In Last Fiscal Year” “Stock Option Exercises And Holdings” “Do Executive Officers Currently Participate In A Defined Benefit Retirement Plan?” “Do Executive Officers Currently Participate In Any Non-Qualified Deferred Compensation Plan?” “Do Executive Officers Have Any Change-In-Control Arrangements?” “Do Any Of The Executive Officers Have Employment Agreements?” and “Compensation Committee Interlocks And Insider Participation” in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders, is incorporated herein by reference. The information appearing in the Proxy Statement under the heading “Compensation Committee Report” (except under the heading “Compensation Committee Interlocks And Insider Participation”) is not incorporated herein.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the sections entitled “What Shares May Be Issued Under Our Equity Compensation Plans?,” “Security Ownership Of Principal Shareholders” and “Security Ownership Of Management” in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders, is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the section entitled “Are There Any Relationships Or Related Transactions Between Us And Our Management?” in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders, is incorporated herein by reference.

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained in the section entitled “Independent Registered Public Accounting Firm Fees And Services” in our definitive Proxy Statement for our 2006 Annual Meeting of Shareholders, is incorporated herein by reference.

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PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements:

Report of Management Responsibilities

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Earnings for the fiscal years ended May 28, 2006, May 29, 2005 and May 30, 2004.

Consolidated Balance Sheets at May 28, 2006 and May 29, 2005.

Consolidated Statements of Changes in Stockholders’ Equity and Accumulated Other Comprehensive Income (Loss) for the fiscal years ended May 28, 2006, May 29, 2005 and May 30, 2004.

Consolidated Statements of Cash Flows for the fiscal years ended May 28, 2006, May 29, 2005 and May 30, 2004.

Notes to Consolidated Financial Statements.

2. Financial Statements Schedules:

Not applicable.

3. Exhibits:

The exhibits listed in the accompanying Exhibit Index are filed as part of this Form 10-K and incorporated herein by reference. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, copies of certain instruments defining the rights of holders of certain of our long-term debt are not filed, and in lieu thereof, we agree to furnish copies thereof to the Securities and Exchange Commission upon request. The Exhibit Index specifically identifies with an asterisk each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K. We will furnish copies of any exhibit listed on the Exhibit Index upon request upon the payment of a reasonable fee to cover our expenses in furnishing such exhibits.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 27, 2006	DARDEN RESTAURANTS, INC.
	By: /s/ Clarence Otis, Jr.
	Clarence Otis, Jr., Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Clarence Otis, Jr.	Director, Chairman of the Board and             Chief Executive Officer (Principal executive officer)	July 27, 2006
Clarence Otis, Jr.
/s/ Linda J. Dimopoulos	Senior Vice President and Chief Financial Officer (Principal financial and accounting officer)	July 27, 2006
Linda J. Dimopoulos
/s/ Leonard L. Berry*	Director
Leonard L. Berry
/s/ Odie C. Donald*	Director
Odie C. Donald
/s/ David H. Hughes*	Director
David H. Hughes
/s/ Charles A. Ledsinger, Jr.*	Director
Charles A. Ledsinger, Jr.
/s/ William M. Lewis, Jr.*	Director
William M. Lewis, Jr.
/s/ Andrew H. Madsen*	Director
Andrew H. Madsen
/s/ Cornelius McGillicuddy, III* **	Director
Cornelius McGillicuddy, III
/s/ Michael D. Rose*	Director
Michael D. Rose
/s/ Maria A. Sastre*	Director
Maria A. Sastre
/s/ Jack A. Smith*	Director
Jack A. Smith

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/s/ Blaine Sweatt, III*	Director
Blaine Sweatt, III
/s/ Rita P. Wilson*	Director
Rita P. Wilson

*By:	/s/ Paula J. Shives
	Paula J. Shives, Attorney-In-Fact July 27, 2006

 

^** Popularly known as Senator Connie Mack, III. Senator Mack signs legal documents, including this Form 10-K, under his legal name of Cornelius McGillicuddy, III.

 

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EXHIBIT INDEX

	Exhibit
Number		Title

3(a) Articles of Incorporation as amended May 26, 2005 (incorporated by reference to Exhibit 3(a) to our Annual Report on Form 10-K for the fiscal year ended May 29, 2005).

3(b) Bylaws as amended July 21, 2003 (incorporated by reference to Exhibit 3(b) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).

4(a) Rights Agreement dated as of May 16, 2005 between us and Wachovia Bank, National Association, as Rights Agent (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed May 16, 2005).

4(b) Amendment to Rights Agreement dated as of June 2, 2006, by and between us, Wachovia Bank, National Association and Wells Fargo Bank, National Association, as successor Rights Agent (incorporated by reference to Exhibit 4 to our Current Report on Form 8-K filed on June 5, 2006).

4(c) Indenture dated as of January 1, 1996, between us and Wells Fargo Bank, National Association (as successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association) (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed February 9, 1996).

 

^* 10(a) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Plan of 1995, as amended March 19, 2003 (incorporated herein by reference to Exhibit 10(b) to our Quarterly Report on Form 10-Q for the quarter ended February 23, 2003).

   

^* 10(b) Darden Restaurants, Inc. FlexComp Plan as amended December 4, 2003.

 

.

 

^* 10(c) Darden Restaurants, Inc. Stock Option and Long-Term Incentive Conversion Plan, as amended (incorporated herein by reference to Exhibit 10(c) to our Annual Report on Form 10-K for the fiscal year ended May 26, 1996).

   

^* 10(d) Supplemental Pension Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(d) to our Annual Report on Form 10-K for the year ended May 29, 2005).

   

^* 10(e) Executive Health Plan of Darden Restaurants, Inc. (incorporated herein by reference to Exhibit 10(e) to our Registration Statement on Form 10 effective May 5, 1995).

   

^* 10(f) Darden Restaurants, Inc. Stock Plan for Directors, as amended June 19, 2003 (incorporated by reference to Exhibit 10(f) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).

   

^* 10(g) Darden Restaurants, Inc. Compensation Plan for Non-Employee Directors, as amended March 19, 2003 (incorporated herein by reference to Exhibit 10(d) to our Quarterly Report on Form 10-Q for the quarter ended February 23, 2003).

   

^* 10(h) Darden Restaurants, Inc. Management and Professional Incentive Plan, as amended June 19, 2003 (incorporated by reference to Exhibit 10(h) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).

   

^* 10(i) Benefits Trust Agreement dated as of October 3, 1995, between us and Wells Fargo Bank, National Association (as successor to Wells Fargo Bank Minnesota, National Association, formerly known as Norwest Bank Minnesota, National Association) (incorporated herein by

 

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reference to Exhibit 10(i) to our Annual Report on Form 10-K for the fiscal year ended May 25, 1997).

 

^* 10(j) Form of Management Continuity Agreement, as amended, between us and certain of our executive officers (incorporated herein by reference to Exhibit 10(j) to our Annual Report on Form 10-K for the fiscal year ended May 25, 1997).

   

^* 10(k) Form of documents for our Fiscal 1998 Stock Purchase/Option Award Program, including a Non-Negotiable Promissory Note and a Stock Pledge Agreement (incorporated herein by reference to Exhibit 10(k) to our Annual Report on Form 10-K for the fiscal year ended May 27, 2001).

   

^* 10(l) Darden Restaurants, Inc. Restaurant Management and Employee Stock Plan of 2000, as amended June 19, 2003 (incorporated by reference to Exhibit 10(l) to our Annual Report on Form 10-K for the fiscal year ended May 25, 2003).

   

^* 10(m) Darden Restaurants, Inc. 2002 Stock Incentive Plan, as amended March 19, 2003 (incorporated herein by reference to Exhibit 10(a) to our Quarterly Report on Form 10-Q for the quarter ended February 23, 2003).

 

10(n) Credit Agreement dated as of August 16, 2005, among Darden Restaurants, Inc. and the certain banks named therein, Bank of America, N.A. as syndication agent, SunTrust Bank as syndication agent, Wells Fargo Bank, N.A. as documentation agent, and Wachovia Bank, N.A. as administrative agent (incorporated herein by reference to Exhibit 10 to our Current Report on Form 8-K filed August 18, 2005).

*10(o) Darden Restaurants, Inc. Director Compensation Program, effective as of October 1, 2005 (incorporated herein by reference to Exhibit 10 to our Current Report on Form 8-K filed December 15, 2005).

*10(p) Form of Non-Qualified Stock Option Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(a) to our Current Report on Form 8-K filed June 20, 2006).

*10(q) Form of Restricted Stock Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(b) to our Current Report on Form 8-K filed June 20, 2006).

*10(r) Form of Restricted Stock Units Award Agreement (U.S.) under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(c) to our Current Report on Form 8-K filed June 20, 2006).

*10(s) Form of Restricted Stock Units Award Agreement (Canada) under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(d) to our Current Report on Form 8-K filed June 20, 2006).

*10(t) Form of Darden Stock Units Award Agreement (U.S.) under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(e) to our Current Report on Form 8-K filed June 20, 2006).

*10(u) Form of Darden Stock Units Award Agreement (Canada) under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(f) to our Current Report on Form 8-K filed June 20, 2006).

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*10(v) Darden Restaurants, Inc. Performance Criteria for Annual Cash Bonus under the Management and Professional Incentive Plan for fiscal 2007 (incorporated herein by reference to Exhibit 10(k) to our Current Report on Form 8-K filed June 20, 2006).

*10(w) Form of Performance Stock Units Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan (incorporated herein by reference to Exhibit 10(g) to our Current Report on Form 8-K filed June 20, 2006).

*10(x) Form of Special Project Performance Stock Units Award Agreement under the Darden Restaurants, Inc. 2002 Stock Incentive Plan.

*10(y) Special Project Incentive Program – C5 agreement dated August 16, 2002 between Darden Restaurants, Inc. and Blaine Sweatt (incorporated herein by reference to Exhibit 10(h) to our Current Report on Form 8-K filed June 20, 2006).

*10(z) Special Project Incentive Program – C5 agreement, as amended, dated June 16, 2006 between Darden Restaurants, Inc. and Blaine Sweatt (incorporated herein by reference to Exhibit 10(i) to our Current Report on Form 8-K filed June 20, 2006).

*10(aa) Special Project Incentive Program – Seasons 52 agreement dated June 16, 2002 between Darden Restaurants, Inc. and Blaine Sweatt (incorporated herein by reference to Exhibit 10(j) to our Current Report on Form 8-K filed June 20, 2006).

12 Computation of Ratio of Consolidated Earnings to Fixed Charges.

13 Portions of 2006 Annual Report to Shareholders.

21 Subsidiaries of Darden Restaurants, Inc.

23 Consent of Independent Registered Public Accounting Firm.

24 Powers of Attorney.

31(a) Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b) Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32(a) Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32(b) Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Items marked with an asterisk are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14 of Form 10-K and Item 601(b)(10)(iii)(A) of Regulation S-K.

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EX-10

Exhibit 10(b)

As amended through January 1, 2004

DARDEN RESTAURANTS, INC.

FLEXCOMP PLAN

DARDEN RESTAURANTS, INC.

FLEXCOMP PLAN

ARTICLE I

INTRODUCTION

Section 1.1Purpose of Plan. Darden Restaurants, Inc. (formerly known as “General Mills Restaurants, Inc.”) hereby adopts the Darden Restaurants, Inc. FlexComp Plan (the “Plan”) for a select group of the key management and highly compensated employees of the Company as a means of providing bonus income and a method for sheltering a portion of an eligible individual’s income from current taxation by providing (i) current bonus income (referred to herein as “FlexComp Awards”) on an annual basis and providing a means by which an eligible individual may elect to defer the payment of all or a portion of his or her FlexComp Award for a period of one or more years, and (ii) a means by which an eligible individual may elect to defer the payment of all or a portion of his or her salary and/or applicable bonus (in addition to his FlexComp Awards) for a period of one or more years. In addition, this Plan is intended to be a successor Plan with respect to certain liabilities on behalf of certain individuals who had deferred compensation accounts under the General Mills Restaurants, Inc. FlexComp Plan, the General Mills, Inc. Deferred Compensation Plan and/or the Supplemental Savings Plan of General Mills, Inc. immediately prior to the Effective Date, which liabilities were transferred to this Plan as a result of the spin-off of General Mills Restaurants, Inc. from General Mills, Inc.

Section 1.2Effective Date of Plan. This Plan is a successor plan to the plans named below as of the Effective Date. This Plan was amended, effective January 1, 1996, to allow for the deferral of salary and bonuses with respect to eligible individuals. The original effective date of the predecessor plans, from which liabilities are transferred to this Plan, are as follows:

(a) The original effective date of the General Mills Restaurants, Inc. FlexComp Plan was June 1, 1994;

(b) The original effective date of the General Mills, Inc. Deferred Compensation Plan was May 1, 1984; and

(c) The original effective date of the Supplemental Savings Plan of General Mills, Inc. was July 25, 1983.

The Plan has been amended from time to time from its original effective date. This amendment and restatement includes all amendments through July 26, 2002.

ARTICLE II

DEFINITIONS

Section 2.1Code shall mean the Internal Revenue Code of 1986, as amended from time to time.

Section 2.2Committee shall mean the Minor Amendment Committee of the Board of Directors of the Company or its delegate or the Compensation Committee of the Board of Directors with respect to any determination that is made with respect to a Participant who is subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Section 2.3Company shall mean Darden Restaurants, Inc. and any of its subsidiaries or affiliated business entities as shall be authorized to participate in the Plan by the Board, or its delegate.

Section 2.4Current Compensation shall be determined solely for the period during which the Participant was ineligible to accrue benefits under the Retirement Plan or the Retirement Income Plan of General Mills, Inc. and shall mean the “Earnable Compensation” that would have been recognized under the Retirement Plan for such Participant for such period, without regard to any limitations on compensation imposed under the Code. Notwithstanding the preceding sentence, the following special rules shall apply in determining Current Compensation:

(a) Any annual incentive compensation that is based on fiscal year performance shall be considered Current Compensation for the Plan Year in which it accrues, and any incentive compensation that is not based on fiscal year performance shall be considered Current Compensation for the Plan Year in which paid.

(b) In the case of a Participant who is totally and permanently disabled and who is receiving long-term disability benefits from an LTD Plan, Current Compensation shall include “hypothetical earnings” based on the greater of (1) the Participant’s base salary rate at the time the disability occurred, or (2) the Participant’s eligible earnings for the calendar year immediately prior to the onset of the disability, but shall not include “hypothetical earnings” for any period after the earlier of (A) the date the Participant attains age 65, or (B) the date the Participant is no longer eligible to receive benefits under an LTD Plan.

(c) Current Compensation shall not include any amounts paid pursuant to a severance plan or arrangement or a special service allowance.

(d) Any amounts attributable to sign-on bonuses or special project bonuses shall not be considered Current Compensation for purposes of determining the amount of any FlexComp Award (although such amounts shall be included for determining an individual’s compensation for purposes of Section 3.3(c), whether or not deferred).

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(e) Current Compensation shall not include amounts paid prior to the date of a Participant’s first anniversary of employment, unless such Participant was hired prior to November 1, 1994.

Section 2.5 Deferred Comp Participant shall mean a Participant who is eligible under Section 3.3 to defer all or a portion of his or her compensation (including salary and/or bonuses) as described in Section 4.4.

Section 2.6DSP shall mean the Darden Savings Plan (formerly the “Profit Sharing and Savings Plan for Darden Restaurants, Inc.).

Section 2.7 Effective Date shall mean May 29, 1995.

Section 2.8 FlexComp Award Participant shall mean a Participant who is eligible under Section 3.2 for a FlexComp Award under Section 4.1 and deferral of that award under Section 4.3.

Section 2.9Management Incentive Plan shall mean the plan adopted by Darden Restaurants, Inc. for key management employees.

Section 2.10Minor Amendment Committee shall mean the Minor Amendment Committee, appointed by the Board of Directors of Darden Restaurants, Inc.

Section 2.11Participant shall mean any employee of the Company who meets the eligibility requirements for a deferral under this Plan as set forth in Article III.

Section 2.12 Plan Year shall mean the twelve-month period ending each May 31.

Section 2.13Retirement Plan shall mean the Retirement Income Plan of Darden Restaurants, Inc. (formerly the “Pension Plan for Salaried Employees of General Mills Restaurants, Inc.”).

Section 2.14Supplemental Savings Plan shall mean the Supplemental Savings Plan of General Mills, Inc., under which certain employees of General Mills, Inc. or one of its affiliates had an account balance as of the Effective Date, which liabilities were transferred to this Plan as of the Effective Date, or, with respect to individuals who became employees of the Company after the Effective Date, but before the one-year anniversary of the Effective Date, on said one-year anniversary of the Effective Date.

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ARTICLE III

ELIGIBILITY FOR AWARDS AND DEFERRALS

Section 3.1Participation. An individual shall be a Participant in this Plan only if he or she satisfies any of the eligibility criteria set forth in Section 3.2 or Section 3.3. Upon becoming a Participant under Section 3.2 or Section 3.3, such an individual shall be permitted to participate solely for the deferral and award provisions of this Plan for which he or she has satisfied the eligibility criteria. Notwithstanding the foregoing, in no event may a Participant defer any amounts under this Plan during a period when the individual is receiving any amounts paid pursuant to a severance plan or arrangement or a special service allowance maintained by the Company.

Section 3.2FlexComp Award Participants. An individual who has completed one year of service with the Company (including service with General Mills, Inc. prior to the Effective Date) shall be eligible to become a FlexComp Award Participant in the FlexComp Award feature of this Plan (including the deferral of such Award) for a Plan Year, if such individual:

(a) is designated as eligible to participate hereunder by the Minor Amendment Committee (or its designee) or by the Compensation Committee if such individual is subject to Section 16 of the Exchange Act;

(b) is a highly compensated employee (as defined in Code Section 414(q) and the regulations and other guidance issued thereunder) under the DSP and the Retirement Plan for the DSP and Retirement Plan plan years that occur within the Plan Year or was a highly compensated employee during the preceding two plan years of the DSP and the Retirement Plan or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d));

(c) is either employed by the Company or receiving benefits under a long-term disability income plan of the Company (“LTD Plan”) on or after June 1, 1994;

(d) is not an active participant in the Retirement Plan, the DSP, or any other tax-qualified retirement plan sponsored or maintained by the Company; and

(e) would be entitled to accrue benefits under the Retirement Plan and be entitled to have contributions made under the DSP (or, if the individual is receiving benefits from an LTD Plan, would be entitled to accrue benefits under the Retirement Plan) if such plans did not have restrictions on participation by highly compensated employees or employees whose annualized salary as of his date of hire exceeds $80,000 (as adjusted).

Notwithstanding the foregoing provisions of Section 3.2(b), effective May 1, 1999, the rule in the DSP and Retirement Plan automatically excluding an employee from participation

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therein for two plan years after a plan year in which such employee is a highly compensated employee shall not apply with respect to Qualified Managers as defined in the DSP. Therefore, in lieu of Section 3.2(b), such individuals shall be eligible to become a FlexComp Award Participant in the FlexComp Award feature of this Plan (including the deferral of such Award) for a Plan Year, if such individual otherwise meets the requirements of Section 3.2(a), (c), (d), and (e) and such individual is a highly compensated employee, as defined therein for the current DSP and Retirement Plan plan years or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)).

Section 3.3Deferred Comp Participants. Effective January 1, 1996, an individual shall be eligible to become a Deferred Comp Participant in the deferred compensation features of this Plan (other than those deferral features applicable to FlexComp Awards) for any Plan Year, if he or she:

(a) is an officer;

(b) is a highly compensated employee (as defined in Code Section 414(q) and the regulations and other guidance issued thereunder) under the DSP and the Retirement Plan for the DSP and Retirement Plan plan years that occur within the Plan Year or was a highly compensated employee during the preceding two plan years of the DSP and the Retirement Plan or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)); or

(c) after having become eligible under (a) or (b) above for a prior Plan Year, the individual would have been a highly compensated employee under the DSP or the Retirement Plan for the DSP or Retirement Plan plan year ending within the Plan’s Plan Year (as defined in Code Section 414(q) and the regulations and other guidance issued thereunder) had the individual’s compensation included all amounts that the individual deferred under this Plan other than deferrals, if any, of the FlexComp Awards.

Notwithstanding the foregoing provisions of Section 3.3(b), effective May 1, 1999, the rule in the DSP and Retirement Plan automatically excluding an employee from participation therein for two plan years after a plan year in which such employee is a highly compensated employee shall not apply with respect to Qualified Managers as defined in the DSP. Therefore, in lieu of Section 3.3(b), such individuals shall be eligible to become a Deferred Comp Participant in the deferred compensation features of this Plan (other than those deferral features applicable to FlexComp Awards) for any Plan Year, if he or she otherwise meets the requirements of Section 3.3(a) or (c) or such individual is a highly compensated employee, as defined therein for the DSP and Retirement Plan plan years that occur within the Plan Year or is employed at a salary which, on an annual basis, is anticipated to exceed $80,000 (adjusted for increases in the cost of living at the same time and in the same manner permitted under Code Section 415(d)).

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ARTICLE IV

FLEXCOMP AWARDS AND PLAN DEFERRALS

Section 4.1Payment of Annual FlexComp Award. A FlexComp Award Participant who: (i) as of the last day of a Plan Year, is actively employed by the Company or receiving benefits under an LTD Plan; or (ii) terminates employment during a Plan Year due to “retirement” (as that term is defined under the Retirement Plan) or death, shall be paid any FlexComp Award that he or she may become entitled to receive for the Plan Year (as determined under Section 4.2) in cash as soon as practicable following the end of such Plan Year. A FlexComp Award Participant who terminates during a Plan Year for any reason other than “retirement” (as defined under the Retirement Plan) or death shall be paid any FlexComp Award that he or she may become entitled to receive for the Plan Year in cash as soon as practicable after the end of the Plan Year following his or her termination of employment.

Section 4.2Amount of Annual FlexComp Award. A FlexComp Award Participant shall be entitled to an annual FlexComp Award, the amount of which shall be determined as follows:

(a)The formula for determining the FlexComp Award set forth in (b) or (c) below shall apply to all FlexComp Award Participants, as follows:

(1) FlexComp Award Participants who are hired on or after June 1, 2000 shall have their FlexComp Award amounts determined under (b) below.

(2) FlexComp Award Participants who were actively employed (including those on an authorized leave of absence) FlexComp Award Participants during the Plan Year beginning June 1, 2000 and who, in accordance with such procedures established by the Committee made a one-time irrevocable election prior to the date established by the Committee, to have their FlexComp Awards determined under the formula set forth in (b) or (c) below for all Plan Years beginning on and after June 1, 2000 shall have their FlexComp Awards determined in accordance with that affirmative election. In the absence of an affirmative election to the contrary, such Participant’s FlexComp Award for all Plan Years beginning on and after June 1, 2000 shall be determined under the formula set forth in (b) below.

(3) FlexComp Award Participants who were actively employed before June 1, 2000, were not eligible for the election as described in (a)(2) above even though they were actively employed at such time, became eligible to participate as a FlexComp Award Participant without having incurred a break in service from the Company (whether or not such participation was for the first time), and participate in the final average pay portion of the Retirement Plan shall be provided with a one-time irrevocable election to choose whether to have the FlexComp Award determined under (b) or (c)

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below. Such irrevocable election shall be made upon becoming a FlexComp Award Participant at such time and in accordance with such procedures established by the Committee. In the absence of a timely affirmative election, the Participant’s FlexComp Award shall be determined under (b) below.

(4) FlexComp Award Participants not otherwise described in (1), (2) or (3) above (including, by way of illustration and not limitation, FlexComp Award Participants who terminated employment prior to June 1, 2000 and are re-hired after that date), shall have their FlexComp Awards determined under the formula described in (b) below for all relevant Plan Years beginning on and after June 1, 2000.

(5) In all events, the formula described in (c) below shall apply in determining the amount of all annual FlexComp Awards for periods before June 1, 2000.

(b)If this Section 4.2(b) applies to a FlexComp Award Participant (as determined under (a) above), the amount of a FlexComp Award for any such Participant shall be determined under the following formula: [“X” (a DSP factor) plus “Y” (a fixed factor)] times the Participant’s Current Compensation. The determination of the appropriate factors and the relevant terms are set forth below:

(1) X, the DSP factor, is based on the Participant’s lost DSP matching contributions, and, equals:

(A) a variable amount, determined in the Company’s discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 6% for periods on and after June 1, 2000, and before July 1, 2002; and

(B) a variable amount, determined in the Company’s discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 7.2% for periods on and after July 1, 2002.

(2) Y, the fixed factor, is 4%.

(3) In the event a Participant terminates employment with the Company during the Plan Year for any reason other than “retirement” (as defined under the Retirement Plan) or death, the Participant shall be entitled to a FlexComp Award for the portion of the Plan Year in which he or she is employed, based on his or her Current Compensation for the partial Plan Year.

(c)If this Section 4.2(c) applies to a FlexComp Award Participant (as determined under (a) above), the amount of a FlexComp Award for any such Participant shall be determined

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under the following formula: [“X” (a DSP factor) plus the product of “Y” (an age-based factor) and “Z” (a service-based factor)] times the Participant’s Current Compensation. The determination of the appropriate factors and the definitions of the relevant terms are set forth below:

(1) X, the DSP factor, is based on the Participant’s lost DSP matching contributions, and, equals:

(A) 3% for periods before October 1, 1997;

(B) a variable amount, determined in the Company’s discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 6% for periods on and after October 1, 1997 and before July 1, 2002; and

(C) a variable amount, determined in the Company’s discretion, but which percentage shall be applied consistently to all such Participants, between 1.5% and 7.2% for periods on and after July 1, 2002.

(2) Y, the age-based factor is 1.085^ (the Participant’s age minus 30), with the Participant’s age being determined as of the last day of the Plan Year, unless the Participant terminates during the Plan Year for any reason other than “retirement” (as defined under the Retirement Plan) or death, in which case the Participant’s age shall be determined as of his or her date of termination.

(3) Z, the service-based factor is equal to 1.8 + (.02 x the Participant’s years of credited service under the Retirement Plan (including years of service credited under the Pension Plan for Hourly Employees of General Mills Restaurants, Inc., if such service would have been included under the portability provisions of the Retirement Plan had the Participant been an active participant in the Retirement Plan at the time of the FlexComp Award) and under the Retirement Income Plan of General Mills, Inc. during periods when the Participant was entitled to accrue benefits thereunder before first becoming eligible to participate in this Plan).

(4) The product of Y and Z shall not be less than 2%, or greater than 20%.

(5) In the event a Participant terminates employment with the Company during the Plan Year for any reason other than “retirement” (as defined under the Retirement Plan) or death, the Participant shall be entitled to a FlexComp Award for the portion of the Plan Year in which he or she is employed, based on his or her Current Compensation for the partial Plan Year.

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Section 4.3Deferral of Annual FlexComp Award. Notwithstanding Section 4.1, any FlexComp Award Participant may elect to defer up to 100% (in a whole percentage) of any FlexComp Award that he or she may become entitled to receive for a Plan Year. Any such election shall apply to the specified percentage of the Participant’s FlexComp Award for the Plan Year, provided the Participant completes and submits to the Company a deferral election form no later than the December 31 within such Plan Year. If a Participant will first become eligible to participate in the FlexComp Plan after December 31 of a Plan Year but prior to the end of such Plan Year, such Participant may make a deferral election conditioned on the granting of a FlexComp Award for such Plan Year (a “Conditional Election”), if made prior to December 31st of that Plan Year. Such Conditional Election shall apply to the FlexComp Award, if any, made to the Participant for such Plan Year. The Participant’s deferral percentage election shall remain in effect with respect to any FlexComp Awards for future Plan Years, until the Participant changes such election by completing and submitting to the Company a new deferral election form on or before any subsequent December 31. Any such new election shall apply to the specified percentage of the Participant’s FlexComp Award for the Plan Year in which such December 31 falls and for future Plan Years until the Participant next changes his or her election. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant’s FlexComp Award reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any FlexComp Award, then any deferral election made with respect to such FlexComp Award shall not become effective.

Section 4.4 Salary, Incentive, and Bonus Deferral Elections.

(a) Elections by Officers. A Deferred Comp Participant who is an officer of the Company may make the following deferral elections:

(1) Base Compensation. Such Participant may make an initial election to defer up to 25% (in a whole percentage) of his or her base compensation (15% of his or her base compensation (in whole percentages) earned prior to January 1, 2004) by completing and submitting to the Company a deferral election form at such time and in such manner as determined by the Compensation Committee. Such election shall apply to the Participant’s base compensation attributable to services performed after the election and before the beginning of the next calendar year. That initial deferral election shall continue to apply with respect to all future base compensation until the election is changed by the Participant. The Participant may elect to modify any deferral election of base compensation for the remainder of any calendar year or any future year by providing written notice to the Company at such time and in such manner as determined by the Compensation Committee. Any such change shall be effective as soon as practicable after the end of the week following the week after the Company’s receipt of the Participant’s written notice of change.

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(2) Management Incentive Plan Bonus Deferral. Such Participant may elect to defer up to 100% (in a whole percentage) of his or her Management Incentive Plan incentive compensation by completing and submitting to the Company a deferral election form no later than the sixtieth (60th) day preceding the end of the Company’s fiscal year. Such deferral election shall apply to all future Management Incentive Plan incentive compensation payments until changed for a future Plan Year by the Participant in writing. A Participant may elect to change his or her deferral election of incentive compensation by providing written notice to the Company no later than the sixtieth (60th) day immediately preceding the Company’s fiscal year for which such incentive compensation would otherwise be payable. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant’s incentive compensation reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any incentive compensation award, then any deferral election made with respect to such incentive compensation award shall not become effective.

(b) Elections by All Other Participants. A Deferred Comp Participant who is not an officer of the Company may make the following deferral elections:

(1) Deferrals of Earnable Compensation. Such Participant may elect to defer up to 25% (in a whole percentage) of his or her “earnable compensation” (as such term is defined under the DSP) (15% of his or her “earnable compensation” (in whole percentages) earned prior to January 1, 2004) by completing and submitting to the Company a deferral election form at such time and in such manner as determined by the Minor Amendment Committee (or its delegate). Such election shall apply to the Participant’s “earnable compensation” attributable to services performed after the election and shall remain in effect until changed by the Participant. A Participant may change his or her deferral election of earnable compensation for any future period by providing written notice to the Company on such forms as prescribed by the Minor Amendment Committee or its delegate. Any such change shall be effective as soon as practicable after the end of the week following the week after the Company’s receipt of the Participant’s written notice.

(2) Bonus for Operations. Such Participant may elect to defer up to 25% (in a whole percentage) of his or her operations bonus (15% of his or her operations bonus for bonuses payable prior to January 1, 2004) by completing and submitting to the Company a deferral election form no later than the forty-fifth (45th) day preceding the end of the applicable bonus period. Such deferral election shall apply to all future operations bonuses until changed by the Participant in writing. A Participant may elect to change his or her deferral election of future operations bonuses by

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providing written notice to the Company no later than the forty-fifth (45th) day preceding the end of the next applicable bonus period. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant’s operations bonus reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any award of an operations bonus, then any deferral election made with respect to such bonus shall not become effective.

(3) Management Incentive Plan Bonus. Such Participant may elect to defer up to 25% (in a whole percentage) of his or her Management Incentive Plan bonus (15% of his or her Management Incentive Plan bonus for bonuses payable prior to January 1, 2004), provided the Participant completes and submits to the Company a deferral election form no later than the sixtieth (60th) day preceding the end of the applicable bonus period. Such deferral election shall apply to all future Management Incentive Plan bonuses until changed by the Participant in writing. A Participant may elect to change his or her deferral election of future Management Incentive Plan bonuses by providing written notice to the Company no later than the sixtieth (60th) day preceding the end of the next applicable Plan Year. Notwithstanding the foregoing, the amount of any deferral may not exceed the gross amount of the Participant’s Management Incentive Plan bonus reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any award of a Management Incentive Plan bonus, then any deferral election made with respect to such bonus shall not become effective.

(c) Special Bonuses. Effective with respect to bonuses awarded on or after January 1, 1996, any Deferred Comp Participant may elect to defer up to 100% (in a whole percentage) of: (i) any “sign-on bonus” that may become payable to such Participant by completing and submitting to the Company a deferral election form no later than his or her date of hire, and (ii) any “special project bonus” that the Senior Vice President of Personnel, in his or her sole discretion, (or the Compensation Committee with respect to a Participant who is subject to Section 16 of the Exchange Act) may award to such Participant by completing and submitting to the Company a deferral election form within 30 days of receiving from the Company a written communication regarding the goals and objectives that must be attained in order to earn such special project bonus. Notwithstanding the foregoing, the amount of any deferral under this subsection may not exceed the gross amount of the applicable bonus reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the date of any award of a sign-on or special project

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bonus, then any deferral election made with respect to such bonus shall not become effective.

(d) Bridge Period Benefit Amount and Restricted Stock Amount. In addition to the deferral elections under subsections (a), (b) and (c), a Deferred Comp Participant may elect to defer an amount of his or her base compensation for calendar years 1998 and 1999, which amount is equivalent to a specified percentage (in a whole percentage) of his or her “Bridge Period Benefit Amount,” provided, however, that such election shall not be effective for base compensation earned prior to September 1, 1998. The Participant’s Bridge Period Benefit Amount shall equal (i) the taxable amounts paid to the Participant under the Darden Restaurants, Inc. Bridge Period Benefit Plan and the Darden Restaurants, Inc. Bridge Period Retirement Plan, plus (ii) the amounts realized by the Participant on his or her exercise of all or any portion of the Stock Option granted under such plans prior to December 31, 1999. In addition, a Participant may elect to defer an amount of his or her: (i) base compensation and Management Incentive Plan incentive compensation award if the Participant is an officer of the Company, (ii) earnable compensation, operations bonus and Management Incentive Plan incentive compensation award if the Participant is not an officer of the Company, and/or (iii) special bonuses, which amount is equivalent to a specified percentage (in a whole percentage) of his or her “Restricted Stock Amount.” The Participant’s Restricted Stock Amount shall equal the value of the Participant’s restricted stock that vests in the year such base compensation, incentive compensation, earnable compensation, or bonus is earned. Any such election under this subsection (d) shall be made by completing and submitting to the Company a deferral election form that shall apply to base compensation or earnable compensation that would otherwise be payable at least 30 days after such form is submitted to the Company and to incentive compensation and operations and special bonuses that are not determinable prior to at least 30 days after such form is submitted to the Company, pursuant to rules established by the Company. A Participant may change his or her deferral election of base compensation, earnable compensation and/or incentive compensation (including operations and special bonuses) under this subsection (d) by providing written notice to the Company. Any such change shall apply to base compensation or earnable compensation that would otherwise be payable as soon as practicable after the end of the week following the week after the Company’s receipt of the Participant’s written notice and to incentive compensation (including operations and special bonuses) that is not determinable prior to at least 30 days after the Company receives the Participant’s written notice, pursuant to rules established by the Company. Notwithstanding the foregoing, the amount of any deferral under this subsection (d) may not exceed the gross amount of the Bridge Period Benefit Amount and/or Restricted Stock Amount reduced by any tax required to be withheld from such amounts under Code Section 3101(a) and (b) or any state or local statute. Further, notwithstanding any prior deferral election, if the Participant terminates prior to the effective date of any deferral under this Section 4.3(d), then any deferral election made shall not become effective.

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Section 4.5Short-Term Deferrals. Notwithstanding the foregoing provisions of this Article IV, the Company may permit a Participant to elect to defer all or part of the Participant’s incentive compensation award, if any, to a date certain selected by the Company within the taxable year it would otherwise be paid, upon written notice to the Company received by December 31 of the preceding calendar year. Interest shall be credited on such deferred amount at a rate selected by the Company and shall be communicated to the Participant at the same time the availability of any such short-term deferral opportunity is communicated to Participants.

ARTICLE V

ESTABLISHMENT OF ACCOUNTS AND CREDITS TO ACCOUNTS

Section 5.1Deferred Accounts and Rates of Return on Deferred Accounts. A deferred compensation account (“Deferred Account”) shall be established on behalf of each Participant with respect to whom an amount is deferred under Section 4.4 of this Plan, including amounts transferred in accordance with Appendix A. The amount of a Participant’s deferrals under this Plan shall be credited to such Participant’s Deferred Account as soon as practicable after the amount would otherwise have been paid in the absence of the deferral election. Effective January 1, 1998, each Participant’s Deferred Account shall be credited daily with a “rate of return” on the total deferred amounts credited to the Participant’s Deferred Account and a Participant may make separate elections with respect to “rates of return” for past and future deferrals. Such “rates of return” are described in Section 5.3.

Section 5.2FlexComp Accounts and Rates of Return on Amounts in FlexComp Accounts. A deferred FlexComp Award account (“FlexComp Account”) shall be established on behalf of each Participant who elects to defer a percentage of his or her FlexComp Awards. The amount of a Participant’s deferred FlexComp Awards shall be credited to such Participant’s FlexComp Account as soon as practicable after the amount would otherwise have been paid in the absence of a deferral election. Effective January 1, 1998, each Participant’s FlexComp Account shall be credited daily with a “rate of return” on the total deferred amounts credited to the Participant’s FlexComp Account and a Participant may make separate elections with respect to “rates of return” for past and future deferrals. Such “rates of return” are described in Section 5.3.

Section 5.3Rates of Return. The “rates of return” credited to a Participant’s accounts under Sections 5.1 and 5.2 shall be based upon the actual investment performance of funds in the DSP, or at such other rates as may be made available to the Participant from time to time pursuant to the provisions of the Plan and the procedures established by the Committee. The Committee may delete funds, on a prospective basis, by notifying all Participants whose Accounts include rates of return based on such funds, in advance, and soliciting elections for transfer to other rates of return then available to such Participants.

Participants may elect to have any combination of the above “rates of return” accrue on amounts in their accounts, from 1% to 100%, provided that the sum of the percentages attributable to such rates equals 100%. A Participant may change the “rate(s) of return” to be credited to his or her accounts, on a daily basis, by notifying the Committee or its delegate, at

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such time and in such manner as approved by the Committee or its delegate. Effective January 1, 1998, each Participant’s accounts will be credited daily with the “rate(s) of return” elected by the Participant until the amount in each Participant’s Accounts is distributed to the Participant on the distribution date(s) elected by the Participant. Each Participant shall receive a quarterly statement of the balance of his or her accounts.

Section 5.4Impact on Other Benefit Plans. The Company may maintain life and/or disability plans under which benefits earned or payable are related to a Participant’s earnings. Any such benefits will generally be based upon the earnings that a Participant would have earned in a given calendar year in the absence of any deferral hereunder.

ARTICLE VI

PAYMENT OF ACCOUNTS

Section 6.1 Hardship Distributions. At any time prior to the time an amount is otherwise payable hereunder, an active Participant may request a distribution of deferred amounts on account of the Participant’s financial hardship, subject to the following requirements:

(a) Such distribution shall be made, in the sole discretion of the Minor Amendment Committee or its delegate or by the Compensation Committee if the Participant is subject to Section 16 of the Exchange Act, if the Participant has incurred an unforeseeable emergency.

(b) For purposes of this plan, an “unforeseeable emergency” shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a Participant’s dependent (as defined in Code section 152(a)), loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant’s control. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case and be based on the information supplied by the Participant, in writing, on the form provided by the Minor Amendment Committee or its delegate.

(c) Notwithstanding the foregoing, payment under this Section 6.1 may not be made to the extent that such hardship is or may be relieved:

(i) through reimbursement or compensation by insurance or otherwise,

(ii) by liquidation of the participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or

(iii) by cessation of deferrals under the Plan.

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In addition to the foregoing, distributions under this Section 6.1 shall not be allowed for purposes of sending a child to college or the Participant’s desire to purchase a home or other residence. In all events, distributions made on account of an unforeseeable emergency are limited to the extent reasonably needed to satisfy the emergency need.

(d) All distributions under this Section 6.1 shall be made as soon as practicable after the Minor Amendment Committee or its delegate or the Compensation Committee, as applicable, has approved the distribution and that the requirements of this Section 6.1 have been met.

Section 6.2Payment of Deferred Amounts. At the time a Participant makes his or her election to defer any amounts under this Plan, the Participant must also elect a distribution date and a form of payment with respect to the deferral of each of the amounts subject to any such election, in accordance with subsections (a) and (b) and subject to subsection (c) below. A Participant who has a Supplemental Savings Account transferred to this Plan pursuant to Appendix A shall also elect a distribution date and form of payment with respect to his or her Supplemental Savings Account, in accordance with subsections (a) and (b) and subject to subsection (c) below. Each deferred amount under this Plan is paid separately according to the Participant’s deferred distribution date election. Notwithstanding any Participant election to the contrary, all distributions under this Plan shall be paid or commence to be paid as soon as practicable after the January 1 coincident with or next following the Participant’s termination of employment or retirement from the Company.

(a) Distribution Date. The distribution date may be any date that is at least one year subsequent to the date the compensation, bonus, FlexComp Award or the Supplemental Savings Account (whichever is applicable) would otherwise be payable, but shall not be later than the date the Participant attains age 70.

(b) Form of Payment. The Participant may elect to have his or her deferred amounts subject to such election, paid in:

(1) a single payment,

(2) substantially equal annual installments for a period not to exceed ten (10) years,

(3) substantially equal annual installments for a period not to exceed fifteen (15) years for deferral elections made prior to December 31, 1985 (if so elected at the time of the original deferral), or

(4) any other form of payment requested in writing by the Participant and approved by the Minor Amendment Committee or its delegate or by the Compensation Committee if the Participant is subject to Section 16 of the Exchange Act, with regard to amounts deferred under Article IV.

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(c) Special Rules. Notwithstanding the above, the following provisions shall apply:

(1) Except as provided in Subsection 6.2(c)(3), if a Participant terminates employment for any reason other than Retirement or death, the Committee or its delegate shall require that full payment of all amounts deferred under this Plan be paid in the form of a single lump sum cash payment as soon as practicable after the January 1 coincident with or next following the Participant’s termination of employment.

(2) As to all future and previous deferrals, an active Participant may request to amend his or her distribution date and/or form of payment with respect to a deferral provided: (i) the initial distribution date in the absence of such distribution election amendment is not within twelve (12) months of the date of the amendment; (ii) his or her amended distribution date is at least one year after the distribution date in the absence of such distribution election amendment; (iii) his or her amended form of payment is in substantially equal annual installments for a period not to exceed ten (10) years or a lump sum; and (iv) no modifications for distribution dates and/or forms of payment are permitted with respect to any deferrals after payment of such deferrals has commenced to be paid. No more than two amendments to the Participant’s initial distribution election with respect to a particular deferral shall be permitted. Any such amendment must be in writing and submitted to the Committee for approval.

(3) Notwithstanding any other provision of this Plan to the contrary, a Participant may, at any time prior or subsequent to the distribution date selected by the Participant, request in writing to the Committee to have his or her form of payment of any or all amounts in his or her FlexComp Account, Deferred Compensation Account, and/or Supplemental Savings Account changed to an immediate lump-sum distribution, provided that the amount of any such lump-sum distribution shall be reduced by an amount equal to the product of (X) the total lump-sum distribution otherwise payable (based on the value of the Participant’s FlexComp Account, Deferred Compensation Account, or Supplemental Savings Account, as the case may be) as of the first day of the month in which the lump-sum amount is paid, adjusted by a pro-rata portion of the rate of return for the prior month in which the lump-sum is paid, determined by multiplying the actual rate of return for such prior month by a fraction, the numerator of which is the number of days in the month in which the request is received prior to the date of payment, and the denominator of which is the number of days in the month), and (Y) the rate set forth in Statistical Release H.15(519), or any successor publication, as published by the Board of Governors of the Federal Reserve System for one-year U.S. Treasury notes under the heading “Treasury Constant Maturities” for the first day of the calendar month in which the written request for an immediate lump-sum distribution is approved by the Committee. Any

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such lump sum distribution shall be paid within one (1) business day of approval by the Committee of such request.

Section 6.3Death of a Participant. If a Participant dies before the full distribution of his or her accounts under this Article VI, a lump sum payment of the remaining distribution amount shall be made to the beneficiary designated by the Participant. This payment shall be made as soon as practicable after the Committee receives notification of the Participant’s death. In the absence of any such designation, payment shall be made to the personal representative, executor or administrator of the Participant’s estate.

ARTICLE VII

ADMINISTRATION OF THE PLAN

Section 7.1Committee. This Plan shall be administered by the Committee. The Committee shall act by affirmative vote of a majority of its members at a meeting or in writing without a meeting. The Committee shall appoint a secretary who may be but need not be one of its own members. The secretary shall keep complete records of the administration of the Plan. The Committee may authorize each and any one of its members to perform routine acts and to sign documents on its behalf.

Section 7.2Plan Administration. The Committee may appoint such persons or establish such subcommittees, employ such attorneys, agents, accountants or investment advisors necessary or desirable to advise or assist it in the performance of its duties hereunder, and the Committee may rely upon their respective written opinions or certifications. Administration of the Plan shall consist of interpreting and carrying out the provisions of the Plan in the discretion of the Committee. The Committee shall, in its discretion, determine the eligibility of employees to participate in the different features of the Plan, their rights while Participants in the Plan and the nature and amounts of benefits to be received therefrom. The Committee shall, in its discretion, decide any disputes which may arise under the Plan. The Committee may provide rules and regulations for the administration of the Plan consistent with its terms and provisions. Any construction or interpretation of the Plan and any determination of fact in administering the Plan made in good faith by the Committee shall be final and conclusive for all Plan purposes.

Section 7.3 Claims Procedure.

(a) The Minor Amendment Committee or its delegate shall prescribe a form for the presentation of claims under the terms of this Plan.

(b) Upon presentation to the Minor Amendment Committee or its delegate of a claim on the prescribed form, the Minor Amendment Committee or its delegate shall make a determination of the validity thereof. If the determination is adverse to the claimant, the Minor Amendment Committee or its delegate shall furnish to the claimant within a reasonable period of time after the receipt of the claim a written notice setting forth the following:

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(1) The specific reason or reasons for the denial;

(2) Specific reference to pertinent provisions of this Plan on which the denial is based;

(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(4) An explanation of this Plan’s claim review procedure.

(c) If a claim is denied, the claimant may appeal such denial to the Minor Amendment Committee or its delegate for a full and fair review of the adverse determination. The claimant’s request for review must be in writing and be made to the Minor Amendment Committee or its delegate within 60 days after receipt by the claimant of the written notification required under subsection (b) above. The claimant or his or her duly authorized representative may submit issues and comments in writing which shall be given full consideration by the Minor Amendment Committee or its delegate in its review.

(d) The Minor Amendment Committee or its delegate may, in its sole discretion, conduct a hearing. A request for a hearing will be given full consideration. At such hearing, the claimant shall be entitled to appear and present evidence and be represented by counsel.

(e) A decision on a request for review shall be made by the Minor Amendment Committee or its delegate not later than 60 days after receipt of the request; provided, however, in the event of a hearing or other special circumstances, such decision shall be made not later than 120 days after receipt of such request.

(f) The Minor Amendment Committee’s or its delegate’s decision on review shall state in writing the specific reasons and references to this Plan provisions on which it is based. Such decision shall be immediately provided to the claimant. In the event the claimant disagrees with the findings of the Minor Amendment Committee or its delegate, the matter shall be referred to arbitration in accordance with Section 7.6 hereof.

(g) The Minor Amendment Committee or its delegate may allocate its responsibilities among its several members, except that all matters involving the hearing of and decision on claims and the review of the determination of benefits shall be made by the full Minor Amendment Committee or its delegate. No member of the Minor Amendment Committee or its delegate shall participate in any matter relating solely to himself or herself.

Section 7.4Non-Assignability. The interests herein and the right to receive distributions from a Participant’s accounts under this Plan may not be anticipated, alienated,

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sold, transferred, assigned, pledged, encumbered, or subjected to any charge or legal process, and if any attempt is made to do so, or a Participant becomes bankrupt, the interests of the Participant under this Plan in his or her accounts may be terminated by the Minor Amendment Committee or its delegate (or the Compensation Committee with respect to a Participant who is subject to Section 16 of the Exchange Act), which, in its sole discretion, may cause the same to be held or applied for the benefit of one or more of the dependents of such Participant or make any other disposition of such interests that it deems appropriate.

Section 7.5Amendments to Plan. Darden Restaurants, Inc. reserves the right to suspend, amend or otherwise modify or terminate this Plan at any time, without notice. Such action shall be taken by the Board of Directors of Darden Restaurants, Inc. However, this Plan may not be suspended, amended, otherwise modified, or terminated after a Change in Control without the written consent of a majority of Participants determined as of the day before such Change in Control occurs. A “Change in Control” shall mean the occurrence of any of the following events:

(a) any person (including a group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) becomes the beneficial owner, directly or indirectly, of twenty percent (20%) or more of the shares of Darden Restaurants, Inc. entitled to vote for the election of directors;

(b) as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sales of assets or contested election, or combination of the foregoing, the persons who were directors of Darden Restaurants, Inc. just before such event shall cease to constitute a majority of Darden Restaurants, Inc.’s Board of Directors; or

(c) the shareholders of Darden Restaurants, Inc. approve an agreement providing for a transaction in which Darden Restaurants, Inc. will cease to be an independent publicly-owned corporation or a sale or other disposition of all or substantially all of the assets of Darden Restaurants, Inc. occurs.

Notwithstanding any other provision of this Plan to the contrary, the Minor Amendment Committee, or the Compensation Committee with respect to a Participant who is subject to Section 16 of the Exchange Act, may, in its sole discretion, direct that payments be made before such payments are otherwise due if, for any reason (including, but not limited to a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, or a decision by a court of competent jurisdiction involving a Participant or Beneficiary), such Committee believes that Participants or their Beneficiaries have recognized or will recognize income for federal income tax purposes with respect to amounts that are or will be payable to such Participants under this Plan before such amounts are scheduled to be paid. In making this determination, such Committee shall take into account the hardship that would be imposed on Participants or their Beneficiaries by the payment of federal income taxes under such circumstances.

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Section 7.6Arbitration. Subject to the completion of the claims procedure described in Section 7.3, any controversy or claim arising out of or relating to this Plan, or any alleged breach of the terms or conditions contained herein, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”) as such rules may be modified herein.

(a) An award rendered in connection with an arbitration pursuant to this Section 7.6 shall be final and binding and judgment upon such an award may be entered and enforced in any court of competent jurisdiction.

(b) The forum for arbitration under this Plan shall be Orlando, Florida and the governing law for such arbitration shall be the laws of the State of Florida.

(c) Arbitration under this Section 7.6 shall be conducted by a single arbitrator selected jointly by Darden Restaurants, Inc. and the Participant or Beneficiary, as applicable (the “Complainant”). If within thirty (30) days after a demand for arbitration is made, Darden Restaurants, Inc. and the Complainant are unable to agree on a single arbitrator, three arbitrators shall be appointed to conduct the arbitration. Each party shall select one arbitrator and those two arbitrators shall then select a third neutral arbitrator within thirty (30) days after their appointment. In connection with the selection of the third arbitrator, consideration shall be given to familiarity with executive compensation plans and experience in dispute resolution between parties, as a judge or otherwise. If the arbitrators selected by the parties cannot agree on the third arbitrator, they shall discuss the qualifications of such third arbitrator with the AAA before selection of such arbitrator, which selection shall be in accordance with the Commercial Arbitration Rules of the AAA.

(d) If an arbitrator cannot continue to serve, a successor to an arbitrator selected by a party shall be also selected by the same party, and a successor to a neutral arbitrator shall be selected as specified in subsection (c) of this Section. A full rehearing will be held only if the neutral arbitrator is unable to continue to serve or if the remaining arbitrators unanimously agree that such a rehearing is appropriate.

(e) The arbitrator or arbitrators shall be guided, but not bound, by the Federal Rules of Evidence and by the procedural rules, including discovery provisions, of the Federal Rules of Civil Procedure. Any discovery shall be limited to information directly relevant to the controversy or claim in arbitration.

(f) The parties shall each be responsible for their own costs and expenses, except for the fees and expenses of the arbitrators, which shall be shared equally by Darden Restaurants, Inc. and the Complainant.

Section 7.7Plan Unfunded. Nothing in this Plan shall be interpreted or construed to require the Company in any manner to fund any obligation to the Participants, terminated Participants or beneficiaries hereunder. Nothing contained in this Plan nor any action taken

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hereunder shall create, or be construed to create, a trust of any kind, or a fiduciary relationship between the Company and the Participants, terminated Participants, beneficiaries, or any other persons. Any funds which may be accumulated in order to meet any obligation under this Plan shall for all purposes continue to be a part of the general assets of the Company; provided, however, that the Company may establish a trust to hold funds intended to provide benefits hereunder so long as the assets of such trust become subject to the claims of the general creditors of the Company in the event of bankruptcy or insolvency of the Company. To the extent that any Participant, terminated Participant, or Beneficiary acquires a right to receive payments from the Company under this Plan, such rights shall be no greater than the rights of any unsecured general creditor of the Company.

Section 7.8Applicable Law. All questions pertaining to the construction, validity and effect of this Plan shall be determined in accordance with the laws of the State of Florida, to the extent not preempted by Federal law.

Section 7.9Limitation of Rights. This Plan is a voluntary undertaking on the part of the Company. Neither the establishment of this Plan nor the payment of any benefits hereunder, nor any action of the Company, the Committee or the Minor Amendment Committee or its delegate shall be held or construed to be a contract of employment between the Company and any eligible employee or to confer upon any person any legal right to be continued in the employ of the Company. The Company expressly reserves the right to discharge, discipline or otherwise terminate the employment of any eligible employee at any time. Participation in this Plan gives no right or claim to any benefits beyond those which are expressly provided herein and all rights and claims hereunder are limited as set forth in this Plan.

Section 7.10Severability. In the event any provision of this Plan shall be held illegal or invalid, or would serve to invalidate this Plan, that provision shall be deemed to be null and void, and this Plan shall be construed as if it did not contain that provision.

Section 7.11Headings and Number. The headings to the Articles and Sections of this Plan are inserted for reference only, and are not to be taken as limiting or extending the provisions hereof.

Section 7.12Incapacity. If the Minor Amendment Committee or its delegate determines that a Participant, a terminated Participant, or any Beneficiary under this Plan (each of which shall be referred to as the “Recipient”) is unable to care for his or her affairs because of illness, accident, or mental or physical incapacity, or because the Recipient is a minor, the Minor Amendment Committee or its delegate may direct that any benefit payment due the Recipient be paid to his or her duly appointed legal representative, or, if no such representative is appointed, to the Recipient’s spouse, child, parent, or other blood relative, or to a person with whom the Recipient resides or who has incurred expense on behalf of the Recipient. Any such payment so made shall be a complete discharge of the liabilities of this Plan with respect to the Recipient.

Section 7.13Binding Effect and Release. All persons accepting benefits under this Plan shall be deemed to have consented to the terms of this Plan. Any final payment or distribution to any person entitled to benefits under this Plan shall be in full satisfaction of all

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claims against this Plan, the Committee, the Minor Amendment Committee or its delegate, and the Company arising by virtue of this Plan.

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APPENDIX A

SUPPLEMENTAL SAVINGS ACCOUNTS

Eligibility for Supplemental Savings Account. An individual who was employed by the Company on the distribution date and who had an account balance under the terms of the Supplemental Savings Plan as of such date, shall have a Supplemental Savings Plan Account established hereunder to the extent such liability is transferred to this Plan as of the one-year anniversary of the distribution date.

No Forfeitures of Supplemental Savings Account. All amounts credited to a Participant’s Supplemental Savings Account under the Plan shall be fully vested.

This Plan document has been updated to include the following amendments:

• Amended and restated as of July 26, 2002

• Further amended March 19, 2003

• Further amended December 4, 2003

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EX-10

EXHIBIT 10(x)

AWARD CERTIFICATE

Special Project Performance Stock Units Award

This certifies that [name]

is granted an Award of **[number]* Performance Stock Units,

representing the opportunity to earn shares of Common Stock, no par value,

of Darden Restaurants, Inc., a Florida corporation, on the dates and in the amounts

set forth in the attached Special Project Performance Stock Units Award Agreement.

Interim Grant Yes ____ No _____

Annual Performance Period	Annual Performance Stock Units
Fiscal 20__
Fiscal 20__
Fiscal 20__
Fiscal 20__
Fiscal 20__

Social Security Number:
Grant Date:	, 200
Awarded (subject to forfeiture) subject to the Darden Restaurants, Inc. Management and Professional Incentive Plan:	Yes ____ No _____

This Special Project Performance Stock Units Award is governed by, and subject in all respects to, the terms and conditions of the Special Project Performance Stock Units Award Agreement, a copy of which is attached to and made a part of this document, and the Darden Restaurants, Inc. 2002 Stock Incentive Plan, a copy of which is available upon request. This Award Certificate has been duly executed, by manual or facsimile signature, on behalf of Darden Restaurants, Inc.

[signature]		[signature]
Chairman of the Board Chief Executive Officer	DARDEN RESTAURANTS, INC.	Senior Vice President General Counsel and Secretary

DARDEN RESTAURANTS, INC.

2002 STOCK INCENTIVE PLAN

SPECIAL PROJECT PERFORMANCE STOCK UNITS AWARD AGREEMENT

This Special Project Performance Stock Units Award Agreement is between Darden Restaurants, Inc., a Florida corporation (the “Company”), and you, the person named in the attached Award Certificate who is an employee of the Company or one of its Affiliates. This Agreement is effective as of the date of grant set forth in the attached Award Certificate (the “Grant Date”).

The Company wishes to award to you Performance Stock Units representing the opportunity to earn shares of the Company’s Common Stock, no par value (the “Common Stock”), subject to the terms and conditions set forth in this Agreement, in order to carry out the purpose of the Company’s 2002 Stock Incentive Plan (the “Plan”).

Accordingly, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and you hereby agree as follows:

1. Award of Performance Stock Units.

The Company hereby grants to you, effective as of the Grant Date, an Award of Performance Stock Units for that number of Units set forth in the attached Award Certificate (the “Performance Stock Units”), on the terms and conditions set forth in this Agreement and the Award Certificate and in accordance with the terms of the Plan.

2. Rights with Respect to the Performance Stock Units.

(a)           The Performance Stock Units granted pursuant to the attached Award Certificate and this Agreement do not and shall not give you any of the rights and privileges of a shareholder of Common Stock. Your rights with respect to the Performance Stock Units shall remain forfeitable at all times prior to the date or dates on which such rights become vested, and the restrictions with respect to the Performance Stock Units lapse, in accordance with Section 3, 4 or 5 hereof.

(b)           As long as you hold Performance Stock Units granted pursuant to the attached Award Certificate and this Agreement, the Company shall make a cash payment to you, on each date that the Company pays a cash dividend to holders of Common Stock generally, in the amount equal to the dollar amount of the cash dividend paid per share of Common Stock on such date multiplied by the number of Annual Performance Stock Units (as defined below) relating to any Annual Performance Period (as defined below) for which a determination as to vesting or forfeiture has not yet occurred pursuant to the terms of this Agreement, less any tax withholding amount applicable to such payment.

2

3. Vesting.

(a)           Subject to the terms and conditions of this Agreement, the Performance Stock Units shall vest, and the restrictions with respect to the Performance Stock Units shall lapse, on the date or dates and in the amount or amounts set forth in this Agreement if you remain continuously employed by the Company or an Affiliate of the Company until the respective vesting dates.

(b)           Twenty percent (20%) of the total number of Performance Stock Units set forth in the attached Award Certificate (the “Annual Performance Stock Units”) shall be targeted for vesting following the end of each of the first five fiscal years ending after the Grant Date (the “Annual Performance Periods”); provided, however, that if the Award Certificate attached to this Performance Stock Units Award Agreement states that this Performance Stock Units Award is an Interim Grant, then the number of Annual Performance Stock Units for the first Annual Performance Period shall be zero and the number of Annual Performance Stock Units for each of the second, third, fourth and fifth Annual Performance Periods shall be twenty-five percent (25%) of the total number of Performance Stock Units set forth in the attached Award Certificate. The number of Annual Performance Stock Units for each Annual Performance Period is set forth in the attached Award Certificate. The number of Annual Performance Stock Units for any Annual Performance Period shall not be increased or decreased as a result of the number of Annual Performance Stock Units that vested or were forfeited for any prior Annual Performance Period.

(c)           The number of Annual Performance Stock Units that vest, if any, following the end of the applicable Annual Performance Period shall be determined by multiplying the Annual Performance Stock Units for such Annual Performance Period by the Vesting Percentage, calculated as set forth in Exhibit A to this Agreement, and may range from zero to one hundred fifty percent (150%) of the Annual Performance Stock Units.

(d)           The calculations under this Section 3 shall be made on or before the June 30 immediately following the end of the applicable Annual Performance Period and any vesting resulting from such calculations shall be effective as of that June 30. Any Annual Performance Stock Units that do not vest following the end of such Annual Performance Period pursuant to the terms of this Section 3 shall be immediately and irrevocably forfeited, including the right to receive cash payments pursuant to Section 2(b) hereof, as of that June 30.

(e)           The Committee administering the Plan shall have the authority to make any determinations regarding questions arising from the application of the provisions of this Section 3, which determination shall be final, conclusive and binding on you and the Company.

4. Change of Control.

Notwithstanding the vesting provisions contained in Section 3 above, but subject to the other terms and conditions of this Agreement, upon the occurrence of a Change of Control (as defined below) you shall become immediately and unconditionally vested in all Annual Performance Stock Units relating to any Annual Performance Period for which a determination as to vesting or forfeiture has not yet occurred pursuant to the terms of this Agreement, and the restrictions with respect to all such Annual Performance Stock Units shall lapse. For purposes of this Agreement, “Change of Control” shall mean any of the following events:

3

(a)           any person (including a group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) becomes, directly or indirectly, the beneficial owner of 20% or more of the shares of the Company entitled to vote for the election of directors;

(b)           as a result of or in connection with any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Company just prior to such event cease to constitute a majority of the Company’s Board of Directors; or

(c)           the consummation of a transaction in which the Company ceases to be an independent publicly-owned corporation or the consummation of a sale or other disposition of all or substantially all of the assets of the Company.

5. Early Vesting; Forfeiture.

(a)           If you cease to be employed by the Company or an Affiliate of the Company prior to the vesting or forfeiture of all Annual Performance Stock Units pursuant to Section 3 or 4 hereof, your rights to all of the Annual Performance Stock Units relating to any Annual Performance Period for which a determination as to vesting or forfeiture has not yet occurred pursuant to the terms of this Agreement shall be immediately and irrevocably forfeited, including the right to receive cash payments pursuant to Section 2(b) hereof, except that:

(i)            if you retire on or after age 55 with ten years of service with the Company or an Affiliate of the Company prior to the vesting or forfeiture of all Annual Performance Stock Units pursuant to Section 3 or 4 hereof, all of the Annual Performance Stock Units relating to any Annual Performance Period for which a determination as to vesting or forfeiture has not yet occurred pursuant to the terms of this Agreement shall not be immediately and irrevocably forfeited on the date of your retirement but shall continue to be subject to the vesting and forfeiture provisions set forth in Sections 3, 4 and 5(a)(ii) hereof as if you had remained employed by the Company or an Affiliate of the Company; or

(ii)           if you die prior to the vesting or forfeiture of all Annual Performance Stock Units pursuant to Section 3 or 4 hereof, the Annual Performance Stock Units relating to any Annual Performance Period for which a determination as to vesting or forfeiture has not yet occurred pursuant to the terms of this Agreement shall vest on a pro rata basis on the date of your death, based on the number of full months of employment completed from the Grant Date to the date of your death divided by 60, and your rights to all of the unvested Annual Performance Stock Units shall be immediately and irrevocably forfeited. No transfer by will or the applicable laws of descent and distribution of any Performance Stock Units which vest by reason of your death shall be effective to bind the Company unless the Committee administering the Plan shall have been furnished with written notice of such transfer and a copy of the will or such other evidence as the Committee may deem necessary to establish the validity of the transfer.

4

(b)           If the Award Certificate attached to this Performance Stock Units Award Agreement states that this Performance Stock Units Award has been awarded subject to the Darden Restaurants, Inc. Management and Professional Incentive Plan (the “MIP”), then this Performance Stock Units Award shall be cancelled, forfeited and returned to the Company unless all of the requirements set forth in the MIP for the year to which the grant of this Performance Stock Units Award relates are satisfied.

6. Restriction on Transfer.

None of the Performance Stock Units may be sold, assigned, transferred, pledged, attached or otherwise encumbered, and no attempt to transfer the Performance Stock Units, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to the Performance Stock Units.

7. Payment of Performance Stock Units; Issuance of Common Stock.

No shares of Common Stock shall be issued to you prior to the date on which the applicable Performance Stock Units vest in accordance with the terms and conditions of the attached Award Certificate and this Agreement. After any Performance Stock Units vest pursuant to Section 3, 4 or 5 hereof, the Company shall promptly cause to be issued in your name one share of Common Stock for each vested Performance Stock Unit. Following payment of the applicable withholding taxes pursuant to Section 9 hereof, the Company shall promptly cause the shares of Common Stock (less any shares withheld to pay taxes) to be delivered, either by book-entry registration or in the form of a certificate or certificates, registered in your name or in the names of your legal representatives, beneficiaries or heirs, as the case may be; provided, however, that any distribution to any “specified employee” (as determined in accordance with Section 409A of the Code) on account of a separation from service shall be made as soon as practicable after the first day of the calendar month which occurs six calendar months after such separation from service, but in no event later than the 15th day of the third month following the calendar year in which the end of such six-month period occurs. The Company will not deliver any fractional share of Common Stock but will pay, in lieu thereof, the Fair Market Value of such fractional share of Common Stock.

8. Adjustments.

In the event that the Committee administering the Plan shall determine that any dividend or other distribution (whether in the form of cash, shares of Common Stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of shares or other securities of the Company, issuance of warrants or other rights to purchase shares or other securities of the Company or other similar corporate transaction or event affects the Common Stock such that an adjustment of the Performance Stock Units is determined by the Committee administering the Plan to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the attached Award Certificate and this Agreement, then the Committee shall, in such manner as it may deem equitable, in its sole discretion, adjust any or all of the number and type of shares subject to the Performance Stock Units.

5

9. Taxes.

(a)           You acknowledge that you will consult with your personal tax advisor regarding the income tax consequences of the grant of the Performance Stock Units, the receipt of cash payments pursuant to Section 2(b) hereof, the vesting of the Performance Stock Units and the receipt of shares of Common Stock, and any other matters related to this Agreement. In order to comply with all applicable federal, state, local or foreign income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal, state, local or foreign payroll, withholding, income or other taxes, which are your sole and absolute responsibility, are withheld or collected from you.

(b)           In accordance with the terms of the Plan, and such rules as may be adopted by the Committee administering the Plan, you may elect to satisfy any applicable tax withholding obligations arising from the vesting of the Performance Stock Units and the corresponding receipt of shares of Common Stock by (i) delivering cash (including check, draft, money order or wire transfer made payable to the order of the Company), (ii) having the Company withhold a portion of the shares of Common Stock otherwise to be delivered having a Fair Market Value equal to the amount of such taxes, or (iii) delivering to the Company shares of Common Stock having a Fair Market Value equal to the amount of such taxes. The Company will not deliver any fractional share of Common Stock but will pay, in lieu thereof, the Fair Market Value of such fractional share of Common Stock. Your election must be made on or before the date that the amount of tax to be withheld is determined.

10. General Provisions.

(a)           Interpretations. This Agreement is subject in all respects to the terms of the Plan. A copy of the Plan is available upon your request. Terms used herein which are defined in the Plan shall have the respective meanings given to such terms in the Plan, unless otherwise defined herein. In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan shall govern. Any question of administration or interpretation arising under this Agreement shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.

(b)           No Right to Employment. Nothing in this Agreement or the Plan shall be construed as giving you the right to be retained as an employee of the Company or any Affiliate of the Company. In addition, the Company or an Affiliate of the Company may at any time dismiss you from employment, free from any liability or any claim under this Agreement, unless otherwise expressly provided in this Agreement.

(c)           Reservation of Shares. The Company shall at all times prior to the vesting of the Performance Stock Units reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement.

(d)           Securities Matters. The Company shall not be required to deliver any shares of Common Stock until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied.

(e)

6

Headings. Headings are given to the sections and subsections of this Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Agreement or any provision hereof.

(f)           Governing Law. The internal law, and not the law of conflicts, of the State of Florida will govern all questions concerning the validity, construction and effect of this Agreement.

(g)           Notices. You should send all written notices regarding this Agreement or the Plan to the Company at the following address:

Darden Restaurants, Inc.

Supervisor, Stock Compensation Plans

5900 Lake Ellenor Drive

Orlando, FL 32809

(h)           Award Certificate. This Special Project Performance Stock Units Award Agreement is attached to and made a part of an Award Certificate and shall have no force or effect unless such Award Certificate is duly executed and delivered by the Company to you.

* * * * * * * *

7

Exhibit A

VESTING OF PERFORMANCE STOCK UNITS

The number of Annual Performance Stock Units that shall vest, if any, following the end of the applicable Annual Performance Period shall be determined by multiplying the number of Annual Performance Stock Units for such Annual Performance Period by the “Vesting Percentage,” as determined below, provided that the maximum Vesting Percentage for any Annual Performance Period shall be 150% of the Annual Performance Stock Units.

Vesting Percentage = 5 x (Total Annual Sales Growth x Sales Multiple x ROGI Multiple)

“Total Annual Sales Growth” shall be as determined by the Company.

The “Sales Multiple” shall be determined as follows:

Total Annual Sales Growth*	Sales Multiple
Less than 4.00%	0
4.00% to 6.99%	2.00
7.00% to 7.99%	2.25
8.00% to 8.99%	2.50
9.00% to 9.99%	2.75
10.00% or Greater	3.00
*For the fiscal years ending May 27, 2007 and May 25, 2008, Total Annual Sales Growth shall be increased by 1.30%

The “ROGI Multiple” shall be determined as follows:

ROGI in Excess of ROGI Hurdle*	ROGI Multiple
-1.00% or Less	0.75
-0.99% to 0.99%	1.00
1.00% or Greater	1.25
*For the fiscal years ending May 27, 2007 and May 25, 2008, ROGI shall be compared to plan.

“ROGI” is the return on gross investment for new and relocated restaurants, as determined by the Company. The “ROGI Hurdle” is the hurdle rate for ROGI set each year by the Company. The ROGI Multiple shall automatically be set at 1.00 for any fiscal year if total sales for new and relocated restaurants that reached their eighteen-month anniversary during such fiscal year are less than 1% of the Company’s total sales for such fiscal year, as determined by the Company.

The Vesting Percentage shall be rounded to the nearest 1.0%, with .5% being rounded up. The number of Annual Performance Stock Units that vest pursuant to the Vesting Percentage shall be rounded to the nearest whole number, with .5 being rounded up.

A-1

EX-12

EXHIBIT 12

DARDEN RESTAURANTS, INC.

COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES

(Dollar Amounts in Thousands)

Fiscal Year Ended

	May 28, 2006			May 29, 2005			May 30, 2004			May 25, 2003			May 26, 2002
Consolidated Earnings from Operations before Income Taxes	$	482,518		$	423,917		$	332,776		$	337,603		$	355,435
Plus Fixed Charges:
Gross Interest Expense		48,922			47,657			47,710			47,566			41,493
40% of Restaurant and Equipment
Minimum Rent Expense		26,862			24,849			22,608			21,536			20,600
Total Fixed Charges	$	75,784		$	72,506		$	70,318		$	69,102		$	62,093
Less Capitalized Interest		(2,696	)		(3,182	)		(3,500	)		(3,470	)		(3,653	)
Consolidated Earnings from Operations before Income Taxes Available to Cover Fixed Charges	$	555,606		$	493,241		$	399,594		$	403,325		$	413,875
Ratio of Consolidated Earnings to Fixed Charges		7.33			6.80			5.68			5.84			6.67

EX-13

                                                                      EXHIBIT 13

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

This discussion and analysis below for Darden  Restaurants,  Inc.  (Darden,  the
Company,  we, us or our)  should be read in  conjunction  with our  consolidated
financial statements and related notes found elsewhere in this report.

For  financial  reporting,  we operate on a 52/53 week fiscal year ending on the
last Sunday in May. Our 2006 fiscal year,  which ended on May 28, 2006,  and our
2005 fiscal  year,  which  ended on May 29,  2005,  each had 52 weeks.  Our 2004
fiscal year, which ended on May 30, 2004, had 53 weeks. We have included in this
discussion  certain financial  information for fiscal 2004 on a 52-week basis to
assist investors in making comparisons to our 2006 and 2005 fiscal years.

OVERVIEW OF OPERATIONS

Our business  operates in the casual dining segment of the restaurant  industry,
primarily in the United States.  At May 28, 2006, we operated 1,427 Red Lobster,
Olive  Garden,  Bahama  Breeze,  Smokey  Bones  Barbeque & Grill and  Seasons 52
restaurants  in the  United  States  and  Canada  and  licensed  42 Red  Lobster
restaurants  in Japan.  We own and operate all of our  restaurants in the United
States and Canada, with no franchising.

Our sales were $5.72 billion in fiscal 2006 and $5.28 billion in fiscal 2005, an
8.4 percent increase.  Net earnings for fiscal 2006 were $338 million ($2.16 per
diluted share) compared with net earnings for fiscal 2005 of $291 million ($1.78
per diluted  share).  Net  earnings for fiscal 2006  increased  16.4 percent and
diluted net earnings per share increased 21.3 percent compared with fiscal 2005.
The  primary  drivers of our  increases  in net  earnings  were  Olive  Garden's
same-restaurant  sales  increases in each  quarter of fiscal 2006,  bringing its
string of consecutive quarters with same-restaurant  sales growth to 47, and Red
Lobster's  significantly  improved business  fundamentals which have resulted in
lower operating costs and seven consecutive quarters with same-restaurant  sales
growth.  Both Red Lobster and Olive Garden also  produced  record  annual sales,
operating  profit  and  return  on sales in  fiscal  2006.  Bahama  Breeze  made
significant  progress in fiscal  2006,  as evidenced  by  same-restaurant  sales
growth in fiscal 2006, as compared to declining  same-restaurant  sales in prior
years,  by  implementing a number of changes to become a more relevant brand for
its guests, evolving its menu to make it more approachable yet still distinctive
and improving the guest  experience.  Smokey Bones had a difficult  year and its
same-restaurant sales declined in fiscal 2006.

In fiscal 2007, we expect a net increase of approximately 39-45 restaurants.  We
expect combined U.S. same-restaurant sales growth in fiscal 2007 of between 2 to
4 percent at Olive  Garden and Red  Lobster.  We also  expect  further  earnings
improvement  at  Bahama  Breeze  in  fiscal  2007 as we  continue  to  focus  on
strengthening  their  restaurant  level returns by removing costs and complexity
that do not add value for their guests.  At Smokey Bones,  we have  identified a
new direction that  eliminates the  barbeque-centric  parts of the brand that we
believe are a barrier to greater  breadth of occasion and  increased  frequency.
Therefore,  we will  limit  Smokey  Bones'  new  restaurant  growth  to the five
locations  under  construction  at the end of fiscal  2006 and will test the new
direction in several  remodeled  restaurants  starting in the second  quarter of
fiscal 2007.  Depending on test results,  we may invest further in a significant
repositioning  of the  Smokey  Bones  brand,  which may  include a change of the
concept's name.

We will adopt the  provisions  of Statement of  Financial  Accounting  Standards
(SFAS) No. 123 (Revised)  "Share-Based  Payment" (SFAS No. 123R) as of our first
fiscal  quarter in fiscal 2007.  SFAS No. 123R requires us to begin  recognizing
the  fair  value  of  stock-based   compensation  expense  in  our  consolidated
statements of earnings.  We will adopt the provisions of SFAS No. 123R according
to  the  modified  prospective  method  and  therefore,  will  not  restate  our
consolidated financial statements for periods prior to adoption. We estimate the
adoption of SFAS No. 123R will impact  diluted net  earnings per share growth by
approximately  4 percentage  points in fiscal 2007. On a consolidated  basis, we
anticipate diluted net earnings per share growth in fiscal 2007 of approximately
9 percent to 10 percent, including the impact of adopting the provisions of SFAS
No. 123R in fiscal 2007.


                                       1


Our  mission is to be the best in casual  dining,  now and for  generations.  We
believe  we can  achieve  this  goal by  continuing  to build on our  historical
strength as a  multi-brand  casual  dining  company,  which is grounded  in:

      o   A strong  culture that  inspires  and engages our people,  with firmly
          held values, a clear mission and a core purpose to nourish and delight
          everyone we serve;

      o   Competitively superior leadership;

      o   Brand management excellence;

      o   Restaurant operating excellence; and

      o   Restaurant support excellence.

We seek to increase  profits by leveraging our fixed and  semi-fixed  costs with
sales from new  restaurants  and  increased  guest traffic and sales at existing
restaurants. To evaluate our operations and assess our financial performance, we
monitor a number of operating measures, with a special focus on two key factors:

      o   Same-restaurant  sales - which is a year-over-year  comparison of each
          period's sales volumes for restaurants open at least 16 months; and

      o   Restaurant   earnings  -  which  is  restaurant  level   profitability
          (restaurant sales, less restaurant level cost of sales,  marketing and
          depreciation).

Increasing  same-restaurant sales can increase restaurant earnings because these
incremental  sales provide better leverage of our fixed and semi-fixed  costs. A
restaurant  concept  can  generate   same-restaurant   sales  increases  through
increases  in  guest  traffic,  increases  in  the  average  guest  check,  or a
combination  of the two.  The average  guest check can be impacted by menu price
changes  and by the mix of menu items  sold.  For each  restaurant  concept,  we
gather daily sales data and regularly  analyze the guest traffic  counts and the
mix of menu items sold to aid in developing menu pricing,  product offerings and
promotional strategies. We view same-restaurant guest counts as a measure of the
long-term health of a restaurant  concept,  while increases in average check and
menu mix may contribute more significantly to near-term profitability.  We focus
on balancing our pricing and product offerings with other initiatives to produce
sustainable same-restaurant sales growth.

We  compute  same-restaurant  sales  using  restaurants  open at least 16 months
because new restaurants  experience an adjustment period before sales levels and
operating margins normalize.  Sales at newly opened restaurants generally do not
make a significant  contribution  to  profitability  in their initial  months of
operation.  Our sales and expenses can be impacted  significantly  by the number
and timing of the opening of new  restaurants  and the closing,  relocation  and
remodeling of existing restaurants. Pre-opening expenses each period reflect the
costs associated with opening new restaurants in current and future periods.

There are significant  risks and challenges that could impact our operations and
ability  to  increase  sales and net  earnings.  The  casual  dining  restaurant
industry is intensely  competitive  and  sensitive to economic  cycles and other
business factors, including changes in consumer tastes and dietary habits. Other
risks and uncertainties are discussed below in Forward-Looking Statements.


                                       2


RESULTS OF OPERATIONS FOR FISCAL 2006, 2005 AND 2004

The following table sets forth selected  operating data as a percentage of sales
for the  52-week  periods  ended May 28,  2006 and May 29,  2005 and the 53-week
period ended May 30, 2004.  This  information  is derived from the  consolidated
statements  of  earnings,  found  elsewhere  in this  report,  for  the  periods
indicated.



                                                                     Fiscal Years
- ----------------------------------------------------------------------------------------
                                                                2006     2005     2004
- ----------------------------------------------------------------------------------------
                                                                         
Sales .......................................................   100.0%   100.0%   100.0%
Costs and expenses:
   Cost of sales:
     Food and beverage ......................................    29.6     30.2     30.5
     Restaurant labor .......................................    32.3     32.1     32.0
     Restaurant expenses ....................................    15.5     15.3     15.5
                                                                -----    -----    -----
       Total cost of sales, excluding restaurant depreciation
          and amortization of 3.6%, 3.8% and 3.9%,
          respectively ......................................    77.4%    77.6%    78.0%
   Selling, general and administrative ......................     9.4      9.5      9.4
   Depreciation and amortization ............................     3.9      4.0      4.2
   Interest, net ............................................     0.7      0.8      0.9
   Asset impairment and restructuring charges, net ..........     0.2      0.1      0.9
                                                                -----    -----    -----
          Total costs and expenses ..........................    91.6%    92.0%    93.4%
                                                                -----    -----    -----

Earnings before income taxes ................................     8.4      8.0      6.6
Income taxes ................................................     2.5      2.5      2.1
                                                                -----    -----    -----

Net earnings ................................................     5.9%     5.5%     4.5%
                                                                =====    =====    =====

- ----------------------------------------------------------------------------------------


SALES

Sales were $5.72 billion in fiscal 2006,  $5.28 billion in fiscal 2005 and $5.00
billion in fiscal  2004.  The 8.4  percent  increase in  company-wide  sales for
fiscal 2006 was primarily due to a net increase of 46 company-owned  restaurants
compared  with fiscal 2005 and U.S.  same-restaurant  sales  increases  at Olive
Garden, Red Lobster and Bahama Breeze.

Olive Garden sales of $2.62  billion in fiscal 2006 were 9.0 percent  above last
year.  Olive Garden  opened 19 net new  restaurants  during  fiscal  2006.  U.S.
same-restaurant  sales for  Olive  Garden  increased  5.5  percent  due to a 3.4
percent increase in  same-restaurant  guest counts and a 2.1 percent increase in
average  check.  Average  annual sales per restaurant for Olive Garden were $4.6
million in fiscal 2006.  Olive Garden reported its 47th  consecutive  quarter of
U.S. same-restaurant sales growth at the end of fiscal 2006.

Red Lobster  sales of $2.58  billion in fiscal 2006 were 5.9 percent  above last
year. U.S.  same-restaurant sales for Red Lobster increased 4.9 percent due to a
2.0 percent increase in same-restaurant  guest counts and a 2.9 percent increase
in average check.  Average annual sales per restaurant for Red Lobster were $3.8
million in fiscal 2006. Red Lobster reported its seventh  consecutive quarter of
U.S. same-restaurant sales increases at the end of fiscal 2006.

Bahama  Breeze sales of $166 million in fiscal 2006 were 1.6 percent  above last
year.  Same-restaurant  sales for Bahama Breeze increased 1.7 percent for fiscal
2006. Average annual sales per restaurant for Bahama Breeze were $5.2 million in
fiscal 2006.

Smokey Bones sales of $337  million in fiscal 2006 were 25.3 percent  above last
year.  Smokey Bones opened 22 net new  restaurants  during  fiscal 2006 however,
same-restaurant  sales for Smokey Bones  decreased  3.7 percent for fiscal 2006.
Average annual sales per restaurant for Smokey Bones were $2.9 million in fiscal
2006.

The 5.5 percent  increase in  company-wide  sales for fiscal 2005 versus  fiscal
2004  was  primarily  due  to a net  increase  of 56  company-owned  restaurants
compared  with fiscal 2004 and U.S.  same-restaurant  sales  increases  at Olive
Garden.  These sales increases were partially offset by the additional operating
week in fiscal 2004. After reducing


                                       3


fiscal 2004 sales by the $90 million  contributed  by the  additional  operating
week,  sales would have been $4.91  billion for fiscal 2004 on a 52-week  basis,
resulting in a 7.4 percent  increase in fiscal 2005.  Red  Lobster's  sales were
$2.44  billion  in  both  fiscal  2005  and  2004.  In  fiscal  2005,  its  U.S.
same-restaurant  sales increased 0.9 percent (on a comparable 52-week basis) due
to a 1.9 percent  increase in average  check  offset  partially by a 1.0 percent
decrease in  same-restaurant  guest counts.  Average annual sales per restaurant
for Red Lobster  were $3.6 million in fiscal 2005.  Olive  Garden's  fiscal 2005
sales of $2.40 billion were 8.5 percent above fiscal 2004. U.S.  same-restaurant
sales for Olive Garden increased 7.2 percent (on a comparable  52-week basis) in
fiscal 2005 due to a 5.3 percent increase in same-restaurant  guest counts and a
1.9 percent  increase in average check.  Average annual sales per restaurant for
Olive Garden were $4.4 million in fiscal 2005.  Bahama  Breeze fiscal 2005 sales
of  $164  million   decreased  7.2  percent  from  fiscal  2004.  Bahama  Breeze
same-restaurant  sales decreased 1.6 percent (on a comparable 52-week basis) and
operated six fewer restaurants in fiscal 2005 than in 2004. Average annual sales
per restaurant for Bahama Breeze in fiscal 2005 were $5.1 million.  Smokey Bones
sales of $269  million  were 54.6  percent  higher in fiscal 2005 than in fiscal
2004, its average annual sales per restaurant were $3.1 million and it opened 35
new restaurants during fiscal 2005.

COSTS AND EXPENSES

Total costs and expenses  were $5.24  billion in fiscal 2006,  $4.85  billion in
fiscal 2005 and $4.67 billion in fiscal 2004. Total costs and expenses in fiscal
2006 were 91.6 percent of sales, a decrease from 92.0 percent of sales in fiscal
2005 and 93.4 percent of sales in fiscal 2004.

Food and  beverage  costs  increased  $98 million,  or 6.2  percent,  from $1.59
billion to $1.69  billion in fiscal 2006  compared  with fiscal  2005.  Food and
beverage  costs  increased  $67 million,  or 4.4 percent,  from $1.53 billion to
$1.59  billion in fiscal 2005  compared with fiscal 2004. As a percent of sales,
food and beverage costs decreased from fiscal 2005 to fiscal 2006 primarily as a
result of cost savings  initiatives.  Food and beverage  costs,  as a percent of
sales,  also decreased as a result of the larger  contribution  of Olive Garden,
which has  historically  had lower food and beverage costs, to our overall sales
and operating results.  As a percent of sales, food and beverage costs decreased
from fiscal 2004 to fiscal 2005  primarily as a result of  favorable  changes in
promotional  and menu mix of sales and  pricing  changes,  which were  partially
offset by higher dairy, beef, chicken and seafood costs.

Restaurant labor increased $154 million,  or 9.0 percent,  from $1.70 billion to
$1.85  billion in fiscal  2006  compared  with  fiscal  2005.  Restaurant  labor
increased  $95 million,  or 5.9 percent,  from $1.60 billion to $1.70 billion in
fiscal 2005 compared with fiscal 2004. As a percent of sales,  restaurant  labor
increased in fiscal 2006  primarily as a result of an increase in wage rates and
benefit costs and an increase in FICA taxes on higher  reported tips,  which was
partially offset by the favorable  impact of higher sales volumes.  As a percent
of sales, restaurant labor also increased as a result of the larger contribution
by Olive Garden to our overall sales and operating results,  as Olive Garden has
historically  had  higher  restaurant  labor  costs.  As  a  percent  of  sales,
restaurant labor increased in fiscal 2005 from fiscal 2004 primarily as a result
of a modest  increase in wage rates and higher  manager  bonuses at Olive Garden
and Red Lobster as a result of their increased  operating  performance in fiscal
2005. These impacts were only partially offset by the favorable impact of higher
sales volumes.

Restaurant  expenses (which include lease,  property tax, credit card,  utility,
workers'   compensation,   insurance,   new  restaurant  pre-opening  and  other
restaurant-level operating expenses) increased $79 million, or 9.8 percent, from
$806  million  to $885  million  in  fiscal  2006  compared  with  fiscal  2005.
Restaurant expenses increased $31 million, or 4.1 percent,  from $775 million to
$806 million in fiscal 2005  compared  with fiscal 2004.  As a percent of sales,
restaurant  expenses  increased in fiscal 2006 as compared with fiscal 2005 as a
result of higher utility  expenses,  repair and maintenance  expenses and credit
card fees,  partially offset by the favorable impact of higher sales volumes and
decreases in our insurance and workers'  compensation  expenses. As a percent of
sales,  restaurant  expenses  decreased in fiscal 2005 compared with fiscal 2004
primarily due to decreased insurance,  workers'  compensation and new restaurant
pre-opening costs, which were partially offset by increased utility expenses and
repair  and  maintenance  expenses.  Restaurant  expenses  were  also  favorably
impacted by higher sales volumes in fiscal 2005.

Selling,  general and  administrative  expenses  increased  $39 million,  or 7.8
percent,  from $497 million to $536 million in fiscal 2006  compared with fiscal
2005. Selling, general and administrative expenses increased $25 million, or 5.4
percent,  from $472 million to $497 million in fiscal 2005  compared with fiscal
2004.  As a percent  of sales,  selling,  general  and  administrative  expenses
decreased in fiscal 2006 primarily as a result of the favorable impact of higher
sales volumes,  partially offset by higher marketing expenses and an increase in
litigation  related  costs.  As  a  percent  of  sales,  selling,   general  and
administrative expenses increased in fiscal 2005 from fiscal 2004


                                       4


primarily as a result of increased  bonus costs which were  partially  offset by
decreased  marketing  expenses as a percent of sales and the favorable impact of
higher sales volumes.

Depreciation and amortization expense increased $8 million, or 3.9 percent, from
$213  million  to $221  million  in  fiscal  2006  compared  with  fiscal  2005.
Depreciation and amortization expense increased $3 million, or 1.5 percent, from
$210 million to $213  million in fiscal 2005  compared  with fiscal  2004.  As a
percent of sales,  depreciation and  amortization  decreased from fiscal 2005 to
fiscal 2006 and from fiscal  2004 to fiscal  2005  primarily  as a result of the
continued use of fully depreciated,  well maintained equipment and the favorable
impact  of  higher  sales  volumes,  which  were  only  partially  offset by new
restaurant and remodel activities.

Net interest  expense of $43 million in fiscal 2006 was  comparable  with fiscal
2005.  Net  interest  expense  decreased $1 million,  or 1.2  percent,  from $44
million to $43 million in fiscal 2005 compared with fiscal 2004. As a percent of
sales, net interest expense  decreased in fiscal 2006 compared with fiscal 2005,
as a result of higher interest  income in fiscal 2006, and the favorable  impact
of higher sales volumes, partially offset by increased costs associated with the
issuance of long-term  debt in fiscal 2006. As a percent of sales,  net interest
expense  decreased  in fiscal 2005  compared  with fiscal  2004,  primarily as a
result of higher  interest  income in fiscal  2005 and the  favorable  impact of
higher sales volumes.

During fiscal 2006, 2005 and 2004, we recognized asset impairment charges in the
amount of $6 million,  $1 million and $6 million,  respectively,  related to the
closure,  relocation  or  rebuilding of certain  restaurants.  Asset  impairment
credits related to the sale of assets that were previously  impaired amounted to
$1  million,  $3  million  and  $1  million  in  fiscal  2006,  2005  and  2004,
respectively. During fiscal 2006, we also recorded charges of $4 million for the
write-down of carrying value of two Smokey Bones restaurants,  which we continue
to operate.  During fiscal 2005, we also recorded  charges of $6 million for the
write-down of carrying  value of two Olive Garden  restaurants,  one Red Lobster
restaurant and one Smokey Bones restaurant, all of which closed in fiscal 2006.

In addition to the asset impairment  charges described above,  during the fourth
quarter  of  fiscal  2004,  we  recorded  a $37  million  pre-tax  ($23  million
after-tax) charge for long-lived asset  impairments  associated with the closing
of six Bahama Breeze  restaurants  and the  write-down of the carrying  value of
four other Bahama Breeze  restaurants,  one Olive Garden  restaurant and one Red
Lobster  restaurant,  which  continued  to operate,  except for the Olive Garden
restaurant,  which was  closed in fiscal  2006.  We also  recorded  a $1 million
pre-tax ($0.7  million  after-tax)  restructuring  charge  primarily  related to
severance  payments  made  to  certain  restaurant   employees  and  exit  costs
associated with the closing of the six Bahama Breeze restaurants.  During fiscal
2004,  changes  were  made at Bahama  Breeze to  improve  its  sales,  financial
performance and overall long-term potential,  including the addition of lunch at
most  restaurants  and  introduction of a new dinner menu. The decision to close
certain  Bahama Breeze  restaurants  and write down the carrying value of others
was based on our on-going  review of each  individual  restaurant's  performance
against our expectations and the restaurant's ability to successfully  implement
these changes. Based on our review of the Bahama Breeze restaurants not impaired
or closed,  we believed their  locations and ability to execute these and future
initiatives would reduce the likelihood that additional impairment charges would
be required. The write-down of the carrying value of one Olive Garden restaurant
and one Red Lobster restaurant was a result of less-than-optimal locations.

INCOME TAXES

The effective income tax rates for fiscal 2006, 2005 and 2004 were 29.9 percent,
31.4 percent and 31.7 percent,  respectively.  The rate decreases in fiscal 2006
and fiscal  2005 were  primarily  due to an  increase  in FICA tax  credits  for
reported tips and the favorable resolution of prior year tax matters.

NET EARNINGS AND NET EARNINGS PER SHARE

Net  earnings  for  fiscal  2006 were $338  million  ($2.16 per  diluted  share)
compared  with net earnings  for fiscal 2005 of $291 million  ($1.78 per diluted
share) and net  earnings  for fiscal  2004 of $227  million  ($1.34 per  diluted
share).

Net earnings for fiscal 2006 increased 16.4 percent and diluted net earnings per
share  increased  21.3 percent  compared with fiscal 2005.  The increases in net
earnings and diluted net earnings per share were  primarily  due to decreases in
food  and  beverage  costs,  selling,   general  and  administrative   expenses,
depreciation  and  amortization  expenses and interest  expenses as a percent of
sales,  which were only  partially  offset by increases in restaurant  labor and
restaurant  expenses as a percent of sales. The increase in diluted net earnings
per share was also due to a


                                       5


reduction in the average diluted shares  outstanding  from fiscal 2005 to fiscal
2006 primarily as a result of our continuing repurchase of our common stock.

Fiscal 2005 net  earnings  increased  27.9  percent and diluted net earnings per
share  increased  32.8 percent  compared with fiscal 2004.  The increases in net
earnings and diluted net earnings per share were  primarily  due to decreases in
food and beverage costs,  restaurant  expenses,  depreciation  and  amortization
expenses and interest expenses as a percent of sales,  which were only partially
offset by  increases in  restaurant  labor  expenses  and  selling,  general and
administrative  expenses as a percent of sales.  Fiscal 2004 net  earnings  were
also  impacted  by  the  $37  million  pre-tax  ($23  million  after-tax)  asset
impairment and restructuring  charges  recognized  related to the closing of six
Bahama  Breeze  restaurants  and the write down of another  four  Bahama  Breeze
restaurants,  one Olive Garden  restaurant and one Red Lobster  restaurant.  The
increase in diluted net earnings per share also resulted from a reduction in the
average diluted shares  outstanding from fiscal 2004 to fiscal 2005 primarily as
a result of our continuing repurchase of our common stock.

SEASONALITY

Our sales volumes fluctuate seasonally.  During fiscal 2006 and fiscal 2005, our
sales were highest in the spring and winter,  followed by the summer, and lowest
in the fall. During fiscal 2004, our sales were highest in the spring, lowest in
the fall, and comparable during winter and summer. Holidays,  severe weather and
similar  conditions  may  impact  sales  volumes  seasonally  in some  operating
regions. Because of the seasonality of our business, results for any quarter are
not  necessarily  indicative  of the results  that may be achieved  for the full
fiscal year.

IMPACT OF INFLATION

We do not believe  inflation had a significant  overall effect on our operations
during fiscal 2006, 2005 and 2004. We believe we have  historically been able to
pass on  increased  operating  costs  through  menu  price  increases  and other
strategies.

CRITICAL ACCOUNTING POLICIES

We  prepare  our  consolidated  financial  statements  in  conformity  with U.S.
generally  accepted  accounting  principles.  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 expenses during the reporting  period.  Actual results could differ
from those estimates.

Critical accounting policies are those we believe are both most important to the
portrayal of our financial  condition and operating results and require our most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make  estimates  about the  effect of  matters  that are  inherently  uncertain.
Judgments and  uncertainties  affecting the  application  of those  policies may
result in materially different amounts being reported under different conditions
or using different  assumptions.  We consider the following  policies to be most
critical in  understanding  the  judgments  that are involved in  preparing  our
consolidated financial statements.

Land, Buildings and Equipment

Land,   buildings  and   equipment   are  recorded  at  cost  less   accumulated
depreciation.  Building  components are depreciated  over estimated useful lives
ranging  from  seven to 40  years  using  the  straight-line  method.  Leasehold
improvements,  which  are  reflected  on our  consolidated  balance  sheets as a
component of  buildings,  are  amortized  over the lesser of the expected  lease
term,  including cancelable option periods, or the estimated useful lives of the
related assets using the  straight-line  method.  Equipment is depreciated  over
estimated   useful  lives  ranging  from  two  to  10  years,   also  using  the
straight-line method.

Our accounting  policies  regarding  land,  buildings and  equipment,  including
leasehold  improvements,  include our judgments  regarding the estimated  useful
lives of these assets,  the residual  values to which the assets are depreciated
or amortized,  the determination of what constitutes expected lease term and the
determination  as to what  constitutes  enhancing the value of or increasing the
life of existing  assets.  These judgments and estimates may produce  materially
different amounts of reported depreciation and amortization expense if different
assumptions  were used.


                                       6


As  discussed  further  below,  these  judgments  may  also  impact  our need to
recognize an  impairment  charge on the  carrying  amount of these assets as the
cash flows associated with the assets are realized.

Leases

We are obligated  under various lease  agreements  for certain  restaurants.  We
recognize  rent expense on a  straight-line  basis over the expected lease term,
including cancelable option periods as described below. Within the provisions of
certain of our leases,  there are rent holidays and escalations in payments over
the base lease term, as well as renewal periods. The effects of the holidays and
escalations  have been reflected in rent expense on a  straight-line  basis over
the expected lease term, which includes  cancelable option periods where failure
to exercise such options would result in an economic penalty to the Company. The
lease term  commences  on the date when we have the right to control  the use of
the leased  property,  which is typically before rent payments are due under the
terms of the lease.  Many of our leases have renewal  periods  totaling  between
five and 20 years,  exercisable at our option,  and require  payment of property
taxes,  insurance and  maintenance  costs in addition to the rent payments.  The
consolidated  financial  statements  reflect the same lease term for  amortizing
leasehold  improvements  as we use to determine  capital versus  operating lease
classifications   and  in  calculating   straight-line  rent  expense  for  each
restaurant.  Percentage  rent expense is generally  based on sales levels and is
accrued  when we determine  that it is probable  that those sales levels will be
achieved.

Our  judgments  related  to the  probable  term for each  restaurant  affect the
classification  and accounting for leases as capital versus operating,  the rent
holidays and  escalation  in payments  that are included in the  calculation  of
straight-line  rent and the term  over  which  leasehold  improvements  for each
restaurant  are  amortized.  These  judgments may produce  materially  different
amounts of depreciation, amortization and rent expense than would be reported if
different assumed lease terms were used.

Impairment of Long-Lived Assets

Land,  buildings and equipment and certain other assets,  including  capitalized
software costs and liquor licenses,  are reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to the future undiscounted net
cash flows expected to be generated by the assets.  Identifiable  cash flows are
measured at the lowest level for which they are largely  independent of the cash
flows of other groups of assets and  liabilities,  generally  at the  restaurant
level.  If these assets are determined to be impaired,  the amount of impairment
recognized  is the amount by which the  carrying  amount of the  assets  exceeds
their fair value.  Fair value is generally  determined  by  appraisals  or sales
prices of  comparable  assets.  Restaurant  sites and certain other assets to be
disposed of are  reported at the lower of their  carrying  amount or fair value,
less estimated  costs to sell.  Restaurant  sites and certain other assets to be
disposed of are included in assets held for sale when certain  criteria are met.
These criteria include the requirement that the likelihood of disposing of these
assets within one year is probable. Assets whose disposal is not probable within
one year  remain in land,  buildings  and  equipment  until  their  disposal  is
probable within one year.

The judgments we make related to the expected useful lives of long-lived  assets
and our  ability to realize  undiscounted  cash flows in excess of the  carrying
amounts of these assets are affected by factors such as the ongoing  maintenance
and improvements of the assets, changes in economic conditions, changes in usage
or  operating  performance,  desirability  of the  restaurant  sites  and  other
factors, such as brand repositioning efforts, as in the case of Smokey Bones. As
we assess the ongoing expected cash flows and carrying amounts of our long-lived
assets, significant adverse changes in these factors could cause us to realize a
material  impairment  charge.  During fiscal 2006, we recognized  charges of $10
million ($6 million after-tax)  primarily related to the closing of three Smokey
Bones restaurants and the impairment of two other Smokey Bones restaurants based
on an evaluation of expected cash flows. The two impaired restaurants  continued
to operate  subsequent to fiscal 2006.  During fiscal 2005, we recognized  asset
impairment  charges of $6 million ($4 million  after-tax)  for the write-down of
two Olive Garden  restaurants,  one Red Lobster  restaurant and one Smokey Bones
restaurant based on an evaluation of expected cash flows, all of which closed in
fiscal  2006.  In the  fourth  quarter  of  fiscal  2004,  we  recognized  asset
impairment charges of $37 million ($23 million after-tax) for the closing of six
Bahama  Breeze  restaurants,  and the  write-down  of four other  Bahama  Breeze
restaurants, one Olive Garden restaurant and one Red Lobster restaurant based on
an evaluation of expected cash flows. The Olive Garden  restaurant was closed in
fiscal 2006.


                                       7


Insurance Accruals

Through the use of insurance program deductibles and self-insurance, we retain a
significant portion of expected losses under our workers' compensation, employee
medical  and  general  liability  programs.  However,  we  carry  insurance  for
individual claims that generally exceed $250 thousand for workers'  compensation
and general  liability claims.  Accrued  liabilities have been recorded based on
our  estimates  of the  anticipated  ultimate  costs to settle all claims,  both
reported and not yet reported.

Our accounting policies regarding these insurance programs include our judgments
and independent actuarial  assumptions about economic conditions,  the frequency
or  severity  of  claims  and claim  development  patterns  and  claim  reserve,
management and settlement practices.  Unanticipated changes in these factors may
produce materially different amounts of reported expense under these programs.

Income Taxes

We  estimate  certain  components  of our  provision  for  income  taxes.  These
estimates  include,  among other items,  depreciation and  amortization  expense
allowable for tax  purposes,  allowable tax credits for items such as taxes paid
on reported  employee  tip income,  effective  rates for state and local  income
taxes and the tax  deductibility  of certain  other items.  We adjust our annual
effective  income  tax rate as  additional  information  on  outcomes  or events
becomes available.

We base our  estimates  on the best  available  information  at the time that we
prepare the provision.  We generally file our annual income tax returns  several
months  after our fiscal  year-end.  Income tax  returns are subject to audit by
federal,  state and local  governments,  generally  years  after the returns are
filed.  These  returns  could be subject to material  adjustments  or  differing
interpretations of the tax laws.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows  generated  from operating  activities  provide us with a significant
source of liquidity,  which we use to finance the  purchases of land,  buildings
and equipment and to repurchase shares of our common stock. Since  substantially
all our  sales  are for cash and  cash  equivalents  and  accounts  payable  are
generally due in five to 30 days, we are able to carry  current  liabilities  in
excess of current assets.  In addition to cash flows from  operations,  we use a
combination of long-term and short-term borrowings to fund our capital needs.

We manage our business and our financial  ratios to maintain an investment grade
bond rating,  which allows  flexible  access to financing at  reasonable  costs.
Currently,  our publicly issued long-term debt carries "Baa1" (Moody's Investors
Service),  "BBB+" (Standard & Poor's) and "BBB+" (Fitch) ratings. Our commercial
paper has  ratings of "P-2"  (Moody's  Investors  Service),  "A-2"  (Standard  &
Poor's)  and "F-2"  (Fitch).  These  ratings  are as of the date of this  annual
report and have been  obtained  with the  understanding  that Moody's  Investors
Service,  Standard & Poor's and Fitch will  continue  to monitor  our credit and
make future  adjustments to these ratings to the extent  warranted.  The ratings
are not a  recommendation  to buy, sell or hold our securities,  may be changed,
superseded or withdrawn at any time and should be evaluated independently of any
other rating.

Our  commercial  paper  program  serves  as our  primary  source  of  short-term
financing.  To support our commercial  paper program,  we have a credit facility
under a Credit  Agreement  dated  August 16, 2005,  with a consortium  of banks,
under which we can borrow up to $500 million.  As part of this credit  facility,
we may  request  issuance  of up to $100  million  in  letters  of  credit,  the
outstanding  amount of which reduces the net borrowing capacity under the Credit
Agreement.  The  borrowings  and  letters  of credit  obtained  under the Credit
Agreement may be denominated in U.S. dollars or other currencies approved by the
banks.  The Credit  Agreement  allows us to borrow at  interest  rates that vary
based on a spread  over (i) LIBOR or (ii) a base rate that is the  higher of the
prime rate or  one-half  of one percent  above the  federal  funds rate,  at our
option. The interest rate spread over LIBOR is determined by our debt rating. We
may also request that loans be made at interest  rates offered by one or more of
the banks in the consortium, which may vary from the LIBOR or the base rate. The
Credit Agreement  expires on August 15, 2010, and contains  various  restrictive
covenants,  including  a leverage  test that  requires us to maintain a ratio of
consolidated total debt to consolidated  total  capitalization of less than 0.65
to 1.00 and a limit on secured  debt and debt owed by  subsidiaries,  subject to
certain  exceptions,  of 10 percent of our consolidated  tangible net worth. The
Credit Agreement does not prohibit borrowing in the event of a ratings downgrade
or a Material  Adverse  Effect,  as defined in the Credit  Agreement.  We do not
expect any of these covenants to limit our liquidity or capital resources. As of
May 28, 2006, there were no borrowings  outstanding  under the Credit Agreement.
However,  as of May 28,


                                       8


2006,  there was $44 million of  commercial  paper and $15 million of letters of
credit  outstanding,  which are backed by this facility.  As of May 28, 2006, we
were in compliance with all covenants under the Credit Agreement.

On August 12, 2005,  we issued $150 million of unsecured  4.875  percent  senior
notes due in August 2010 and $150  million of  unsecured  6.000  percent  senior
notes due in August 2035 under our shelf registration statement on file with the
Securities and Exchange  Commission (SEC). The net proceeds of $295 million from
the  issuance  of these  senior  notes were used to repay at  maturity  our $150
million of 8.375 percent senior notes on September 15, 2005 and our $150 million
of 6.375 percent notes on February 1, 2006.

At May 28, 2006, our long-term debt consisted principally of:

      o   $150 million of  unsecured  4.875  percent  senior notes due in August
          2010:

      o   $75 million of unsecured 7.450 percent  medium-term notes due in April
          2011:

      o   $100 million of unsecured  7.125  percent  debentures  due in February
          2016;

      o   $150 million of unsecured  6.000 percent senior notes due August 2035;
          and

      o   An unsecured,  variable rate $22 million  commercial  bank loan due in
          December  2018  that is  used  to  support  two  loans  from us to the
          Employee Stock Ownership Plan portion of the Darden Savings Plan.

We also have $150 million of unsecured  5.750 percent  medium-term  notes due in
March 2007 included in current liabilities as current portion of long-term debt,
which we plan to repay  through  cash flows from  operations  or the issuance of
unsecured  debt  securities  in fiscal  2007.  Through  our  shelf  registration
statement on file with the SEC, we may issue up to an additional $300 million of
unsecured  debt  securities  from  time to time.  The debt  securities  may bear
interest at either fixed or floating  rates and may have maturity  dates of nine
months or more after issuance.

A summary of our contractual  obligations and commercial  commitments at May 28,
2006, is as follows (in thousands):



- ------------------------------------------------------------------------------------------
                                               Payments Due by Period
- ------------------------------------------------------------------------------------------
      Contractual                       Less than       1-3          3-5       More than 5
      Obligations            Total        1 Year       Years        Years         Years
- ------------------------------------------------------------------------------------------
                                                                
Short-term debt            $   44,000   $   44,000   $       --   $       --   $       --
- ------------------------------------------------------------------------------------------
Long-term debt (1)          1,053,728      192,244       64,295      287,948      509,241
- ------------------------------------------------------------------------------------------
Operating leases              425,414       72,876      124,505       93,046      134,987
- ------------------------------------------------------------------------------------------
Purchase obligations (2)      607,864      586,688       12,926        8,250           --
- ------------------------------------------------------------------------------------------
Benefit obligations (3)       198,833       14,343       31,111       35,811      117,568
- ------------------------------------------------------------------------------------------
Total contractual
   obligations             $2,329,839   $  910,151   $  232,837   $  425,055   $  761,796
- ------------------------------------------------------------------------------------------




- ------------------------------------------------------------------------------------------
                                  Amount of Commitment Expiration Per Period
- ------------------------------------------------------------------------------------------
                             Total
 Other Commercial           Amounts     Less than       1-3          3-5       More than 5
   Commitments             Committed      1 Year       Years        Years         Years
- ------------------------------------------------------------------------------------------
                                                                   
Standby letters of
     credit (4)            $ 77,181     $ 77,181       $  --        $  --         $  --
- ------------------------------------------------------------------------------------------
Guarantees (5)                1,269          388         553          246            82
- ------------------------------------------------------------------------------------------
Total commercial
   commitments             $ 78,450     $ 77,569       $ 553        $ 246         $  82
- ------------------------------------------------------------------------------------------


1)    Includes  interest  payments  associated  with  existing  long-term  debt,
      including the current portion.  Variable-rate interest payments associated
      with the ESOP loan were estimated  based on the interest rate in effect at
      May 28, 2006 (5.41 percent). Excludes issuance discount of $2,829.

2)    Includes  commitments  for food and beverage  items and supplies,  capital
      projects  and  other  miscellaneous  commitments.

3)    Includes  expected  payments  associated  with our defined  benefit plans,
      postretirement  benefit plan and our non-qualified  deferred  compensation
      plan through fiscal 2016.


                                       9


4)    Includes  letters  of credit  for  $64,556 of  workers'  compensation  and
      general  liabilities  accrued in our  consolidated  financial  statements;
      includes  letters  of credit  for  $4,495 of lease  payments  included  in
      contractual  operating  lease  obligation  payments  noted above and other
      letters of credit totaling $8,130.

5)    Consists solely of guarantees  associated with leased properties that have
      been assigned to third  parties.  We are not aware of any  non-performance
      under  these  arrangements  that  would  result in us having to perform in
      accordance with the terms of the guarantees.

Our  fixed-charge  coverage ratio,  which measures the number of times each year
that we earn  enough to cover our fixed  charges,  amounted to 7.3 times and 6.8
times for the fiscal  years ended May 28, 2006 and May 29,  2005,  respectively.
Our adjusted debt to adjusted total capital ratio (which includes 6.25 times the
total annual restaurant minimum rent ($67 million and $62 million for the fiscal
years  ended May 28,  2006 and May 29,  2005,  respectively)  and 3.00 times the
total annual restaurant  equipment minimum rent ($0 million for the fiscal years
ended May 28, 2006 and May 29, 2005,  respectively)  as  components  of adjusted
debt and adjusted  total  capital) was 47 percent and 45 percent at May 28, 2006
and May 29, 2005, respectively. We use the lease-debt equivalent 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.

Based on these  ratios,  we believe  our  financial  condition  is  strong.  The
composition of our capital structure is shown in the following table.

(In millions, except ratios)                   May 28, 2006       May 29, 2005
- -------------------------------------------------------------------------------

CAPITAL STRUCTURE
- -------------------------------------------------------------------------------
Short-term debt                                    $    44             $    --
Current portion of long-term debt                      150                 300
Long-term debt                                         495                 350
Stockholders' equity                                 1,230               1,273
- -------------------------------------------------------------------------------
Total capital                                      $ 1,919             $ 1,923
===============================================================================

ADJUSTMENTS TO CAPITAL
- -------------------------------------------------------------------------------
Short-term debt                                    $    44             $    --
Current portion of long-term debt                      150                 300
Long-term debt                                         495                 350
Lease-debt equivalent                                  415                 385
- -------------------------------------------------------------------------------
Adjusted debt                                      $ 1,104             $ 1,035
Stockholders' equity                                 1,230               1,273
- -------------------------------------------------------------------------------
Adjusted total capital                             $ 2,334             $ 2,308
===============================================================================

CAPITAL STRUCTURE RATIOS
- -------------------------------------------------------------------------------
Debt to total capital ratio                            36%                  34%
Adjusted debt to adjusted total capital ratio          47%                  45%
===============================================================================

Net cash flows provided by operating activities were $717 million,  $583 million
and $525 million in fiscal  2006,  2005 and 2004,  respectively.  Net cash flows
provided by  operating  activities  include net earnings of $338  million,  $291
million and $227 million in fiscal  2006,  2005 and 2004,  respectively.  Fiscal
2004 net earnings included a $37 million pre-tax ($23 million  after-tax) charge
for  long-lived  asset  impairments  associated  with the  closing of six Bahama
Breeze restaurants and the write-down of the carrying value of four other Bahama
Breeze restaurants,  one Olive Garden restaurant and one Red Lobster restaurant.
Net cash flows provided by operating activities also reflect income tax payments
of $126  million,  $111 million and $92 million in fiscal  2006,  2005 and 2004,
respectively.

The increase in tax  payments in fiscal 2006 and 2005  resulted  primarily  from
accelerated   deductions   allowable  for   depreciation   of  certain   capital
expenditures  for only a portion of fiscal  2005 and all of fiscal  2004,  which
lowered our income tax payments in those fiscal years. In fiscal 2006 and fiscal
2005,  however,  the  impact  of  the  reduction  in  accelerated   depreciation
deductions was partially  offset by increases in income tax benefits  associated
with the exercise of employee stock options.


                                       10


Net cash flows used in investing activities were $325 million,  $313 million and
$343 million in fiscal 2006, 2005 and 2004, respectively. Net cash flows used in
investing activities included capital expenditures incurred principally to build
new restaurants,  replace  equipment and remodel existing  restaurants.  Capital
expenditures  were $338  million in fiscal 2006,  compared  with $329 million in
fiscal 2005 and $354  million in fiscal  2004.  The  decreased  expenditures  in
fiscal 2005 resulted primarily from decreased spending  associated with building
fewer new  restaurants  and fewer  remodels.  We  estimate  that our fiscal 2007
capital expenditures will approximate $350 million.

Net cash flows used in financing activities were $393 million,  $264 million and
$194 million in fiscal 2006, 2005 and 2004, respectively. Net cash flows used in
financing  activities  included our  repurchase  of 11.9  million  shares of our
common stock for $434 million in fiscal 2006,  compared with 11.3 million shares
for $312  million in fiscal  2005 and 10.7  million  shares for $235  million in
fiscal 2004.  As of May 28, 2006,  our Board of Directors  had  authorized us to
repurchase up to 137.4  million  shares of our common stock and a total of 132.5
million shares had been  repurchased  under the  authorization.  The repurchased
common stock is reflected as a reduction of stockholders'  equity. In June 2006,
our  Board  of  Directors   authorized  an  additional  25  million  shares  for
repurchase,  bringing our unused  authorization  to 29.9 million.  During fiscal
2006 we completed the offering of $300 million in senior notes, resulting in net
proceeds of $295 million, which were used to repay, at maturity, $300 million in
notes  outstanding.  We also received proceeds from the issuance of common stock
upon the exercise of stock  options of $62 million,  $75 million and $40 million
in fiscal 2006,  2005 and 2004,  respectively.  Net cash flows used in financing
activities  also included  dividends paid to  stockholders  of $59 million,  $13
million  and $13  million  in  fiscal  2006,  2005 and 2004,  respectively.  The
increase in dividend  payments reflects the increase in our annual dividend rate
from $0.08 per share in fiscal 2005 and fiscal 2004 to $0.40 per share in fiscal
2006.

Our defined benefit and other  postretirement  benefit costs and liabilities are
determined  using various  actuarial  assumptions and  methodologies  prescribed
under the Financial Accounting Standards Board's (FASB) SFAS No. 87, "Employers'
Accounting for Pensions" and No. 106, "Employers'  Accounting for Postretirement
Benefits Other Than  Pensions." We use certain  assumptions  including,  but not
limited to, the selection of a discount rate,  expected long-term rate of return
on plan assets and expected  health care cost trend  rates.  We set the discount
rate  assumption  annually  for each plan at its  valuation  date to reflect the
yield of high quality fixed-income debt instruments, with lives that approximate
the maturity of the plan  benefits.  At May 28, 2006, our discount rate was 5.75
percent.  The expected  long-term  rate of return on plan assets and health care
cost trend  rates are based  upon  several  factors,  including  our  historical
assumptions  compared  with  actual  results,  an  analysis  of  current  market
conditions,  asset allocations and the views of leading  financial  advisers and
economists. Our assumed expected long-term rate of return on plan assets was 9.0
percent for each of the fiscal years  reported.  At May 28,  2006,  the expected
health care cost trend rates  assumed for fiscal 2007 ranged from 8.0 percent to
9.0 percent,  depending on the medical  service  category.  The rates  gradually
decrease to 5.0 percent through fiscal 2011 and remain at that level thereafter.
We made  contributions  of  approximately  $0.3  million,  $0.1 million and $0.1
million  in fiscal  years  2006,  2005 and 2004,  respectively,  to our  defined
benefit  pension  plan to  maintain  its fully  funded  status as of each annual
valuation date (the most recent of which was February 28, 2006).

The  expected  long-term  rate of return  on plan  assets  component  of our net
periodic  benefit cost is calculated based on the  market-related  value of plan
assets.  Our target asset  allocation  is 35 percent U.S.  equities,  30 percent
high-quality,  long-duration  fixed-income securities,  15 percent international
equities, 10 percent private equities and 10 percent real assets. We monitor our
actual asset allocation to ensure that it approximates our target allocation and
believe that our long-term  asset  allocation  will continue to approximate  our
target  allocation.  Our  historical  ten-year  rate of return  on plan  assets,
calculated using the geometric method average of returns,  is approximately 10.7
percent as of May 28, 2006.

We have an  unrecognized  net actuarial  loss for the defined  benefit plans and
postretirement  benefit  plan as of May 28,  2006 of $47 million and $4 million,
respectively.  The  unrecognized  net actuarial loss  represents  changes in the
amount of the  projected  benefit  obligation  and plan  assets  resulting  from
differences in the assumptions used and actual  experience.  The amortization of
the  unrecognized  net actuarial  loss component of our fiscal 2007 net periodic
benefit cost for the defined  benefit plans and  postretirement  benefit plan is
expected to be approximately $5 million and $0.2 million, respectively.

We believe our defined benefit and  postretirement  benefit plan assumptions are
appropriate based upon the factors discussed above.  However,  other assumptions
could also be reasonably  applied that could differ from the assumptions used. A
quarter-percentage  point change in the defined benefit plans' discount rate and
the expected


                                       11


long-term  rate of return on plan assets  would  increase  or decrease  earnings
before  income  taxes  by  $0.7  million  and  $0.4  million,   respectively.  A
quarter-percentage point change in our postretirement benefit plan discount rate
would  increase or decrease  earnings  before  income taxes by $0.1  million.  A
one-percentage point increase in the health care cost trend rates would increase
the accumulated  postretirement  benefit  obligation (APBO) by $4 million at May
28, 2006 and the aggregate of the service cost and interest  cost  components of
net  periodic  postretirement  benefit  cost by $0.6  million for fiscal 2006. A
one-percentage point decrease in the health care cost trend rates would decrease
the APBO by $3 million at May 28, 2006 and the aggregate of the service cost and
interest  cost  components of net periodic  postretirement  benefit cost by $0.5
million for fiscal 2006.  These changes in assumptions  would not  significantly
impact our funding requirements.

We are not aware of any  trends or  events  that  would  materially  affect  our
capital requirements or liquidity. We believe that our internal  cash-generating
capabilities,  borrowings  available under our shelf  registration for unsecured
debt securities and short-term  commercial paper program should be sufficient to
finance our capital expenditures,  debt maturities, stock repurchase program and
other operating activities through fiscal 2007.

OFF-BALANCE SHEET ARRANGEMENTS

We are not a party to any  off-balance  sheet  arrangements  that  have,  or are
reasonably  likely to have, a current or future material effect on our financial
condition,  changes  in  financial  condition,  sales or  expenses,  results  of
operations, liquidity, capital expenditures or capital resources.

FINANCIAL CONDITION

Our total current  assets were $378 million at May 28, 2006,  compared with $407
million at May 29,  2005.  The decrease  resulted  primarily  from  decreases in
inventories of $37 million related to opportunistic  product purchases made near
the end of fiscal  2005,  which were not  repeated as of the end of fiscal 2006.
Additionally,  the lower fiscal 2006 balance  reflects the results of successful
inventory management initiatives.

Our total current  liabilities were $1.03 billion at May 28, 2006, compared with
$1.04 billion at May 29, 2005. The decrease in current  liabilities is primarily
due to the net decrease in current debt  maturities of $150  million,  partially
offset by an increase in  short-term  debt of $44 million,  an increase in other
current  liabilities of $29 million,  primarily due to a $16 million increase in
liabilities  associated with our non-qualified deferred compensation plan and an
increase in accounts payable of $22 million,  primarily due to the timing of our
inventory and capital expenditures at the end of fiscal 2006.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of market risks,  including fluctuations in interest
rates,  foreign currency  exchange rates,  compensation and commodity prices. To
manage this exposure, we periodically enter into interest rate, foreign currency
exchange,  equity  forwards  and  commodity  instruments  for other than trading
purposes (see Notes 1 and 9 of the Notes to Consolidated  Financial  Statements,
included elsewhere in this report).

We use the  variance/covariance  method  to  measure  value at risk,  over  time
horizons ranging from one week to one year, at the 95 percent  confidence level.
At May 28, 2006,  our  potential  losses in future net earnings  resulting  from
changes in foreign currency exchange rate instruments, commodity instruments and
floating rate debt interest rate exposures were  approximately $7 million over a
period of one year  (including  the impact of the interest rate swap  agreements
discussed in Note 9 of the Notes to Consolidated Financial Statements,  included
elsewhere in this report).  The value at risk from an increase in the fair value
of all of our  long-term  fixed  rate  debt,  over a  period  of one  year,  was
approximately  $49  million.  The fair  value of our  long-term  fixed rate debt
during fiscal 2006 averaged $762 million,  with a high of $967 million and a low
of $640  million.  Our interest rate risk  management  objective is to limit the
impact of interest  rate  changes on  earnings  and cash flows by  targeting  an
appropriate mix of variable and fixed rate debt.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

In December 2004, the FASB issued SFAS No. 123 (Revised), "Share-Based Payment."
SFAS No. 123R revises SFAS No. 123,  "Accounting for  Stock-Based  Compensation"
and generally  requires the cost associated with employee  services  received in
exchange for an award of equity  instruments be measured based on the grant-date
fair value of the award and  recognized  in the  financial  statements  over the
period during which  employees  are required to


                                       12


provide service in exchange for the award. SFAS No. 123R is effective for annual
reporting  periods beginning after June 15, 2006.  Therefore,  we will adopt the
provisions of SFAS No. 123R as of our first fiscal quarter of 2007. Based on the
current  assumptions  and  calculations  used,  had we  recognized  compensation
expense  based on the fair value of awards of equity  instruments,  net earnings
would have been  reduced by  approximately  $14  million,  $18  million  and $15
million for fiscal 2006, 2005 and 2004, respectively.  As disclosed in Note 1 of
Notes to Consolidated  Financial Statements,  included elsewhere in this report,
we will adopt SFAS No. 123R  according  to the modified  prospective  method and
will continue using the Black Scholes  option-pricing model to estimate the fair
value  of  awards   granted.   Modified   prospective   application   recognizes
compensation expense for new awards granted after the effective date of SFAS No.
123R and for unvested  awards as of the effective date of SFAS No. 123R over the
remaining  employee service period.  We estimate the impact of adopting SFAS No.
123R will reduce net  earnings  by  approximately  $11 million or  approximately
$0.08 per diluted share in fiscal 2007. This estimate  includes  expense related
to  unvested  stock  options  as of the  date of  adoption  and  other  forms of
stock-based  compensation,  not  previously  required  to be  recognized  in net
earnings.

SFAS 123R also requires  amounts related to tax deductions on benefits  provided
in excess of  recognized  stock-based  compensation  expense to be classified as
financing activity in our consolidated  statements of cash flows,  whereas these
amounts are  currently  reported as  operating  activities  in  accordance  with
current  guidance.  This  requirement  will reduce net operating  cash flows and
increase  net  financing  cash flows  subsequent  to the  adoption of SFAS 123R.
During fiscal 2006, 2005 and 2004, we reported $34 million,  $43 million and $16
million,  respectively,  as tax  deductions  on  benefits  provided in excess of
recognized  stock-based  compensation  expense as a component of operating  cash
flows in our  consolidated  statements  of cash flows.  We cannot  estimate what
these amounts will be in the future as they depend on, among other things,  when
employees exercise stock options.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an  interpretation of SFAS No. 109" (FIN 48). FIN 48 clarifies
the  accounting for uncertain  income tax positions  accounted for in accordance
with SFAS No. 109. The  Interpretation  stipulates  recognition  and measurement
criteria  in  addition  to   classification,   interim  period   accounting  and
significantly  expanded  disclosure  provisions for uncertain tax positions that
are  expected to be taken in a company's  tax return.  FIN 48 is  effective  for
fiscal years  beginning  after December 15, 2006. We have not yet determined the
impact  the  adoption  of  FIN  48  will  have  on  our  consolidated  financial
statements.

FORWARD-LOOKING STATEMENTS

Certain  statements  included in this report and other  materials filed or to be
filed by us with the SEC (as well as  information  included  in oral or  written
statements  made  or  to  be  made  by  us)  may  contain  statements  that  are
forward-looking  within the meaning of the Private Securities  Litigation Reform
Act of 1995,  as  codified  in Section  27A of the  Securities  Act of 1933,  as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act).  Words or phrases such as "believe,"  "plan,"  "will,"  "expect,"
"intend,"  "estimate,"  and  "project" and similar  expressions  are intended to
identify  forward-looking  statements.  All of these  statements,  and any other
statements in this report that are not historical  facts,  are  forward-looking.
These forward-looking  statements are based on assumptions  concerning important
factors,  risks and uncertainties  that could  significantly  affect anticipated
results in the future and, accordingly, could cause the actual results to differ
materially  from  those  expressed  in  the  forward-looking  statements.  These
factors, risks and uncertainties include, but are not limited to those discussed
below and in Part I, Item 1A, "Risk  Factors" in our Annual  Report on Form 10-K
for the year ended May 28, 2006:

o   The intensely  competitive  nature of the  restaurant  industry,  especially
    pricing, service, location, personnel and type and quality of food;

o   Economic and business factors,  both specific to the restaurant industry and
    generally,  including changes in consumer  preferences,  demographic trends,
    fuel prices,  severe weather conditions including  hurricanes,  a protracted
    economic  slowdown or worsening  economy,  industry-wide  cost pressures and
    public safety conditions,  including actual or threatened armed conflicts or
    terrorist attacks;

o   The price and availability of food, ingredients and utilities, including the
    general risk of inflation;

o   Labor and insurance  costs,  including  increased labor costs as a result of
    federal and  state-mandated  increases in minimum  wage rates and  increased
    insurance costs as a result of increases in our current insurance premiums;

o   Increased advertising and marketing costs;

o   Higher-than-anticipated   costs  to  open,   close,   relocate   or  remodel
    restaurants;


                                       13


o   Litigation  by  employees,  consumers,  suppliers,  shareholders  or others,
    regardless  of whether the  allegations  made against us are valid or we are
    ultimately found liable;

o   Unfavorable publicity relating to food safety or other concerns;

o   A lack of suitable new  restaurant  locations or a decline in the quality of
    the locations of our current restaurants;

o   Federal,  state and local  regulation  of our business,  including  laws and
    regulations  relating to our relationships with our employees,  zoning, land
    use, environmental matters and liquor licenses;

o   Growth objectives,  including lower-than-expected sales and profitability of
    newly-opened restaurants,  our expansion of newer concepts that have not yet
    proven their long-term viability, our ability to develop new concepts, risks
    associated with growth through acquisitions, and our ability to manage risks
    relating  to  the  opening  of  new   restaurants,   including  real  estate
    development and construction activities,  union activities, the issuance and
    renewal of licenses and permits, the availability of funds to finance growth
    and our ability to hire and train qualified personnel; and

o   Our plans to improve the financial  performance  of Bahama Breeze and Smokey
    Bones and reposition the Smokey Bones brand.

Since it is not possible to foresee all such factors,  risks and  uncertainties,
investors  should not consider  these factors to be a complete list of all risks
or uncertainties.


                                       14


REPORT OF MANAGEMENT RESPONSIBILITIES

The management of Darden  Restaurants,  Inc. is responsible for the fairness and
accuracy of the consolidated  financial statements.  The consolidated  financial
statements  have  been  prepared  in  accordance  with U.S.  generally  accepted
accounting  principles,  using  management's  best estimates and judgments where
appropriate. The financial information throughout this report is consistent with
our consolidated financial statements.

Management  has  established  a  system  of  internal   controls  that  provides
reasonable assurance that assets are adequately safeguarded and transactions are
recorded accurately,  in all material respects,  in accordance with management's
authorization.  We maintain a strong audit program that independently  evaluates
the adequacy  and  effectiveness  of internal  controls.  Our internal  controls
provide for appropriate segregation of duties and responsibilities and there are
documented  policies  regarding  utilization of our assets and proper  financial
reporting.  These formally stated and regularly  communicated  policies set high
standards of ethical conduct for all employees.

The  Audit  Committee  of the Board of  Directors  meets at least  quarterly  to
determine that  management,  internal  auditors and the  independent  registered
public accounting firm are properly  discharging their duties regarding internal
control and financial  reporting.  The independent  registered public accounting
firm,  internal  auditors and  employees  have full and free access to the Audit
Committee at any time.

KPMG LLP, an independent registered public accounting firm, is retained to audit
our consolidated financial statements. Their report follows.

/s/ Clarence Otis, Jr.
Clarence Otis, Jr.
Chairman of the Board and Chief Executive Officer

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for  establishing  and maintaining  adequate  internal
control  over  financial  reporting  (as  defined  in Rule  13a-15(f)  under the
Securities  Exchange Act of 1934, as amended).  The Company's  internal  control
over  financial  reporting  is designed to provide  reasonable  assurance to the
Company's  management and Board of Directors  regarding the preparation and fair
presentation of published financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may  not  prevent  or  detect  misstatements.   Therefore,  even  those  systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.

Management  assessed the  effectiveness  of the Company's  internal control over
financial  reporting as of May 28, 2006. In making this  assessment,  management
used the criteria set forth by the Committee of Sponsoring  Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework.  Management
has concluded  that, as of May 28, 2006,  the  Company's  internal  control over
financial reporting was effective based on these criteria.

The Company's  independent  registered  public  accounting  firm,  KPMG LLP, has
issued an audit report on our assessment of our internal  control over financial
reporting, which follows.


                                       15


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

The Board of Directors and Stockholders
Darden Restaurants, Inc.

We  have  audited   management's   assessment,   included  in  the  accompanying
Management's  Report on Internal Control Over Financial  Reporting,  that Darden
Restaurants, Inc. maintained effective internal control over financial reporting
as of May 28, 2006 based on criteria established in Internal  Control-Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  (COSO).  Darden  Restaurants,  Inc.'s  management is responsible for
maintaining  effective  internal  control over  financial  reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our  responsibility  is to express an opinion on management's  assessment and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness  of internal control and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, management's assessment that Darden Restaurants, Inc. maintained
effective  internal  control over  financial  reporting  as of May 28, 2006,  is
fairly  stated,  in all  material  respects,  based on criteria  established  in
Internal  Control-Integrated  Framework  issued by the  Committee of  Sponsoring
Organizations of the Treadway  Commission (COSO).  Also, in our opinion,  Darden
Restaurants,  Inc.  maintained,  in all material  respects,  effective  internal
control  over  financial  reporting  as of  May  28,  2006,  based  on  criteria
established in Internal Control-Integrated  Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the consolidated balance sheets of
Darden  Restaurants,  Inc. and subsidiaries as of May 28, 2006 and May 29, 2005,
and the related  consolidated  statements of earnings,  changes in stockholders'
equity and accumulated  other  comprehensive  income (loss),  and cash flows for
each of the years in the  three-year  period ended May 28, 2006,  and our report
dated July 27,  2006  expressed  an  unqualified  opinion on those  consolidated
financial statements.


/s/ KPMG LLP

Orlando, FL
July 27, 2006
Certified Public Accountants


                                       16


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Darden Restaurants, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Darden
Restaurants,  Inc. and subsidiaries as of May 28, 2006 and May 29, 2005, and the
related consolidated statements of earnings, changes in stockholders' equity and
accumulated other  comprehensive  income (loss),  and cash flows for each of the
years in the three-year period ended May 28, 2006. These consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Darden Restaurants,
Inc. and  subsidiaries  as of May 28, 2006 and May 29, 2005,  and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended May 28, 2006 in conformity with U. S. generally accepted accounting
principles.

We also have  audited,  in accordance  with the standards of the Public  Company
Accounting   Oversight  Board  (United  States),  the  effectiveness  of  Darden
Restaurants, Inc.'s internal control over financial reporting as of May 28, 2006
based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated July 27, 2006 expressed an unqualified  opinion on management's
assessment of, and the effective  operation of, internal  control over financial
reporting.


/s/ KPMG LLP

Orlando, Florida
July 27, 2006
Certified Public Accountants


                                       17


CONSOLIDATED STATEMENTS OF EARNINGS



                                                                            Fiscal Year Ended
- -----------------------------------------------------------------------------------------------------------
(In thousands, except per share data)                          May 28, 2006    May 29, 2005    May 30, 2004
- -----------------------------------------------------------------------------------------------------------
                                                                                      
Sales                                                          $  5,720,640    $  5,278,110    $  5,003,355
Costs and expenses:
  Cost of sales:
     Food and beverage                                            1,691,906       1,593,709       1,526,875
     Restaurant labor                                             1,850,199       1,695,805       1,601,258
     Restaurant expenses                                            885,403         806,314         774,806
- -----------------------------------------------------------------------------------------------------------
  Total cost of sales, excluding restaurant depreciation
     and amortization of $205,375, $198,422 and
      $195,486, respectively                                   $  4,427,508    $  4,095,828    $  3,902,939
  Selling, general and administrative                               536,379         497,478         472,109
  Depreciation and amortization                                     221,456         213,219         210,004
  Interest, net                                                      43,105          43,119          43,659
  Asset impairment and restructuring charges, net                     9,674           4,549          41,868
- -----------------------------------------------------------------------------------------------------------
Total costs and expenses                                       $  5,238,122    $  4,854,193    $  4,670,579
- -----------------------------------------------------------------------------------------------------------
Earnings before income taxes                                        482,518         423,917         332,776
Income taxes                                                        144,324         133,311         105,603
- -----------------------------------------------------------------------------------------------------------
Net earnings                                                   $    338,194    $    290,606    $    227,173
===========================================================================================================
Net earnings per share:
  Basic                                                        $       2.26    $       1.85    $       1.39
  Diluted                                                      $       2.16    $       1.78    $       1.34
===========================================================================================================
Average number of common shares outstanding:
  Basic                                                             149,700         156,700         163,500
  Diluted                                                           156,900         163,400         169,700
===========================================================================================================


See accompanying notes to consolidated financial statements.


                                       18


CONSOLIDATED BALANCE SHEETS



- ----------------------------------------------------------------------------------------------
(In thousands)                                                 May 28, 2006     May 29, 2005
- ----------------------------------------------------------------------------------------------
                                                                           
      ASSETS
Current assets:
   Cash and cash equivalents                                   $     42,334      $     42,801
   Receivables, net                                                  37,111            36,510
   Inventories, net                                                 198,723           235,444
   Prepaid expenses and other current assets                         29,889            28,927
   Deferred income taxes                                             69,550            63,584
- ----------------------------------------------------------------------------------------------
        Total current assets                                   $    377,607      $    407,266
Land, buildings and equipment, net                                2,446,035         2,351,454
Other assets                                                        186,528           179,051
- ----------------------------------------------------------------------------------------------
        Total assets                                           $  3,010,170      $  2,937,771
==============================================================================================

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                            $    213,239      $    191,197
   Short-term debt                                                   44,000                --
   Accrued payroll                                                  123,176           114,602
   Accrued income taxes                                              64,792            52,404
   Other accrued taxes                                               46,853            43,825
   Unearned revenues                                                100,761            88,472
   Current portion of long-term debt                                149,948           299,929
   Other current liabilities                                        283,309           254,178
- ----------------------------------------------------------------------------------------------
        Total current liabilities                              $  1,026,078      $  1,044,607
Long-term debt, less current portion                                494,653           350,318
Deferred income taxes                                                90,573           114,846
Deferred rent                                                       138,530           130,872
Other liabilities                                                    30,573            24,109
- ----------------------------------------------------------------------------------------------
        Total liabilities                                      $  1,780,407      $  1,664,752
- ----------------------------------------------------------------------------------------------
Stockholders' equity:
   Common stock and surplus, no par value.  Authorized
     500,000 shares; issued 274,683 and 271,102 shares,
     respectively; outstanding 146,998 and 154,391 shares,
     respectively                                              $  1,806,367      $  1,703,336
   Preferred stock, no par value.  Authorized 25,000 shares;
     none issued and outstanding                                         --                --
   Retained earnings                                              1,684,742         1,405,754
   Treasury stock, 127,685 and 116,711 shares,
     at cost, respectively                                       (2,211,222)       (1,784,835)
   Accumulated other comprehensive income (loss)                     (5,570)           (8,876)
   Unearned compensation                                            (44,186)          (41,685)
   Officer notes receivable                                            (368)             (675)
- ----------------------------------------------------------------------------------------------
        Total stockholders' equity                             $  1,229,763      $  1,273,019
- ----------------------------------------------------------------------------------------------
        Total liabilities and stockholders' equity             $  3,010,170      $  2,937,771
==============================================================================================


See accompanying notes to consolidated financial statements.


                                       19


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)



- ---------------------------------------------------------------------------------------------------------------------------
                                                            Common Stock                                  Accumulated Other
                                                                 And         Retained        Treasury       Comprehensive
(In thousands, except per share data)                          Surplus       Earnings         Stock         Income (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                                      
Balance at May 25, 2003                                       $1,525,957     $  913,464    $(1,254,293)           $(10,646)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                                       --        227,173             --                  --
   Other comprehensive income (loss):
       Foreign currency adjustment                                    --             --             --                 337
       Change in fair value of derivatives,
        net of tax of  $51                                            --             --             --                 205
       Minimum pension liability adjustment,
        net of tax benefit of  $45                                    --             --             --                 (69)

         Total comprehensive income
Cash dividends declared ($0.08 per share)                             --        (12,984)            --                  --
Stock option exercises (3,464 shares)                             30,972             --          3,685                  --
Issuance of restricted stock (409 shares), net
   of forfeiture adjustments                                       7,605             --            173                  --
Earned compensation                                                   --             --             --                  --
ESOP note receivable repayments                                       --             --             --                  --
Income tax benefits credited to equity                            15,650             --             --                  --
Purchases of common stock for treasury
   (10,749 shares)                                                    --             --       (235,462)                 --
Issuance of treasury stock under Employee
   Stock Purchase Plan and other plans (357 shares)                3,931             --          2,129                  --
Repayment of officer notes                                            --             --             --                  --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at May 30, 2004                                       $1,584,115     $1,127,653    $(1,483,768)           $(10,173)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                                       --        290,606             --                  --
   Other comprehensive income (loss):
       Foreign currency adjustment                                    --             --             --               1,450
       Change in fair value of derivatives,
        net of tax of  $1,503                                         --             --             --                (243)
       Minimum pension liability adjustment,
        net of tax benefit of  $56                                    --             --             --                  90

          Total comprehensive income
Cash dividends declared ($0.08 per share)                             --        (12,505)            --                  --
Stock option exercises (6,615 shares)                             62,464             --          7,081                  --
Issuance of restricted stock (378 shares), net
   of forfeiture adjustments                                       9,535             --             --                  --
Earned compensation                                                   --             --             --                  --
ESOP note receivable repayments                                       --             --             --                  --
Income tax benefits credited to equity                            42,996             --             --                  --
Purchases of common stock for treasury
   (11,343 shares)                                                    --             --       (311,686)                 --
Issuance of treasury stock under Employee
   Stock Purchase Plan and other plans (296 shares)                4,226             --          1,932                  --
Issuance of treasury stock under Employee Stock Ownership
   Plan (50 shares)                                                   --             --          1,606                  --
Repayment of officer notes                                            --             --             --                  --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at May 29, 2005                                       $1,703,336     $1,405,754    $(1,784,835)          $  (8,876)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                                       --        338,194             --                  --
   Other comprehensive income (loss):
       Foreign currency adjustment                                    --             --             --               3,878
       Change in fair value of derivatives,
        net of tax of  $418                                           --             --             --                (532)
       Minimum pension liability adjustment,
        net of tax benefit of  $25                                    --             --             --                 (40)

          Total comprehensive income
Cash dividends declared ($0.40 per share)                             --        (59,206)            --                  --
Stock option exercises (3,909 shares)                             49,260             --          6,346                  --
Issuance of restricted stock (403 shares), net
   of forfeiture adjustments                                      13,467             --             --                  --
Earned compensation                                                   --             --             --                  --
ESOP note receivable repayments                                       --             --             --                  --
Income tax benefits credited to equity                            34,316             --             --                  --
Purchases of common stock for treasury
   (11,943 shares)                                                    --             --       (434,187)                 --
Issuance of treasury stock under Employee
   Stock Purchase Plan and other plans (237 shares)                5,988             --          1,454                  --
Repayment of officer notes                                            --             --             --                  --
- ---------------------------------------------------------------------------------------------------------------------------
Balance at May 28, 2006                                       $1,806,367     $1,684,742    $(2,211,222)          $  (5,570)
===========================================================================================================================


- -------------------------------------------------------------------------------------------------------------
                                                                                 Officer           Total
                                                                Unearned          Notes        Stockholders'
(In thousands, except per share data)                         Compensation      Receivable        Equity
- -------------------------------------------------------------------------------------------------------------
                                                                                         
Balance at May 25, 2003                                           $(42,848)         $(1,579)      $1,130,055
- -------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                                         --               --          227,173
   Other comprehensive income (loss):
       Foreign currency adjustment                                      --               --              337
       Change in fair value of derivatives,
        net of tax of  $51                                              --               --              205
       Minimum pension liability adjustment,
        net of tax benefit of  $45                                      --               --              (69)
                                                                                                  -----------
         Total comprehensive income                                                                  227,646
Cash dividends declared ($0.08 per share)                               --               --          (12,984)
Stock option exercises (3,464 shares)                                   --               --           34,657
Issuance of restricted stock (409 shares), net
   of forfeiture adjustments                                        (7,778)              --
Earned compensation                                                  4,198               --            4,198
ESOP note receivable repayments                                      5,027               --            5,027
Income tax benefits credited to equity                                  --               --           15,650
Purchases of common stock for treasury
   (10,749 shares)                                                      --               --         (235,462)
Issuance of treasury stock under Employee
   Stock Purchase Plan and other plans (357 shares)                     --               --            6,060
Repayment of officer notes                                              --              441              441
- -------------------------------------------------------------------------------------------------------------
Balance at May 30, 2004                                           $(41,401)         $(1,138)      $1,175,288
- -------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                                         --               --          290,606
   Other comprehensive income (loss):
       Foreign currency adjustment                                      --               --            1,450
       Change in fair value of derivatives,
        net of tax of  $1,503                                           --               --             (243)
       Minimum pension liability adjustment,
        net of tax benefit of  $56                                      --               --               90
                                                                                                  -----------
          Total comprehensive income                                                                 291,903
Cash dividends declared ($0.08 per share)                               --               --          (12,505)
Stock option exercises (6,615 shares)                                   --               --           69,545
Issuance of restricted stock (378 shares), net
   of forfeiture adjustments                                        (9,535)              --               --
Earned compensation                                                  7,464               --            7,464
ESOP note receivable repayments                                      3,393               --            3,393
Income tax benefits credited to equity                                  --               --           42,996
Purchases of common stock for treasury
   (11,343 shares)                                                      --               --         (311,686)
Issuance of treasury stock under Employee
   Stock Purchase Plan and other plans (296 shares)                     --               --            6,158
Issuance of treasury stock under Employee Stock Ownership
   Plan (50 shares)                                                 (1,606)              --               --
Repayment of officer notes                                              --              463              463
- -------------------------------------------------------------------------------------------------------------
Balance at May 29, 2005                                           $(41,685)        $   (675)      $1,273,019
- -------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                                                         --               --          338,194
   Other comprehensive income (loss):
       Foreign currency adjustment                                      --               --            3,878
       Change in fair value of derivatives,
        net of tax of  $418                                             --               --             (532)
       Minimum pension liability adjustment,
        net of tax benefit of  $25                                      --               --              (40)
                                                                                                  -----------
          Total comprehensive income                                                                 341,500
Cash dividends declared ($0.40 per share)                               --               --          (59,206)
Stock option exercises (3,909 shares)                                   --               --           55,606
Issuance of restricted stock (403 shares), net
   of forfeiture adjustments                                       (13,467)              --               --
Earned compensation                                                  7,386               --            7,386
ESOP note receivable repayments                                      3,580               --            3,580
Income tax benefits credited to equity                                  --               --           34,316
Purchases of common stock for treasury
   (11,943 shares)                                                      --               --         (434,187)
Issuance of treasury stock under Employee
   Stock Purchase Plan and other plans (237 shares)                     --               --            7,442
Repayment of officer notes                                              --              307              307
- -------------------------------------------------------------------------------------------------------------
Balance at May 28, 2006                                           $(44,186)        $   (368)      $1,229,763
=============================================================================================================


See accompanying notes to consolidated financial statements.


                                       20


CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                            Fiscal Year Ended
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)                                                               May 28, 2006     May 29, 2005      May 30, 2004
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                       
Cash flows - operating activities
   Net earnings                                                              $    338,194     $    290,606      $    227,173
   Adjustments to reconcile net earnings to cash flows:
      Depreciation and amortization                                               221,456          213,219           210,004
      Asset impairment charges, net                                                 9,674            4,549            40,756
      Restructuring charge                                                             --               --             1,112
      Amortization of loan costs                                                    3,020            3,577             3,401
      Change in current assets and liabilities                                    121,401           28,967             2,207
      Contribution to postretirement plan                                            (410)            (472)             (172)
      Loss on disposal of land, buildings and equipment                             2,719            1,164               104
      Change in cash surrender value of trust-owned life
        insurance                                                                  (6,032)          (3,451)           (6,106)
      Deferred income taxes                                                       (29,796)         (24,722)           16,688
      Change in deferred rent                                                       7,658            7,993             7,583
      Change in other liabilities                                                   6,874           11,920             1,490
      Income tax benefits credited to equity                                       34,316           42,996            15,650
      Amortization of unearned compensation and other
        non-cash compensation expense                                               8,611            8,470             5,059
      Other, net                                                                     (595)          (1,574)              462
- -----------------------------------------------------------------------------------------------------------------------------
            Net cash provided by operating activities                        $    717,090     $    583,242      $    525,411
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows - investing activities
   Purchases of land, buildings and equipment                                    (338,155)        (329,238)         (354,326)
   Increase in other assets                                                        (7,021)          (1,931)           (5,128)
   Proceeds from disposal of land, buildings and equipment                         20,560           18,028            16,197
- -----------------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                            $   (324,616)    $   (313,141)     $   (343,257)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows - financing activities
   Proceeds from issuance of common stock                                          61,783           74,697            39,856
   Dividends paid                                                                 (59,206)         (12,505)          (12,984)
   Purchases of treasury stock                                                   (434,187)        (311,686)         (235,462)
   ESOP note receivable repayments                                                  3,580            3,393             5,027
   Increase (decrease) in short-term debt                                          44,000          (14,500)           14,500
    Proceeds from issuance of long-term debt                                      294,669               --                --
   Repayment of long-term debt                                                   (303,580)          (3,393)           (5,027)
- -----------------------------------------------------------------------------------------------------------------------------
            Net cash used in financing activities                            $   (392,941)    $   (263,994)     $   (194,090)
- -----------------------------------------------------------------------------------------------------------------------------
(Decrease) increase  in cash and cash equivalents                                    (467)           6,107           (11,936)
Cash and cash equivalents - beginning of year                                      42,801           36,694            48,630
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year                                      $     42,334     $     42,801      $     36,694
=============================================================================================================================
Cash flows from changes in current assets and liabilities
   Receivables                                                                       (601)          (5,533)             (279)
   Inventories                                                                     36,721          (36,663)          (25,137)
   Prepaid expenses and other current assets                                       (2,325)          (4,463)             (190)
   Accounts payable                                                                22,042           16,573            (1,027)
   Accrued payroll                                                                  8,574           11,275            17,352
   Accrued income taxes                                                            12,388            3,651           (19,222)
   Other accrued taxes                                                              3,028            5,385             3,371
   Unearned revenues                                                               12,289           12,959             2,815
   Other current liabilities                                                       29,285           25,783            24,524
- -----------------------------------------------------------------------------------------------------------------------------
            Change in current assets and liabilities                         $    121,401     $     28,967      $      2,207
=============================================================================================================================


See accompanying notes to consolidated financial statements.


                                       21


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(All amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and Principles of Consolidation

The accompanying  consolidated  financial  statements  include the operations of
Darden Restaurants, Inc. and its wholly owned subsidiaries (Darden, the Company,
we, us or our). We own and operate the Red Lobster(R),  Olive Garden(R),  Bahama
Breeze(R),  Smokey  Bones  Barbeque  & Grill(R)  and  Seasons  52(R)  restaurant
concepts located in the United States and Canada,  with no franchising.  We also
license 42  restaurants  in Japan.  All  significant  intercompany  balances and
transactions have been eliminated in consolidation.

Fiscal Year

Our  fiscal  year  ends on the last  Sunday  in May.  Fiscal  2006 and 2005 both
consisted  of 52  weeks  of  operation.  Fiscal  2004  consisted  of 53 weeks of
operation.

Use of Estimates

We  prepare  our  consolidated  financial  statements  in  conformity  with U.S.
generally  accepted  accounting  principles.  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 expenses during the reporting period.  Actual results could
differ from those estimates.

Cash Equivalents

Cash equivalents  include highly liquid investments such as U.S. treasury bills,
taxable  municipal  bonds and money  market  funds that have a maturity of three
months  or  less.  Amounts  receivable  from  credit  card  companies  are  also
considered cash  equivalents  because they are both short-term and highly liquid
in nature and are  typically  converted  to cash within  three days of the sales
transaction.

Accounts Receivable

Accounts  receivable,  net of the  allowance for doubtful  accounts,  represents
their  estimated net  realizable  value.  Provisions  for doubtful  accounts are
recorded  based  on  historical   collection  experience  and  the  age  of  the
receivables.   Accounts   receivable  are  written  off  when  they  are  deemed
uncollectible. See Note 2 - Accounts Receivable for additional information.

Inventories

Inventories  consist  of food  and  beverages  and are  valued  at the  lower of
weighted-average cost or market.

Land, Buildings and Equipment, Net

Land,   buildings  and   equipment   are  recorded  at  cost  less   accumulated
depreciation.  Repair and maintenance  costs incurred to maintain the appearance
and  functionality  of the land,  buildings and equipment that do not extend its
useful  life  or that  are  less  than $1 are  expensed  as  incurred.  Building
components are depreciated  over estimated useful lives ranging from seven to 40
years  using  the  straight-line  method.  Leasehold  improvements,   which  are
reflected on our  consolidated  balance sheets as a component of buildings,  are
amortized  over the lesser of the  expected  lease  term,  including  cancelable
option  periods,  or the estimated  useful lives of the related assets using the
straight-line  method.  Equipment is  depreciated  over  estimated  useful lives
ranging from two to ten years also using the straight-line  method.  Accelerated
depreciation  methods are generally  used for income tax purposes.  Depreciation
and  amortization  expense  associated with buildings and equipment  amounted to
$214,272, $206,552 and $203,349, in fiscal 2006, 2005 and 2004, respectively. In
fiscal 2006,  2005 and 2004,  we had losses on disposal of land,  buildings  and
equipment  of $2,719,  $1,164 and $104,  respectively,  which were  included  in
selling,  general and administrative  expenses. See Note 4 - Land, Buildings and
Equipment, net for additional information.

Capitalized Software Costs

Capitalized software,  which is a component of other assets, is recorded at cost
less  accumulated  amortization.  Capitalized  software is  amortized  using the
straight-line  method over  estimated  useful  lives  ranging  from three to ten
years.  The cost of  capitalized  software as of May 28, 2006 and May 29,  2005,
amounted to $56,412 and $51,292,


                                       22


respectively.  Accumulated  amortization  as of May 28,  2006 and May 29,  2005,
amounted to $25,437 and $19,877,  respectively.  Amortization expense associated
with capitalized software amounted to $7,184, $6,667 and $6,655, in fiscal 2006,
2005 and 2004, respectively.

Trust-Owned Life Insurance

In August 2001, we caused a trust that we previously had established to purchase
life insurance policies covering certain of our officers and other key employees
(trust-owned  life  insurance  or  TOLI).  The  trust  is  the  owner  and  sole
beneficiary  of the TOLI  policies.  The  policies  were  purchased  to offset a
portion of our obligations under our non-qualified  deferred  compensation plan.
The cash  surrender  value for each  policy is included  in other  assets  while
changes  in  cash  surrender  values  are  included  in  selling,   general  and
administrative expenses.

Liquor Licenses

The costs of obtaining non-transferable liquor licenses that are directly issued
by local  government  agencies for nominal  fees are  expensed as incurred.  The
costs of  purchasing  transferable  liquor  licenses  through  open  markets  in
jurisdictions   with  a  limited  number  of  authorized   liquor  licenses  are
capitalized and included in other assets. Annual liquor license renewal fees are
expensed.

Impairment of Long-Lived Assets

Land,  buildings and equipment and certain other assets,  including  capitalized
software costs and liquor licenses,  are reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of the assets to the future undiscounted net
cash flows expected to be generated by the assets.  Identifiable  cash flows are
measured at the lowest level for which they are largely  independent of the cash
flows of other groups of assets and  liabilities,  generally  at the  restaurant
level. If such assets are determined to be impaired,  the impairment  recognized
is measured  by the amount by which the  carrying  amount of the assets  exceeds
their fair value.  Fair value is generally  determined  based on  appraisals  or
sales prices of comparable assets.  Restaurant sites and certain other assets to
be disposed of are reported at the lower of their carrying amount or fair value,
less estimated  costs to sell.  Restaurant  sites and certain other assets to be
disposed of are included in assets held for disposal  when certain  criteria are
met. These criteria  include the requirement that the likelihood of disposing of
these assets  within one year is probable.  Assets not meeting the held for sale
criteria  remain in land,  buildings  and  equipment  until  their  disposal  is
probable within one year.

Insurance Accruals

Through the use of insurance program deductibles and self-insurance, we retain a
significant portion of expected losses under our workers' compensation, employee
medical  and  general  liability  programs.  However,  we  carry  insurance  for
individual  claims that  generally  exceed $250 for  workers'  compensation  and
general  liability claims.  Accrued  liabilities have been recorded based on our
estimates of the anticipated  ultimate costs to settle all claims, both reported
and unreported.

Revenue Recognition

Revenue from restaurant sales is recognized when food and beverage  products are
sold.  Unearned revenues represent our liability for gift cards and certificates
that have been sold but not yet  redeemed  and are  recorded  at their  expected
redemption  value.  When  the gift  cards  and  certificates  are  redeemed,  we
recognize restaurant sales and reduce unearned revenues.

Food and Beverage Costs

Food and beverage costs include  inventory,  warehousing and related  purchasing
and  distribution  costs.  Vendor  allowances  received in  connection  with the
purchase of a vendor's  products  are  recognized  as a reduction of the related
food and  beverage  costs as earned.  Advance  payments  are made by the vendors
based on estimates  of volume to be purchased  from the vendors and the terms of
the agreement.  As we make purchases from the vendors each period,  we recognize
the pro rata  portion of  allowances  earned as a reduction of food and beverage
costs for that period.  Differences  between  estimated and actual purchases are
settled in accordance  with the terms of the agreements.  Vendor  agreements are
generally  for a period of one year or more and payments  received are initially
recorded  as  long-term  liabilities.  Amounts  which are  expected to be earned
within one year are recorded as a current liability.


                                       23


Income Taxes

We provide for federal and state income taxes  currently  payable as well as for
those deferred  because of temporary  differences  between  reporting income and
expenses for financial  statement  purposes versus tax purposes.  Federal income
tax credits are recorded as a reduction of income taxes. Deferred tax assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in earnings in the period that  includes the
enactment date.

Income tax benefits  credited to equity relate to tax benefits  associated  with
amounts that are deductible for income tax purposes but do not affect  earnings.
These   benefits  are   principally   generated   from  employee   exercises  of
non-qualified stock options and vesting of employee restricted stock awards. See
Note 14 - Income Taxes for additional information.

Derivative Instruments and Hedging Activities

We  use  financial  and   commodities   derivatives  to  manage  interest  rate,
compensation and commodities pricing risks inherent in our business  operations.
Our use of derivative  instruments is currently limited to interest rate hedges,
equity forwards contracts and commodities  futures and options contracts.  These
instruments  are  structured  as  hedges  of  forecasted   transactions  or  the
variability of cash flows to be paid related to a recognized  asset or liability
(cash flow hedges).  No derivative  instruments  are entered into for trading or
speculative  purposes.  All  derivatives  are recognized on the balance sheet at
fair value. On the date the derivative contract is entered into, we document all
relationships  between  hedging  instruments  and hedged  items,  as well as our
risk-management  objective  and  strategy  for  undertaking  the  various  hedge
transactions.  This process includes linking all derivatives  designated as cash
flow hedges to specific assets and liabilities on the consolidated balance sheet
or to specific  forecasted  transactions.  We also formally assess,  both at the
hedge's  inception  and on an ongoing  basis,  whether the  derivatives  used in
hedging transactions are highly effective in offsetting changes in cash flows of
hedged items.

Changes in the fair value of derivatives  that are highly effective and that are
designated  and qualify as cash flow hedges are recorded in other  comprehensive
income (loss) until  earnings are affected by the  variability  in cash flows of
the designated  hedged item. Where  applicable,  we discontinue hedge accounting
prospectively  when it is determined that the derivative is no longer  effective
in offsetting  changes in the cash flows of the hedged item or the derivative is
terminated. Any changes in the fair value of a derivative where hedge accounting
has been discontinued or is ineffective are recognized  immediately in earnings.
Cash flows related to derivatives are included in operating activities. See Note
9 - Derivative Instruments and Hedging Activities for additional information.

Operating Leases

We recognize rent expense on a straight-line basis over the expected lease term,
including  cancelable option periods where failure to exercise the options would
result in an economic penalty to the Company.  Differences  between amounts paid
and amounts  expensed are recorded as deferred  rent.  Within the  provisions of
certain of our leases,  there are rent holidays and escalations in payments over
the base lease term, as well as renewal periods. The effects of the holidays and
escalations  have been reflected in rent expense on a  straight-line  basis over
the expected lease term, which includes  cancelable option periods where failure
to exercise such options would result in an economic penalty to the Company. The
lease term  commences  on the date when we have the right to control  the use of
the leased  property,  which is typically before rent payments are due under the
terms of the lease.  Many of our leases have renewal periods totaling five to 20
years,  exercisable  at our  option  and  require  payment  of  property  taxes,
insurance and  maintenance  costs in addition to the rent  payments.  Percentage
rent expense is  generally  based on sales levels and is accrued at the point in
time we determine that it is probable that such sales levels will be achieved.


                                       24

Pre-Opening Expenses

Non-capital expenditures associated with opening new restaurants are expensed as
incurred.

Advertising

Production  costs of commercials  are charged to operations in the fiscal period
the advertising is first aired. The costs of programming and other  advertising,
promotion and marketing  programs are charged to operations in the fiscal period
incurred.  Advertising expense,  included in selling, general and administrative
expenses,  amounted to $229,693, $214,608 and $210,989, in fiscal 2006, 2005 and
2004, respectively.

Stock-Based Compensation

Statement of Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for
Stock-Based  Compensation,"  encourages  the  use  of  a  fair-value  method  of
accounting for stock-based awards under which the fair value of stock options is
determined on the date of grant and expensed over the vesting period. As allowed
by SFAS No. 123, we have  elected to account  for our  stock-based  compensation
plans under an intrinsic value method that requires  compensation  expense to be
recorded only if, on the date of grant,  the current  market price of our common
stock exceeds the exercise price the employee must pay for the stock. Our policy
is to grant stock  options at the fair market value of our  underlying  stock on
the date of grant. Accordingly,  no compensation expense has been recognized for
stock options granted under any of our stock plans because the exercise price of
all options  granted was equal to the current  market  value of our stock on the
grant date.

Had we determined  compensation  expense for our stock options based on the fair
value at the grant date as  prescribed  under SFAS No. 123, our net earnings and
net  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated below:



                                                                             Fiscal Year
- --------------------------------------------------------------------------------------------------------
                                                                2006            2005            2004
- --------------------------------------------------------------------------------------------------------
                                                                                   
 Net earnings, as reported                                   $   338,194    $    290,606    $    227,173
    Add:  Stock-based compensation expense included in
        reported net earnings, net of related tax effects          5,366           5,134           3,158
    Deduct:  Total stock-based compensation expense
        determined under fair value based method for all
        awards, net of related tax effects                       (19,648)        (22,719)        (17,980)
                                                             -------------------------------------------
    Pro forma                                                $   323,912    $    273,021    $    212,351
                                                             ===========================================
 Basic net earnings per share
    As reported                                              $      2.26    $       1.85    $       1.39
    Pro forma                                                $      2.16    $       1.74    $       1.30
 Diluted net earnings per share
    As reported                                              $      2.16    $       1.78    $       1.34
    Pro forma                                                $      2.06    $       1.67    $       1.25
========================================================================================================


To determine  pro forma net  earnings,  reported net earnings have been adjusted
for compensation expense associated with stock options granted that are expected
to vest. The preceding pro forma results were determined using the Black Scholes
option-pricing model, which values options based on the stock price at the grant
date,  the expected life of the option,  the estimated  volatility of the stock,
expected  dividend  payments and the  risk-free  interest rate over the expected
life of the  option.  The  weighted-average  fair value of  non-qualified  stock
options  granted  during fiscal 2006,  2005 and 2004 used in computing pro forma
compensation  expense was $10.68,  $7.75 and $6.83,  respectively.  The dividend
yield was calculated by dividing the current  annualized  dividend by the option
exercise  price  for  each  grant.   The  expected   volatility  was  determined
considering stock prices for the fiscal year the grant occurred and prior fiscal
years, as well as considering  industry  volatility data. The risk-free interest
rate was the rate available on zero coupon U.S.  government  obligations  with a
term equal to the expected  life of each grant.  The expected life of the option
was estimated based on the exercise history from previous grants.


                                       25


The  weighted-average  assumptions  used  in the  Black  Scholes  model  were as
follows:



                                                                 Stock Options
                                                             Granted in Fiscal Year
- -------------------------------------------------------------------------------------------
                                                         2006         2005          2004
- -------------------------------------------------------------------------------------------
                                                                        
Risk-free interest rate                                  3.91%         3.75%        2.62%
Expected volatility of stock                             30.0%         30.0%        30.0%
Dividend yield                                           1.20%          0.3%         0.2%
Expected option life                                  6.0 years     6.0 years    6.0 years
===========================================================================================


Restricted  stock and  restricted  stock unit (RSU)  awards  are  recognized  as
unearned  compensation,  a component of stockholders'  equity, based on the fair
market value of our common stock on the award date.  These amounts are amortized
to compensation expense, using the straight-line method, over the vesting period
using  assumed  forfeiture  rates for  different  types of awards.  Compensation
expense is adjusted in future  periods if actual  forfeiture  rates  differ from
initial estimates.

In December 2004, the Financial  Accounting  Standards  Board (FASB) issued SFAS
No.  123  (Revised),  "Share-Based  Payment"  (SFAS No.  123R),  which  requires
companies to begin  expensing the estimated fair value of employee stock options
and similar  awards.  SFAS No. 123R is effective for our first fiscal quarter of
2007. We will adopt SFAS No. 123R according to the modified  prospective  method
and will continue using the Black Scholes  option-pricing  model to estimate the
fair  value of  awards  granted.  Modified  prospective  application  recognizes
compensation expense for new awards granted after the effective date of SFAS No.
123R and for unvested  awards as of the effective date of SFAS No. 123R over the
remaining  employee  service  period.  See Note 16 - Stock Plans for  additional
information on our various forms of stock-based compensation.

Net Earnings Per Share

Basic net  earnings  per share are  computed  by  dividing  net  earnings by the
weighted-average  number of common shares  outstanding for the reporting period.
Diluted net earnings per share reflect the  potential  dilution that could occur
if  securities  or other  contracts  to issue  common  stock were  exercised  or
converted  into common stock.  Outstanding  stock options and  restricted  stock
granted  by  us  represent  the  only  dilutive  effect   reflected  in  diluted
weighted-average shares outstanding.  Options and restricted stock do not impact
the numerator of the diluted net earnings per share computation.

The following table presents the  computation of basic and diluted  earnings per
common share:



                                                                   Fiscal Year
- -------------------------------------------------------------------------------------------
                                                        2006          2005          2004
- -------------------------------------------------------------------------------------------
                                                                        
Net earnings                                          $ 338,194     $ 290,606    $  227,173
                                                      =====================================

Average common shares outstanding - Basic               149,700       156,700       163,500
Effect of dilutive stock-based compensation               7,200         6,700         6,200
                                                      -------------------------------------
Average common shares outstanding - Diluted             156,900       163,400       169,700
                                                      =====================================

Basic net earnings per share                          $    2.26     $    1.85    $     1.39

Diluted net earnings per share                        $    2.16     $    1.78    $     1.34
===========================================================================================


Options to purchase 79 shares,  2,680  shares and 4,643  shares of common  stock
were excluded from the  calculation of diluted net earnings per share for fiscal
2006,  2005 and 2004,  respectively,  because their exercise prices exceeded the
average market price of common shares for the period.


                                       26


Comprehensive Income (Loss)

Comprehensive income (loss) includes net earnings and other comprehensive income
(loss) items that are excluded from net earnings under U.S.  generally  accepted
accounting  principles.  Other comprehensive income (loss) items include foreign
currency translation adjustments, the effective unrealized portion of changes in
the fair value of cash flow hedges and amounts  associated  with minimum pension
liability  adjustments.  See  Note  - 11  Stockholders'  Equity  for  additional
information.

Foreign Currency

The Canadian  dollar is the  functional  currency  for our  Canadian  restaurant
operations.   Assets  and  liabilities   denominated  in  Canadian  dollars  are
translated  into U.S.  dollars using the exchange rates in effect at the balance
sheet date.  Results of operations  are  translated  using the average  exchange
rates  prevailing  throughout  the  period.  Translation  gains and  losses  are
reported as a separate  component  of  accumulated  other  comprehensive  income
(loss) in stockholders'  equity.  Aggregate  cumulative  translation losses were
$4,846 and $8,724 at May 28, 2006 and May 29, 2005, respectively.  Gain (losses)
from foreign currency transactions,  which amounted to $60, ($18) and ($53), are
included in selling,  general and administrative  expenses for fiscal 2006, 2005
and 2004, respectively.

Segment Reporting

As of May 28, 2006, we operated 1,427 Red Lobster,  Olive Garden, Bahama Breeze,
Smokey Bones  Barbeque & Grill and Seasons 52  restaurants  in North  America as
operating  segments.  The restaurants operate principally in the U.S. within the
casual dining industry,  providing  similar products to similar  customers.  The
restaurants  also  possess  similar  pricing  structures,  resulting  in similar
long-term expected financial performance characteristics. Revenues from external
customers are derived  principally  from food and beverage sales. We do not rely
on any major  customers as a source of revenue.  We believe we meet the criteria
for aggregating our operating segments into a single reporting segment.

Future Application of Accounting Standards

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs." SFAS No. 151
clarifies  the  accounting  for  abnormal  amounts of idle  facilities  expense,
freight,  handling  costs and wasted  material.  SFAS No. 151 is  effective  for
inventory  costs incurred  during fiscal years beginning after June 15, 2005. We
do not believe the  adoption of SFAS No. 151 will have a material  impact on our
consolidated financial statements.

As previously disclosed,  in December 2004, the FASB issued SFAS No. 123R, which
revised the guidance in SFAS No. 123 and  generally  requires the cost of awards
of equity  instruments  granted in exchange  for  employee  services be measured
based on the grant-date  fair value of the award and recognized in the financial
statements  over the period  during  which  employees  are  required  to provide
service  in  exchange  for the  award.  SFAS No.  123R is  effective  for annual
reporting periods beginning after June 15, 2005. SFAS 123R also requires amounts
related  to  tax  deductions  on  benefits  provided  in  excess  of  recognized
stock-based compensation expense to be classified as a financing activity in our
consolidated  statements  of cash flows,  whereas  these  amounts are  currently
reported as operating  activities  in  accordance  with current  guidance.  This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods  subsequent  to the adoption of SFAS 123R.  During fiscal 2006,
2005 and 2004, we reported $34,316,  $42,996 and $15,650,  respectively,  as tax
deductions  in  excess  of  recognized  stock-based  compensation  expense  as a
component of operating cash flows in our consolidated  statements of cash flows.
We cannot  estimate  what these amounts will be in the future as they depend on,
among other things, when employees exercise stock options.

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes - an  interpretation of SFAS No. 109" (FIN 48). FIN 48 clarifies
the  accounting for uncertain  income tax positions  accounted for in accordance
with SFAS No. 109. The  Interpretation  stipulates  recognition  and measurement
criteria  in  addition  to   classification,   interim  period   accounting  and
significantly  expanded  disclosure  provisions for uncertain tax positions that
are  expected to be taken in a company's  tax return.  FIN 48 is  effective  for
fiscal years  beginning  after December 15, 2006. We have not yet determined the
impact  the  adoption  of  FIN  48  will  have  on  our  consolidated  financial
statements.


                                       27


Reclassification

Certain  fiscal 2005 and 2004  amounts  have been  reclassified  within net cash
provided by operating activities in the accompanying  consolidated statements of
cash flows to conform to 2006  classifications.  These  reclassifications do not
have an impact on the consolidated statements of earnings,  consolidated balance
sheets or  consolidated  statements  of  changes  in  stockholders'  equity  and
accumulated other comprehensive income (loss).

NOTE 2 - ACCOUNTS RECEIVABLE

Our accounts  receivable  is primarily  comprised of  receivables  from national
storage and  distribution  companies with which we contract to provide  services
that are billed to us on a per-case  basis.  In connection  with these services,
certain of our inventory  items are conveyed to these  storage and  distribution
companies  to  transfer  ownership  and risk of loss  prior to  delivery  of the
inventory to our  restaurants.  We reacquire  these items when the  inventory is
subsequently delivered to our restaurants.  These transactions do not impact the
consolidated  statements  of earnings.  Receivables  from  national  storage and
distribution  companies  amounted to $20,466 and $20,296 at May 28, 2006 and May
29, 2005, respectively.  The allowance for doubtful accounts associated with all
of our receivables amounted to $400 at May 28, 2006 and May 29, 2005.

NOTE 3 - RESTRUCTURING AND ASSET IMPAIRMENT ACTIVITIES

Asset impairment  charges related to the decision to close,  relocate or rebuild
certain restaurants amounted to $5,958, $900 and $5,667 in fiscal 2006, 2005 and
2004,  respectively.  Asset impairment  credits related to assets sold that were
previously impaired amounted to $596, $2,786 and $1,437 in fiscal 2006, 2005 and
2004,  respectively.  During  fiscal 2006,  we also  recorded  asset  impairment
charges of $4,312  for the  write-down  of  carrying  value of two Smokey  Bones
restaurants,  which we continue to operate. During fiscal 2005, we also recorded
asset  impairment  charges of $6,407 for the write-down of carrying value of two
Olive  Garden  restaurants,  one Red  Lobster  restaurant  and one Smokey  Bones
restaurant, which continued to operate through fiscal 2005 but were subsequently
closed in fiscal 2006. All impairment  amounts are included in asset  impairment
and restructuring charges in the consolidated statements of earnings.

During fiscal 2004, we recorded pre-tax asset impairment  charges of $36,526 for
long-lived  asset  impairments  associated with the closing of six Bahama Breeze
restaurants and the write-down of the carrying value of four other Bahama Breeze
restaurants,  one Olive Garden restaurant and one Red Lobster restaurant,  which
continued to operate,  except for the Olive Garden  restaurant,  which closed in
fiscal 2006. We also recorded a restructuring charge of $1,112 primarily related
to  severance  payments  made to  certain  restaurant  employees  and exit costs
associated  with the closing of the six Bahama Breeze  restaurants in accordance
with SFAS No.  146,  "Accounting  for  Costs  Associated  with Exit or  Disposal
Activities." All restructuring charges accrued were paid as of May 29, 2005.

The results of operations for all  restaurants  closed in fiscal 2006,  2005 and
2004  are not  material  to our  consolidated  financial  position,  results  of
operations or cash flows and, therefore, have not been presented as discontinued
operations.

NOTE 4 - LAND, BUILDINGS AND EQUIPMENT, NET

The components of land, buildings and equipment, net, are as follows:

                                             May 28, 2006      May 29, 2005
- ----------------------------------------------------------------------------
Land                                          $   603,203       $   565,965
Buildings                                       2,472,206         2,306,342
Equipment                                       1,052,214         1,036,143
Construction in progress                          100,932           107,750
- ----------------------------------------------------------------------------
Total land, buildings and equipment             4,228,555         4,016,200
Less accumulated depreciation                  (1,782,520)       (1,664,746)
- ----------------------------------------------------------------------------
Land, buildings, and equipment, net           $ 2,446,035       $ 2,351,454
============================================================================


                                       28


NOTE 5 - OTHER ASSETS

The components of other assets are as follows:



                                                                 May 28, 2006         May 29, 2005
- --------------------------------------------------------------------------------------------------
                                                                                  
Prepaid pension costs                                              $ 58,365             $  63,475
Trust-owned life insurance                                           49,905                43,873
Capitalized software costs, net                                      30,975                31,165
Liquor licenses                                                      24,988                24,570
Loan costs                                                            9,746                 8,008
Miscellaneous                                                        12,549                 7,960
- --------------------------------------------------------------------------------------------------
Total other assets                                                 $186,528             $ 179,051
==================================================================================================


NOTE 6 - SHORT-TERM DEBT

Short-term  debt at May 28, 2006 and May 29, 2005  consisted  of $44,000 and $0,
respectively,  of unsecured commercial paper borrowings with original maturities
of one month or less.  The debt bore an interest rate of 5.08 percent at May 28,
2006.

NOTE 7 - OTHER CURRENT LIABILITIES

The components of other current liabilities are as follows:



                                                                 May 28, 2006         May 29, 2005
- --------------------------------------------------------------------------------------------------
                                                                                  
Employee benefits                                                  $152,687             $ 134,272
Sales and other taxes                                                43,695                39,011
Insurance                                                            40,639                35,938
Miscellaneous                                                        36,660                34,458
Accrued interest                                                      9,628                10,499
- --------------------------------------------------------------------------------------------------
Total other current liabilities                                    $283,309             $ 254,178
==================================================================================================


NOTE 8 - LONG-TERM DEBT

The components of long-term debt are as follows:



                                                                 May 28, 2006         May 29, 2005
- --------------------------------------------------------------------------------------------------
                                                                                  
8.375% senior notes due September 2005                            $      --             $ 150,000
6.375% notes due February 2006                                           --               150,000
5.750% medium-term notes due March 2007                             150,000               150,000
4.875% senior notes due August 2010                                 150,000                    --
7.450% medium-term notes due April 2011                              75,000                75,000
7.125% debentures due February 2016                                 100,000               100,000
6.000% senior notes due August 2035                                 150,000                    --
ESOP loan with variable rate of interest (5.41% at May 28,
   2006) due December 2018                                           22,430                26,010
- --------------------------------------------------------------------------------------------------
Total long-term debt                                                647,430               651,010
Less issuance discount                                               (2,829)                 (763)
- --------------------------------------------------------------------------------------------------
Total long-term debt less issuance discount                         644,601               650,247
Less current portion                                               (149,948)             (299,929)
- --------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion                         $ 494,653             $ 350,318
==================================================================================================


On July 29, 2005, we filed a registration  statement with the SEC to register an
additional  $475,000 of debt securities  using a shelf  registration  process as
well as to carry  forward the $125,000 of debt  securities  available  under our
prior  registration  statement  filed  in July  2000.  Under  this  registration
statement,  which became effective on August 5, 2005, we may offer, from time to
time,  up to  $600,000 of our debt  securities.  On August 12,  2005,  we issued
$150,000 of unsecured 4.875 percent senior notes due in August 2010 and $150,000
of  unsecured   6.000  percent


                                       29


senior notes due in August 2035 under the registration  statement.  Discount and
issuance costs, which were $2,430 and $2,901, respectively,  are being amortized
over the terms of the senior notes using the straight-line  method,  the results
of which approximate those of the effective  interest rate method.  The proceeds
from the  issuance  of the  senior  notes  were  used to repay at  maturity  our
outstanding $150,000 of 8.375 percent senior notes on September 15, 2005 and our
outstanding  $150,000 of 6.375 percent notes on February 1, 2006.  Following the
issuance of these senior notes,  $300,000 of capacity remains  available for the
issuance of additional  unsecured debt securities  under our shelf  registration
statement.

We also maintain a credit  facility  under a Credit  Agreement  dated August 16,
2005 with a  consortium  of banks under which we can borrow up to  $500,000.  As
part of this  credit  facility,  we may  request  issuance  of up to $100,000 in
letters of credit,  the  outstanding  amount of which  reduces the net borrowing
capacity  under  the  agreement.  The  credit  facility  allows  us to borrow at
interest  rates that vary  based on a spread  over (i) LIBOR or (ii) a base rate
that is the  higher of the  prime  rate or  one-half  of one  percent  above the
federal  funds  rate,  at our  option.  The  interest  rate spread over LIBOR is
determined  by our  debt  rating.  We may  also  request  that  loans be made at
interest  rates  offered  by one or more of the  banks,  which may vary from the
LIBOR or base rate. The credit facility  supports our commercial paper borrowing
program and expires on August 15, 2010. We are required to pay a facility fee of
10 basis points per annum on the average daily amount of loan commitments by the
consortium. The amount of interest and annual facility fee are subject to change
based on our maintenance of certain debt ratings and financial  ratios,  such as
maximum  debt  to  capital  ratios.  Advances  under  the  credit  facility  are
unsecured.  As of May 28, 2006 and May 29, 2005, no borrowings  under the credit
facility were  outstanding.  However,  as of May 28, 2006,  there was $44,000 of
commercial paper and $15,000 of letters of credit outstanding,  which are backed
by this facility.  As of May 29, 2005,  there was no commercial paper or letters
of credit  outstanding  under the facility in place at that time.  As of May 28,
2006, we were in compliance with all covenants under the credit facility.

All of our  long-term  debt  currently  outstanding  is  expected  to be  repaid
entirely at maturity with interest being paid semi-annually over the life of the
debt.  The aggregate  maturities  of long-term  debt for each of the five fiscal
years  subsequent to May 28, 2006,  and  thereafter  are $150,000 in 2007, $0 in
2008, 2009 and 2010, $225,000 in 2011 and $272,430 thereafter.

NOTE 9 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use interest rate related  derivative  instruments  to manage our exposure on
debt instruments,  as well as commodities  derivatives to manage our exposure to
commodity price fluctuations.  We also use equity related derivative instruments
to manage our exposure on cash compensation  arrangements  indexed to the market
price of our common stock. By using these instruments, we expose ourselves, from
time to time, to credit risk and market risk.  Credit risk is the failure of the
counterparty  to perform under the terms of the  derivative  contract.  When the
fair value of a derivative contract is positive, the counterparty owes us, which
creates  credit  risk for us. We minimize  this  credit  risk by  entering  into
transactions with high quality counterparties. Market risk is the adverse effect
on the value of a financial  instrument  that  results from a change in interest
rates,  commodity  prices, or market price of our common stock. We minimize this
market risk by establishing  and monitoring  parameters that limit the types and
degree of market risk that may be undertaken.

Option Contracts and Commodity Swaps

During  fiscal 2006 and 2005,  we entered into option  contracts  and  commodity
swaps to reduce the risk of natural gas price fluctuations.  To the extent these
derivatives  are  effective in  offsetting  the  variability  of the hedged cash
flows,  changes  in the  derivatives'  fair  value are not  included  in current
earnings but are reported as  accumulated  other  comprehensive  income  (loss).
These changes in fair value are subsequently reclassified into earnings when the
natural gas is purchased and used by us in our operations. Net gains (losses) of
$4,281 and ($311) related to these  derivatives  were  reclassified  to earnings
during fiscal 2006 and 2005, respectively,  in connection with the settlement of
our contracts. The fair value of these contracts was a net loss of $3,042 at May
28, 2006 and is expected to be reclassified from accumulated other comprehensive
income (loss) into  restaurant  expenses during fiscal 2007. To the extent these
derivatives  are not  effective,  changes in their  fair  value are  immediately
recognized in current  earnings.  The fair value of  outstanding  derivatives is
included in other current assets or other current liabilities.

At May 28,  2006,  the  maximum  length of time over  which we are  hedging  our
exposure to the  variability in future  natural gas cash flows is 12 months.  No
gains or losses were  reclassified  into  earnings  during fiscal 2006 or fiscal
2005 as a result of the discontinuance of natural gas cash flow hedges.


                                       30


Interest Rate Lock Agreement

During  fiscal 2002,  we entered into a treasury  interest  rate lock  agreement
(treasury  lock) to  hedge  the risk  that  the  cost of a  future  issuance  of
fixed-rate  debt may be adversely  affected by interest rate  fluctuations.  The
treasury lock,  which had a $75,000  notional  principal amount of indebtedness,
was used to hedge a portion of the interest payments associated with $150,000 of
debt  subsequently  issued in March 2002.  The treasury  lock was settled at the
time of the related debt  issuance  with a net gain of $267 being  recognized in
other  comprehensive  income (loss).  The net gain on the treasury lock is being
amortized  into  earnings as an  adjustment  to interest  expense  over the same
period in which the related  interest  costs on the new debt  issuance are being
recognized in earnings. Annual amortization of $53 was recognized in earnings as
an adjustment to interest  expense during fiscal 2006,  2005 and 2004. We expect
that the  remaining  $40 of this  gain  will be  recognized  in  earnings  as an
adjustment to interest expense during fiscal 2007.

Interest Rate Swaps

During  fiscal  2005 and  fiscal  2004,  we  entered  into  interest  rate  swap
agreements (swaps) to hedge the risk of changes in interest rates on the cost of
a future issuance of fixed-rate debt. The swaps,  which had a $100,000  notional
principal amount of  indebtedness,  were used to hedge a portion of the interest
payments associated with $150,000 of unsecured 4.875 percent senior notes due in
August  2010,  which were issued in August 2005.  The  interest  rate swaps were
settled at the time of the related debt issuance with a net loss of $1,177 being
recognized in accumulated other comprehensive income (loss). The net loss on the
interest  rate  swaps is being  amortized  into  earnings  as an  adjustment  to
interest expense over the same period in which the related interest costs on the
new  debt  issuance  are  being  recognized  in  earnings.  A loss of  $177  was
recognized in earnings during fiscal 2006 as an adjustment to interest expense.

We also had interest  rate swaps with a notional  amount of  $200,000,  which we
used to convert  variable rates on our long-term  debt to fixed rates  effective
May 30, 1995,  related to the issuance of our $150,000  6.375  percent notes due
February 2006 and our $100,000  7.125 percent  debentures  due February 2016. We
received  the  one-month  commercial  paper  interest  rate and paid  fixed-rate
interest ranging from 7.51 percent to 7.89 percent. The interest rate swaps were
settled  during  January 1996 at a cost to us of $27,670.  A portion of the cost
was recognized as an adjustment to interest expense over the term of our 10-year
6.375  percent  notes that were  settled  at  maturity  in  February  2006.  The
remaining  portion  continues  to be  recognized  as an  adjustment  to interest
expense over the term of our 20-year 7.125 percent debentures due 2016.

Equity Forwards

During fiscal 2006 and 2005, we entered into equity  forward  contracts to hedge
the  risk  of  changes  in  future  cash  flows  associated  with  the  unvested
unrecognized Darden stock units granted during the first quarters of fiscal 2006
and 2005 (see Note 16 - Stock  Plans for  additional  information).  The  equity
forward  contracts  will be settled at the end of the  vesting  periods of their
underlying  Darden stock  units,  which range  between  four and five years.  In
total,  the equity  forward  contracts  are  indexed to 330 shares of our common
stock,  have an $8,264  notional  amount and can only be net settled in cash. To
the extent  the  equity  forward  contracts  are  effective  in  offsetting  the
variability  of the hedged cash  flows,  changes in the fair value of the equity
forward  contracts  are not  included in current  earnings  but are  reported as
accumulated other comprehensive income (loss). A deferred gain of $2,348 related
to  the  equity  forward   contracts  was   recognized  in   accumulated   other
comprehensive  income (loss) at May 28, 2006. As the Darden stock units vest, we
will effectively  de-designate  that portion of the equity forward contract that
no longer  qualifies for hedge  accounting and changes in fair value  associated
with that portion of the equity  forward  contract will be recognized in current
earnings.  Gains of $965 and $471 were  recognized in earnings as a component of
restaurant labor during fiscal 2006 and 2005, respectively.

During May 2006, we entered into an equity forward contract to hedge the risk of
changes in future cash flows  associated with employee  directed  investments in
Darden stock within the non-qualified  deferred compensation plan (see Note 15 -
Retirement  Plans for additional  information).  The equity forward  contract is
indexed to 100 shares of our common stock,  has a $3,744  notional  amount,  can
only be net  settled  in cash and  expires in May 2011.  We did not elect  hedge
accounting  with the  expectation  that  changes in the fair value of the equity
forward  contract  would  offset  changes in the fair value of the Darden  stock
investments in the non-qualified  deferred compensation plan within net earnings
in our consolidated  statements of earnings. A loss of $93 related to the equity
forward contract was recognized in net earnings during fiscal 2006.


                                       31


NOTE 10 - FINANCIAL INSTRUMENTS

The fair values of cash equivalents,  accounts receivable,  accounts payable and
short-term debt approximate their carrying amounts due to their short duration.

The carrying value and fair value of long-term debt at May 28, 2006 was $644,601
and $645,600,  respectively. The carrying value and fair value of long-term debt
at May 29,  2005 was  $650,247  and  $686,040,  respectively.  The fair value of
long-term debt is determined based on market prices or, if market prices are not
available,  the present  value of the  underlying  cash flows  discounted at our
incremental borrowing rates.

NOTE 11 - STOCKHOLDERS' EQUITY

Treasury Stock

On June 16,  2006,  our  Board  of  Directors  authorized  an  additional  share
repurchase  authorization  totaling  25,000  shares in addition to the  previous
authorization  of 137,400  shares.  In fiscal 2006,  2005 and 2004, we purchased
treasury stock totaling $434,187,  $311,686 and $235,462,  respectively.  At May
28,  2006,  a  total  of  132,528  shares  have  been   repurchased   under  the
authorizations.  The  repurchased  common  stock is  reflected as a reduction of
stockholders' equity.

Stock Purchase/Loan Program

We have share ownership  guidelines for our officers.  To assist them in meeting
these  guidelines,  we  implemented  the 1998 Stock  Purchase/Option  Award Loan
Program  (Loan  Program)  in  conjunction  with our Stock  Option and  Long-Term
Incentive  Plan of 1995.  The Loan  Program  provided  loans to our officers and
awarded two options for every new share  purchased,  up to a maximum total share
value equal to a designated percentage of the officer's base compensation. Loans
are full recourse and interest  bearing,  with a maximum  principal amount of 75
percent  of the value of the stock  purchased.  The stock  purchased  is held on
deposit with us until the loan is repaid.  The interest rate for loans under the
Loan Program is fixed and is equal to the  applicable  federal rate for mid-term
loans with  semi-annual  compounding for the month in which the loan originates.
Interest is payable on a weekly basis. Loan principal is payable in installments
with 25  percent,  25 percent and 50 percent of the total loan due at the end of
the fifth, sixth and seventh years of the loan, respectively. Effective July 30,
2002, and in compliance with the  Sarbanes-Oxley Act of 2002, we no longer issue
new loans under the Loan  Program.  We account  for  outstanding  officer  notes
receivable as a reduction of stockholders' equity.

Stockholders' Rights Plan

Under our Rights  Agreement  dated May 16, 2005,  each share of our common stock
has associated  with it one right to purchase  one-thousandth  of a share of our
Series A Participating  Cumulative  Preferred Stock at a purchase price of $120,
subject to  adjustment  under certain  circumstances  to prevent  dilution.  The
rights are  exercisable  when,  and are not  transferable  apart from our common
stock  until,  a person or group has  acquired  15 percent  or more,  or makes a
tender  offer for 15 percent  or more,  of our common  stock.  If the  specified
percentage  of our common  stock is then  acquired,  each right will entitle the
holder  (other than the acquiring  company) to receive,  upon  exercise,  common
stock of either us or the  acquiring  company  having a value equal to two times
the  exercise  price of the right.  The rights  are  redeemable  by our Board of
Directors under certain circumstances and expire on May 25, 2015.

Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) are as follows:



                                                                 May 28, 2006         May 29, 2005
- ---------------------------------------------------------------------------------------------------
                                                                                  
Foreign currency translation adjustment                            $ (4,846)            $   (8,724)
Unrealized gains (losses) on derivatives, net of tax                   (187)                   345
Minimum pension liability adjustment, net of tax                       (537)                  (497)
- ---------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income (loss)                $ (5,570)            $   (8,876)
===================================================================================================


Reclassification  adjustments  associated  with  pre-tax net  derivative  income
(losses)  realized in net earnings for fiscal  2006,  2005 and 2004  amounted to
$5,029, $213 and $(386), respectively.


                                       32


NOTE 12 - LEASES

An analysis of rent expense incurred under operating leases is as follows:

                                                         Fiscal Year
- -------------------------------------------------------------------------------
                                              2006          2005         2004
- -------------------------------------------------------------------------------
Restaurant minimum rent                    $  67,150     $  62,116    $  56,462
Restaurant percentage rent                     4,708         4,036        3,820
Restaurant equipment minimum rent                  5             7           57
Restaurant rent averaging expense              6,886         7,636        7,522
Transportation equipment                       2,580         3,083        2,514
Office equipment                               1,112         1,200        1,302
Office space                                   1,296         1,129        1,286
Warehouse space                                  354           325          315
- -------------------------------------------------------------------------------
Total rent expense                         $  84,091     $  79,532    $  73,278
===============================================================================

The annual  non-cancelable  future lease commitments for each of the five fiscal
years subsequent to May 28, 2006 and thereafter are: $72,876 in 2007, $66,646 in
2008, $57,859 in 2009, $49,776 in 2010, $43,270 in 2011 and $134,987 thereafter,
for a cumulative total of $425,414.

NOTE 13 - INTEREST, NET

The components of interest, net, are as follows:

                                                         Fiscal Year
- --------------------------------------------------------------------------------
                                             2006          2005         2004
- --------------------------------------------------------------------------------
Interest expense                           $  48,922     $  47,656    $  47,710
Capitalized interest                          (2,696)       (3,182)      (3,500)
Interest income                               (3,121)       (1,355)        (551)
- --------------------------------------------------------------------------------
Interest, net                              $  43,105     $  43,119    $  43,659
================================================================================

Capitalized  interest was computed  using our average  borrowing  rate.  We paid
$40,305, $39,083 and $39,661 for interest (net of amounts capitalized) in fiscal
2006, 2005 and 2004, respectively.

NOTE 14 - INCOME TAXES

The  components  of earnings  before  income taxes and the  provision for income
taxes thereon are as follows:

                                                         Fiscal Year
- -------------------------------------------------------------------------------
                                             2006          2005         2004
- -------------------------------------------------------------------------------

Earnings before income taxes:
      U.S.                                 $  475,017    $ 416,905    $ 328,577
      Canada                                    7,501        7,012        4,199
- -------------------------------------------------------------------------------
Earnings before income taxes               $  482,518    $ 423,917    $ 332,776
- -------------------------------------------------------------------------------
Income taxes:
  Current:
      Federal                              $  147,174    $ 137,549    $  75,121
      State and local                          26,900       20,438       13,663
      Canada                                       46           46          131
- -------------------------------------------------------------------------------
    Total current                          $  174,120    $ 158,033    $  88,915
- -------------------------------------------------------------------------------
  Deferred (principally U.S.)                 (29,796)     (24,722)      16,688
- -------------------------------------------------------------------------------
Total income taxes                         $  144,324    $ 133,311    $ 105,603
===============================================================================

During fiscal 2006,  2005 and 2004,  we paid income taxes of $126,279,  $111,386
and $92,265, respectively.


                                       33


The following table is a reconciliation of the U.S. statutory income tax rate to
the  effective  income  tax  rate  included  in  the  accompanying  consolidated
statements of earnings:

                                                         Fiscal Year
- -------------------------------------------------------------------------------
                                                2006          2005         2004
- -------------------------------------------------------------------------------
U.S. statutory rate                             35.0%        35.0%        35.0%
State and local income taxes, net of
  federal tax benefits                           3.1          2.9          3.2
Benefit of federal income tax credits           (5.8)        (5.0)        (5.2)
Other, net                                      (2.4)        (1.5)        (1.3)
- -------------------------------------------------------------------------------
Effective income tax rate                       29.9%        31.4%        31.7%
===============================================================================

The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities are as follows:

                                                 May 28, 2006      May 29, 2005
- --------------------------------------------------------------------------------
Accrued liabilities                              $    16,988       $     18,016
Compensation and employee benefits                    91,479             76,680
Deferred rent and interest income                     35,735             33,149
Asset disposition                                        705              2,239
Other                                                  6,160              4,537
- --------------------------------------------------------------------------------
  Gross deferred tax assets                      $   151,067       $    134,621
- --------------------------------------------------------------------------------
Buildings and equipment                             (134,358)          (145,421)
Prepaid pension costs                                (22,090)           (24,115)
Prepaid interest                                      (1,102)            (1,205)
Capitalized software and other assets                (10,572)           (11,334)
Other                                                 (3,968)            (3,808)
- --------------------------------------------------------------------------------
  Gross deferred tax liabilities                 $  (172,090)      $   (185,883)
- --------------------------------------------------------------------------------
  Net deferred tax liabilities                   $   (21,023)      $    (51,262)
================================================================================

A valuation allowance for deferred tax assets is provided when it is more likely
than not  that  some  portion  or all of the  deferred  tax  assets  will not be
realized.  Realization is dependent upon the generation of future taxable income
or the  reversal of deferred tax  liabilities  during the periods in which those
temporary  differences become deductible.  We consider the scheduled reversal of
deferred  tax  liabilities,  projected  future  taxable  income and tax planning
strategies  in making  this  assessment.  At May 28, 2006 and May 29,  2005,  no
valuation  allowance  has been  recognized  for deferred  tax assets  because we
believe that  sufficient  projected  future  taxable income will be generated to
fully utilize the benefits of these deductible amounts.

NOTE 15- RETIREMENT PLANS

Defined Benefit Plans and Postretirement Benefit Plan

Substantially  all of our employees are eligible to  participate in a retirement
plan. We sponsor non-contributory defined benefit pension plans for our salaried
employees, in which benefits are based on various formulas that include years of
service and compensation factors and for a group of hourly employees, in which a
fixed level of benefits is provided.  Pension plan assets are primarily invested
in  U.S.,   international  and  private  equities,  long  duration  fixed-income
securities  and real  assets.  Our policy is to fund,  at a minimum,  the amount
necessary on an actuarial  basis to provide for benefits in accordance  with the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
We also sponsor a contributory  postretirement benefit plan that provides health
care benefits to our salaried  retirees.  During fiscal 2006,  2005 and 2004, we
funded the defined  benefit  pension plans in the amount of $270,  $103 and $85,
respectively.  We expect to contribute approximately $400 to our defined benefit
pension plans during fiscal 2007.  During fiscal 2006,  2005 and 2004, we funded
the  postretirement  benefit  plan  in  the  amount  of  $410,  $472  and  $172,
respectively.  We expect to contribute  approximately $400 to our postretirement
benefit plan during fiscal 2007.


                                       34


The  following  provides a  reconciliation  of the  changes in the plan  benefit
obligation,  fair value of plan assets and the funded  status of the plans as of
February 28, 2006 and 2005:



                                              Defined Benefit Plans         Postretirement Benefit Plan
- --------------------------------------------------------------------------------------------------------
                                                   2006        2005                    2006        2005
- --------------------------------------------------------------------------------------------------------
                                                                                  
Change in Benefit Obligation:
Benefit obligation at beginning of period     $ 158,196   $ 143,689               $  16,370   $  16,885
  Service cost                                    5,199       4,840                     679         699
  Interest cost                                   8,059       7,315                     933       1,006
  Participant contributions                          --          --                     167         145
  Benefits paid                                  (6,993)     (5,387)                   (646)       (544)
  Actuarial loss (gain)                           3,845       7,739                     187      (1,821)
- --------------------------------------------------------------------------------------------------------
Benefit obligation at end of period           $ 168,306   $ 158,196               $  17,690   $  16,370
========================================================================================================

Change in Plan Assets:
Fair value at beginning of period             $ 158,115   $ 145,252               $      --   $      --
  Actual return on plan assets                   23,989      18,162                      --          --
  Employer contributions                            209          88                     479         399
  Participant contributions                          --          --                     167         145
  Benefits paid                                  (6,993)     (5,387)                   (646)       (544)
- -----------------------------------------------------------------------------------------------------=--
Fair value at end of period                   $ 175,320   $ 158,115               $      --   $      --
========================================================================================================

Reconciliation of the Plan's Funded Status:
Funded status at end of period                $   7,014   $     (81)              $ (17,690)   $(16,370)
  Unrecognized prior service cost                   319         (22)                     --          --
  Unrecognized actuarial loss                    46,700      59,379                   4,272       4,292
  Contributions for March to May                     98          37                      81         150
- --------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit costs               $  54,131   $  59,313               $ (13,337)   $(11,928)
========================================================================================================

Components of the Consolidated Balance
Sheets:
Prepaid benefit costs                         $  58,365   $  63,475               $      --   $      --
Accrued benefit costs                            (5,110)     (4,974)                (13,337)    (11,928)
Accumulated other comprehensive loss                876         812                      --          --
- --------------------------------------------------------------------------------------------------------
Net asset (liability) recognized              $  54,131   $  59,313               $ (13,337)  $ (11,928)
========================================================================================================


The  accumulated  benefit  obligation  for all pension  plans was  $160,835  and
$150,841 at May 28, 2006 and May 29, 2005, respectively. The accumulated benefit
obligation  and fair value of plan  assets for  pension  plans with  accumulated
benefit  obligations in excess of plan assets were $5,209 and $0,  respectively,
at February 28, 2006 and $5,011 and $0, respectively,  at February 28, 2005. The
projected   benefit   obligation  for  pension  plans  with  projected   benefit
obligations  in excess of plan assets  approximated  their  accumulated  benefit
obligation at February 28, 2006 and February 28, 2005.


                                       35


The following table presents the weighted-average  assumptions used to determine
benefit obligations and net expense:



                                                        Defined Benefit Plans      Postretirement Benefit Plan
- --------------------------------------------------------------------------------------------------------------
                                                          2006          2005           2006            2005
- --------------------------------------------------------------------------------------------------------------
                                                                                           
Weighted-average assumptions used to determine
  benefit obligations at May 28 and May 29, (1)
    Discount rate                                         5.75%         5.75%          5.75%           5.75%
    Rate of future compensation increases                 3.75%         3.75%           N/A             N/A

Weighted-average assumptions used to determine
  net expense for fiscal years ended May 28 and
  May 29,(2)
    Discount rate                                         5.75%         6.00%          5.75%           6.00%
    Expected long-term rate of return on plan assets      9.00%         9.00%           N/A             N/A
    Rate of future compensation increases                 3.75%         3.75%           N/A             N/A
==============================================================================================================


(1)   Determined as of the end of fiscal year

(2)   Determined as of the beginning of fiscal year

We set the  discount  rate  assumption  annually  for each of the plans at their
valuation  dates  to  reflect  the  yield  of  high-quality   fixed-income  debt
instruments,  with lives that approximate the maturity of the plan benefits. The
expected  long-term  rate of return on plan  assets and  health  care cost trend
rates are based upon  several  factors,  including  our  historical  assumptions
compared with actual results,  an analysis of current market  conditions,  asset
allocations  and the views of leading  financial  advisers and  economists.  Our
target asset allocation is 35 percent U.S.  equities,  30 percent  high-quality,
long-duration  fixed-income  securities,  15 percent international  equities, 10
percent real assets and 10 percent private equities. We monitor our actual asset
allocation to ensure that it approximates our target allocation and believe that
our  long-term  asset   allocation  will  continue  to  approximate  our  target
allocation.   The  defined  benefit  pension  plans  have  the  following  asset
allocations  at  their   measurement  dates  of  February  28,  2006  and  2005,
respectively:



- -----------------------------------------------------------------------------------------------
                                                                       2006               2005
- -----------------------------------------------------------------------------------------------
                                                                                    
U.S. equities                                                           37%                37%
High-quality, long-duration fixed-income securities                     21%                24%
International equities                                                  21%                20%
Real assets                                                             12%                13%
Private equities                                                         9%                 6%
- -----------------------------------------------------------------------------------------------
Total                                                                  100%               100%
===============================================================================================


For fiscal 2004 through 2006 we have used an expected  long-term  rate of return
on plan assets for our  defined  benefit  plan of 9.0  percent.  Our  historical
ten-year rate of return on plan assets,  calculated  using the geometric  method
average of returns, is approximately 10.7 percent as of May 28, 2006.

The  discount  rate  and  expected  return  on plan  assets  assumptions  have a
significant  effect on amounts  reported for defined  benefit  pension  plans. A
quarter  percentage point change in the defined benefit plans' discount rate and
the expected  long-term rate of return on plan assets would increase or decrease
earnings before income taxes by $709 and $367, respectively.

The assumed health care cost trend rate increase in the  per-capita  charges for
benefits  ranged from 8.0 percent to 9.0 percent for fiscal  2007,  depending on
the  medical  service  category.  The rates  gradually  decrease  to 5.0 percent
through fiscal 2011 and remain at that level thereafter.

The  assumed  health  care cost trend rate has a  significant  effect on amounts
reported for retiree health care plans. A  one-percentage-point  variance in the
assumed  health care cost trend rate would increase or decrease the total of the
service and interest cost components of net periodic postretirement benefit cost
by $630 and $489,  respectively,  and would increase or decrease the accumulated
postretirement benefit obligation by $3,890 and $3,040, respectively.


                                       36


Components of net periodic benefit cost are as follows:



                                                         Defined Benefit Plans           Postretirement Benefit Plan
- --------------------------------------------------------------------------------------------------------------------
                                                      2006        2005        2004        2006       2005       2004
- --------------------------------------------------------------------------------------------------------------------
                                                                                           
Service cost                                      $  5,199    $  4,840    $  4,516     $   679    $   699    $   626
Interest cost                                        8,059       7,315       7,076         933      1,005        919
Expected return on plan assets                     (13,216)    (12,841)    (12,821)         --         --         --
Amortization of unrecognized prior service cost         85        (348)       (348)         --         --         29
Recognized net actuarial loss                        5,324       4,992       3,710         207        346        334
- --------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                         $  5,451    $  3,958    $  2,133     $ 1,819    $ 2,050    $ 1,908
====================================================================================================================


The following benefit payments are expected to be paid:



- -----------------------------------------------------------------------------------------------------------------
                                                                             Defined Benefit      Postretirement
                                                                                  Plans            Benefit Plan
- -----------------------------------------------------------------------------------------------------------------
                                                                                                     
    2007                                                                            $ 7,319                $  340
    2008                                                                              7,069                   386
    2009                                                                              7,034                   453
    2010                                                                              7,045                   503
    2011                                                                              7,140                   571
    2012-2016                                                                        39,412                 4,099


Defined Contribution Plan

We have a defined contribution plan covering most employees age 21 and older. We
match contributions for participants with at least one year of service up to six
percent of  compensation,  based on our  performance.  The match  ranges  from a
minimum of $0.25 to $1.20 for each dollar  contributed by the  participant.  The
plan had net assets of $527,653 at May 28,  2006 and  $498,125 at May 29,  2005.
Expense recognized in fiscal 2006, 2005 and 2004 was $1,446,  $2,713 and $2,666,
respectively.  Employees  classified as "highly  compensated" under the Internal
Revenue  Code are not  eligible to  participate  in this plan.  Instead,  highly
compensated  employees are eligible to participate  in a separate  non-qualified
deferred  compensation  plan. This plan allows  eligible  employees to defer the
payment of all or part of their annual  salary and bonus and provides for awards
that approximate the matching  contributions and other amounts that participants
would  have  received  had they been  eligible  to  participate  in our  defined
contribution  and defined benefit plans.  Amounts payable to highly  compensated
employees under the  non-qualified  deferred  compensation plan totaled $124,668
and $108,407 at May 28, 2006 and May 29, 2005,  respectively.  These amounts are
included in other current liabilities.

The defined  contribution plan includes an Employee Stock Ownership Plan (ESOP).
This ESOP originally borrowed $50,000 from third parties, with guarantees by us,
and borrowed  $25,000 from us at a variable  interest  rate.  The $50,000  third
party  loan  was  refinanced  in 1997 by a  commercial  bank's  loan to us and a
corresponding  loan from us to the ESOP.  Compensation  expense is recognized as
contributions   are   accrued.   In  addition  to  matching   plan   participant
contributions,  our  contributions  to the  plan are  also  made to pay  certain
employee incentive bonuses. Fluctuations in our stock price impact the amount of
expense  to be  recognized.  Contributions  to  the  plan,  plus  the  dividends
accumulated  on allocated and  unallocated  shares held by the ESOP, are used to
pay  principal,  interest and expenses of the plan.  As loan  payments are made,
common stock is allocated to ESOP  participants.  In fiscal 2006, 2005 and 2004,
the ESOP incurred interest expense of $1,060, $677 and $473,  respectively,  and
used  dividends  received  of  $2,978,  $1,235  and  $454,   respectively,   and
contributions  received from us of $1,668, $3,389 and $4,093,  respectively,  to
pay principal and interest on our debt.

ESOP shares are included in average  common shares  outstanding  for purposes of
calculating net earnings per share. At May 28, 2006, the ESOP's debt to us had a
balance of $22,430 with a variable rate of interest of 5.41  percent;  $5,530 of
the principal  balance is due to be repaid no later than December 2007, with the
remaining  $16,900 due to be repaid no later than December  2014.  The number of
our common  shares held in the ESOP at May 28, 2006  approximated  8,829 shares,
representing 4,119 allocated shares, 2 committed-to-be-released shares and 4,708
suspense shares.

At the end of  fiscal  2005,  the ESOP  borrowed  $1,606  from us at a  variable
interest rate and acquired an  additional  50 shares of our common stock,  which
were held in suspense  within the ESOP at May 29,  2005.  The loan,  which had a
variable  interest  rate of 5.41 percent at May 28, 2006, is due to be repaid no
later than December 2018. The


                                       37


shares  acquired under this loan are accounted for in accordance  with Statement
of Position  (SOP) 93-6,  "Employers  Accounting  for Employee  Stock  Ownership
Plans."  Fluctuations in our stock price are recognized as adjustments to common
stock and  surplus  when the shares are  committed  to be  released.  These ESOP
shares are not  considered  outstanding  until they are committed to be released
and, therefore, have been excluded for purposes of calculating basic and diluted
net earnings  per share at May 28,  2006.  The fair value of these shares at May
28, 2006 was $1,727.

NOTE 16 - STOCK PLANS

We maintain  one active stock option and stock grant plan under which new awards
may still be issued:  the 2002 Stock  Incentive  Plan (2002 Plan).  We also have
three  other  stock  option and stock  grant  plans under which we no longer can
grant new awards, although awards outstanding under the plans may still vest and
be  exercised  in  accordance  with their  terms:  the Stock Plan for  Directors
(Director  Stock Plan),  the Stock Option and Long-Term  Incentive  Plan of 1995
(1995 Plan) and the Restaurant  Management and Employee Stock Plan of 2000 (2000
Plan). All of the plans are  administered by the  Compensation  Committee of the
Board of  Directors.  The 2002 Plan  provides  for the  issuance  of up to 8,550
common shares in connection  with the granting of  non-qualified  stock options,
incentive stock options,  stock appreciation  rights,  stock awards,  restricted
stock,  RSUs,  stock awards and other  stock-based  awards to key  employees and
non-employee  directors.  Up to 1,700  shares may be  granted  under the plan as
restricted  stock and RSUs. The Director Stock Plan provided for the issuance of
up to 375 common shares out of our treasury in  connection  with the granting of
non-qualified   stock  options,   restricted  stock  and  RSUs  to  non-employee
directors.  No new awards could be granted  under the Director  Stock Plan after
September  30,  2005.  The 1995 Plan  provided  for the issuance of up to 33,300
common shares in connection  with the granting of  non-qualified  stock options,
restricted  stock or RSUs to key  employees.  The  2000  Plan  provided  for the
issuance  of up to  5,400  shares  of  common  stock  out  of  our  treasury  as
non-qualified  stock options,  restricted stock, or RSUs. As noted above, no new
awards  may be made under the  Director  Stock  Plan,  the 1995 Plan or the 2000
Plan,  although  awards  outstanding  under  those  plans may still  vest and be
exercised in accordance with their terms.  Under all of the plans, stock options
are  granted  at a price  equal to the fair  value of the  shares at the date of
grant, for terms not exceeding ten years and have various vesting periods at the
discretion of the Compensation  Committee.  Outstanding  options  generally vest
over one to four years.  Restricted  stock and RSUs granted under the 1995, 2000
and 2002 Plans  generally vest over periods ranging from three to five years and
no sooner  than one year  from the date of  grant.  The  restricted  period  for
certain grants may be accelerated  based on performance goals established by the
Compensation Committee.

On June 16, 2006,  the Board of Directors  adopted  amendments to the 2002 Plan,
subject to approval by the Company's  shareholders at the 2006 annual meeting of
shareholders. If approved by the shareholders, the amendments would, among other
things:  (a)  increase  the  maximum  number of shares that are  authorized  for
issuance  under the 2002 Plan from 8,550 to 9,550;  (b)  implement  a  "fungible
share  pool"  approach  to  manage  authorized  shares in order to  improve  the
flexibility of awards going  forward,  and eliminate the limits on the number of
restricted  stock and  restricted  stock unit awards and the number of awards to
non-employee  directors;  and (c) provide  that,  in  determining  the number of
shares  available  for grant,  a formula  will be  applied  such that all future
awards other than stock options and stock appreciation rights will be counted as
double the number of shares covered by such award.

We also maintained the Compensation Plan for Non-Employee  Directors.  This plan
provided  that  non-employee  directors  could  elect to  receive  their  annual
retainer  and meeting  fees in any  combination  of cash,  deferred  cash or our
common shares and  authorized the issuance of up to 106 common shares out of our
treasury  for this  purpose.  The common  shares were issued under the plan at a
value  equal to the market  price in  consideration  of  foregone  retainer  and
meeting  fees.  No new  awards  could be made  under the  Compensation  Plan for
Non-Employee Directors after September 30, 2005.

On December 15, 2005, the Board of Directors approved the Director  Compensation
Program, effective as of October 1, 2005, which replaced the Director Stock Plan
and the Compensation Plan for Non-Employee Directors.  The Director Compensation
Program  provides  for  payments  to  non-employee  directors  of: (a) an annual
retainer and meeting fees for regular or special  Board  meetings and  committee
meetings;  (b) an initial award of non-qualified  stock options to purchase 12.5
shares of common  stock upon  becoming a director  of the  Company for the first
time;  (c) an  additional  award of  non-qualified  stock  options to purchase 3
shares of common stock annually upon election or  re-election to the Board;  and
(d) an annual award of common stock with a fair market value of $100 on the date
of


                                       38


grant.  Directors  may  elect  to  have  their  cash  compensation  paid  in any
combination  of current or deferred  cash,  common  stock or salary  replacement
options.  Deferred cash compensation may be invested on a tax-deferred  basis in
the  same  manner  as  deferrals  under  the  Company's  non-qualified  deferred
compensation plan.  Directors may elect to have their annual stock award paid in
the form of common stock or cash, or a  combination  thereof,  or deferred.  All
stock  options  and  other  stock  or  stock-based  awards  that are part of the
compensation paid or deferred pursuant to the Director  Compensation Program are
awarded under the 2002 Plan.

Stock option activity during the periods indicated was as follows:



                                                      Weighted-Average                          Weighted-Average
                                     Options           Exercise Price           Options          Exercise Price
                                   Exercisable            Per Share           Outstanding           Per Share
- ----------------------------------------------------------------------------------------------------------------
                                                                                         
Balance at May 25, 2003                 13,481            $  9.59                 26,692             $ 13.73
- ----------------------------------------------------------------------------------------------------------------
Options granted                                                                    3,337               20.36
Options exercised                                                                 (3,464)              10.01
Options cancelled                                                                   (911)              18.98
- ----------------------------------------------------------------------------------------------------------------
Balance at May 30, 2004                 14,380            $ 11.00                 25,654             $ 14.91
- ----------------------------------------------------------------------------------------------------------------
Options granted                                                                    2,148               21.88
Options exercised                                                                 (6,615)              10.51
Options cancelled                                                                   (608)              21.20
- ----------------------------------------------------------------------------------------------------------------
Balance at May 29, 2005                 11,880            $ 13.28                 20,579             $ 16.86
- ----------------------------------------------------------------------------------------------------------------
Options granted                                                                    2,086               33.29
Options exercised                                                                 (3,909)              14.23
Options cancelled                                                                   (528)              22.43
- ----------------------------------------------------------------------------------------------------------------
Balance at May 28, 2006                 11,970            $ 15.71                 18,228             $ 19.15
- ----------------------------------------------------------------------------------------------------------------


The following table provides information  regarding  exercisable and outstanding
options at May 28, 2006:



                                                                                                   Weighted-
                                              Weighted-                           Weighted-         Average
        Range of                               Average                             Average         Remaining
        Exercise              Options         Exercise           Options          Exercise        Contractual
    Price Per Share         Exercisable    Price Per Share     Outstanding     Price Per Share    Life (Years)
- --------------------------------------------------------------------------------------------------------------
                                                                                        
    $ 4.00 - $10.00                850         $  6.14                850          $  6.14             1.2
    $10.01 - $15.00              5,378           12.01              5,378            12.01             3.2
    $15.01 - $20.00              3,464           17.40              4,675            17.89             5.9
    $20.01 - $25.00                882           22.44              3,039            21.82             7.6
      Over $25.00                1,396           27.36              4,286            30.16             7.6
- --------------------------------------------------------------------------------------------------------------
                                11,970         $ 15.71             18,228          $ 19.15             5.6
==============================================================================================================


We granted  restricted stock and RSUs during fiscal 2006, 2005 and 2004 totaling
514, 501 and 513, respectively. The per share weighted-average fair value of the
awards  granted in fiscal  2006,  2005 and 2004 was  $33.39,  $21.82 and $19.45,
respectively.  After giving  consideration to vesting terms,  assumed forfeiture
rates and subsequent forfeiture adjustments,  compensation expense recognized in
net  earnings  for awards  granted in fiscal  2006,  2005 and 2004  amounted  to
$7,386,  $7,464 and $4,198,  respectively.  At May 28, 2006 and May 29, 2005, we
had 1,479 and 1,334, respectively, of restricted stock and RSU's outstanding.

During  fiscal  2006 and 2005,  we issued  Darden  stock  units to  certain  key
employees.  The Darden  stock units were  granted at a value equal to the market
price of our  common  stock at the date of grant and will be  settled in cash at
the end of their vesting  periods,  which range between four and five years,  at
the then  market  price of our common  stock.  Compensation  expense is measured
based on the market price of our common stock each period and is amortized  over
the  vesting  period.  At May 28,  2006  and May 29,  2005,  we had 675 and 437,
respectively,  Darden  stock  units  outstanding.  No Darden  stock  units  were
outstanding during fiscal 2004.


                                       39


NOTE 17 - EMPLOYEE STOCK PURCHASE PLAN

We maintain  the Darden  Restaurants  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) an
opportunity  to  purchase  shares  of  our  common  stock,  subject  to  certain
limitations.  Under the plan,  up to an aggregate of 3,600 shares are  available
for purchase by employees at the lower of 85 percent of the fair market value of
our  common  stock  as of the  first  or last  trading  days  of each  quarterly
participation  period.  During fiscal 2006, 2005 and 2004,  employees  purchased
shares of common stock under the plan totaling  227, 266 and 319,  respectively.
At May 28, 2006, an additional 1,466 shares were available for issuance.

No  compensation  expense has been  recognized for shares issued under the plan.
The impact of recognizing compensation expense for purchases made under the plan
in accordance with the fair value method  specified in SFAS No. 123 is less than
$1,200,  net of related tax effects,  in each of fiscal 2006,  2005 and 2004 and
would have had no impact on reported  basic or diluted net  earnings  per share.
Upon  adoption of SFAS No. 123R in the first  quarter of fiscal  2007,  expenses
related to the plan will be  required  to be  recognized  in net  earnings.  The
impact of the plan will approximate the amounts  determined under the fair value
method  specified in SFAS No. 123 disclosed  above and are included in the total
estimated fiscal 2007 impact of adoption of SFAS No. 123R disclosed in Note 1.

NOTE 18 - 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 28,  2006 and May 29,  2005,  we had
$77,181  and  $72,677,  respectively,  of standby  letters of credit  related to
workers'  compensation  and  general  liabilities  accrued  in our  consolidated
financial  statements.  At May 28,  2006 and May 29,  2005,  we had  $12,625 and
$13,829,  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 28, 2006 and May 29,  2005,  we had $1,269 and $1,768,  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 28, 2006 and May 29, 2005, amounted to $1,022
and  $1,395,  respectively.  We  did  not  accrue  for  the  guarantees,  as the
likelihood of the third parties defaulting on the assignment agreements was 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 2007 through fiscal 2012.

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. In view of the inherent uncertainties of litigation, the outcome of any
unresolved matters described below cannot be predicted at this time, nor can the
amount of any potential loss be reasonably estimated.

Like other restaurant  companies and retail  employers,  we have been faced in a
few states with allegations of purported class-wide wage and hour violations. In
March 2002 and March 2003,  two  purported  class action  lawsuits  were brought
against us in the Superior Court of Orange  County,  California by three current
and former hourly restaurant  employees alleging  violations of California labor
laws with  respect to providing  meal and rest  breaks.  Although we continue to
believe we provided the required meal and rest breaks to our employees, to avoid
potentially  costly  and  protracted  litigation,  we agreed  during  the second
quarter  of fiscal  2005 to settle  both  lawsuits  and a similar  case filed in
Sacramento  County,  for approximately  $9,500.  Terms of the settlement did not
include


                                       40


any  admission of liability by us, and all  settlement  proceeds were paid as of
the end of the third quarter of fiscal 2006.

In August 2003, three former  employees in Washington filed a similar  purported
class action in  Washington  State  Superior  Court in Spokane  County  alleging
violations of Washington  labor laws with respect to providing rest breaks.  The
Court  stayed  the  action  and  ordered  the  plaintiffs   into  our  mandatory
arbitration program. We believe we provided the required meal and rest breaks to
our employees, and we intend to vigorously defend our position in this case.

Beginning in 2002, a total of five purported class action lawsuits were filed in
Superior Courts of California (two each in Los Angeles County and Orange County,
and one in Sacramento County) in which the plaintiffs allege that they and other
current and former  service  managers,  beverage  and  hospitality  managers and
culinary   managers  were  improperly   classified  as  exempt  employees  under
California  labor  laws.  The  plaintiffs   sought  unpaid  overtime  wages  and
penalties.  Two of the cases were  removed to  arbitration  under our  mandatory
arbitration   program,  one  was  stayed  to  allow  consideration  of  judicial
coordination with the other cases, one is proceeding as an individual claim, and
one remains a purported class action litigation matter.  Although we continue to
believe we correctly classified these employees, to avoid potentially costly and
protracted  litigation,  we agreed in February  2006 to a tentative  settlement.
Without  admitting  any  liability,  we agreed  to pay up to a maximum  total of
$11,000 to settle all five cases,  of which $9,000 was recognized  during fiscal
2006,  and is included in selling,  general  and  administrative  expenses.  The
settlement  amounts of these lawsuits are included in other current  liabilities
at  May  28,  2006.  The  tentative  settlement  will  be  documented  in a full
settlement  agreement and must have court  approval.  We cannot predict when the
settlement will be final, but estimate  preliminary court approval will occur in
the first half of fiscal  2007,  with final  court  approval  and payment of the
settlement proceeds no earlier than the second quarter of fiscal 2007.

On March 23, 2006, we received a notice that the staff of the U.S. Federal Trade
Commission (FTC) was conducting an inquiry into the marketing of our gift cards.
We have been cooperating with the staff,  providing  information and making some
voluntary  adjustments to the disclosure of dormancy fees that may be imposed on
the cards.  On July 26, 2006,  we were notified that the FTC staff had concluded
that we had  violated  Section  5 of the FTC  Act,  which  prohibits  unfair  or
deceptive  acts and  practices.  The staff asserts that we did not give adequate
notice to consumers that our gift cards, if not used for 24 consecutive  months,
are  subject  to a gradual  reduction  in value by a  dormancy  fee.  The notice
included a proposed consent order,  and indicated that if negotiations  based on
the order were not successful  within 30 days, the staff would  recommend to the
FTC Bureau Director that a complaint,  a copy of which was enclosed, be filed in
federal district court. The proposed consent order included,  among other things
for negotiation, an opening suggestion that we provide equitable monetary relief
in the amount of $31,006,  suspend the collection of dormancy fees on previously
issued gift cards,  and make certain  disclosures  relating to dormancy fees. We
believe that our gift card marketing  practices  comply with applicable laws. We
have not yet  determined a course of action,  but have  continued to discuss the
matter with the FTC staff.


                                       41


NOTE 19 - QUARTERLY DATA (UNAUDITED)

The following  table  summarizes  unaudited  quarterly  data for fiscal 2006 and
2005:



                                                     Fiscal 2006 - Quarters Ended
- ------------------------------------------------------------------------------------------------------------
                                    Aug. 28         Nov. 27          Feb. 26         May 28         Total
- ------------------------------------------------------------------------------------------------------------
                                                                                  
Sales                             $1,409,167     $ 1,325,093     $ 1,474,181     $ 1,512,199     $ 5,720,640
Earnings before income taxes         127,998          80,869         139,136         134,515         482,518
Net earnings                          85,514          55,057         105,318          92,305         338,194
Net earnings per share:
   Basic                                0.56            0.37            0.70            0.63            2.26
   Diluted                              0.53            0.35            0.67            0.60            2.16
Dividends paid per share                  --            0.20              --            0.20            0.40
Stock price:
   High                                34.81           36.09           42.48           42.75           42.75
   Low                                 30.92           28.80           33.86           35.60           28.80
============================================================================================================




                                                     Fiscal 2005 - Quarters Ended
- ------------------------------------------------------------------------------------------------------------
                                   Aug. 29         Nov. 28         Feb. 27         May 29           Total
- ------------------------------------------------------------------------------------------------------------
                                                                                  
Sales                             $1,278,644     $ 1,229,373     $ 1,375,879     $ 1,394,214     $ 5,278,110
Earnings before income taxes         108,086          63,368         130,824         121,639         423,917
Net earnings                          71,012          42,975          92,630          83,989         290,606
Net earnings per share:
   Basic                                0.45            0.27            0.59            0.54            1.85
   Diluted                              0.44            0.26            0.56            0.52            1.78
Dividends paid per share                  --            0.04              --            0.04            0.08
Stock price:
   High                                22.61           27.70           29.63           33.11           33.11
   Low                                 19.30           20.33           26.17           25.78           19.30
============================================================================================================



                                       42


Five-Year Financial Summary
(In thousands, except per share data)



                                                                          Fiscal Year Ended
- ---------------------------------------------------------------------------------------------------------------------------
                                                 May 28,        May 29,          May 30,         May 25,         May 26,
Operating Results                                 2006           2005            2004 (1)         2003            2002
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                               
Sales                                         $  5,720,640    $  5,278,110    $  5,003,355    $  4,654,971    $  4,366,911
- ---------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
   Cost of sales:
     Food and beverage                           1,691,906       1,593,709       1,526,875       1,449,162       1,384,481
     Restaurant labor                            1,850,199       1,695,805       1,601,258       1,485,046       1,373,416
     Restaurant expenses                           885,403         806,314         774,806         713,699         636,575
- ---------------------------------------------------------------------------------------------------------------------------
Total cost of sales, excluding restaurant
   depreciation and amortization (2)          $  4,427,508    $  4,095,828    $  3,902,939    $  3,647,907    $  3,394,472
Selling, general and administrative                536,379         497,478         472,109         431,722         417,158
Depreciation and amortization                      221,456         213,219         210,004         191,218         165,829
Interest, net                                       43,105          43,119          43,659          42,597          36,585
Asset impairment and restructuring charges
   (credits), net                                    9,674           4,549          41,868           3,924          (2,568)
- ---------------------------------------------------------------------------------------------------------------------------
Total costs and expenses                      $  5,238,122    $  4,854,193    $  4,670,579    $  4,317,368    $  4,011,476
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                       482,518         423,917         332,776         337,603         355,435
Income taxes                                       144,324         133,311         105,603         111,624         122,664
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings                                  $    338,194    $    290,606    $    227,173    $    225,979    $    232,771
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings per share:
   Basic                                      $       2.26    $       1.85    $       1.39    $       1.33    $       1.33
   Diluted                                    $       2.16    $       1.78    $       1.34    $       1.27    $       1.27
- ---------------------------------------------------------------------------------------------------------------------------
Average number of common shares
   outstanding:
     Basic                                         149,700         156,700         163,500         170,300         174,700
     Diluted                                       156,900         163,400         169,700         177,400         183,500
============================================================================================================================
Financial Position
Total assets                                  $  3,010,170    $  2,937,771    $  2,780,348    $  2,664,633    $  2,529,736
Land, buildings and equipment                    2,446,035       2,351,454       2,250,616       2,157,132       1,926,947
Working capital (deficit)                         (648,471)       (637,341)       (337,174)       (314,280)       (157,662)
Long-term debt, less current portion               494,653         350,318         653,349         658,086         662,506
Stockholders' equity                             1,229,763       1,273,019       1,175,288       1,130,055       1,069,606
Stockholders' equity per outstanding shares           8.37            8.25            7.42            6.85            6.21
============================================================================================================================
Other Statistics
Cash flow from operations                     $    717,090    $    583,242    $    525,411    $    508,635    $    508,101
Capital expenditures                               338,155         329,238         354,326         423,273         318,392
Dividends paid                                      59,206          12,505          12,984          13,501           9,225
Dividends paid per share                             0.400           0.080           0.080           0.080           0.053
Advertising expense                                229,693         214,608         210,989         200,020         184,163
Stock price:
   High                                              42.75           33.11           25.60           27.83           29.77
   Low                                               28.80           19.30           17.80           16.46           15.40
   Close                                      $      36.51    $      32.80    $      22.50    $      18.35    $      25.03

Number of employees                                157,300         150,100         141,300         140,700         133,200
Number of restaurants                                1,427           1,381           1,325           1,271           1,211
============================================================================================================================


(1)   Fiscal  year 2004  consisted  of 53 weeks  while all  other  fiscal  years
      presented on this summary consisted of 52 weeks.

(2)   Excludes restaurant  depreciation and amortization of $205,375,  $198,422,
      $195,486, $177,127 and $155,837, respectively.


                                       43

EX-21

EXHIBIT 21

SUBSIDIARIES OF DARDEN RESTAURANTS, INC.

As of May 28, 2006, we had three “significant subsidiaries”, as defined in Regulation S-X, Rule 1-02(w), identified as follows:

GMRI, Inc., a Florida corporation, doing business as Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones Barbeque & Grill, and Seasons 52.

GMRI Florida, Inc., a Florida corporation, owning a 99 percent limited partnership interest in GMRI Texas, L.P.

GMRI Texas, L.P., a Texas limited partnership, doing business as Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones Barbeque & Grill.

We also had other direct and indirect subsidiaries as of May 28, 2006. None of these subsidiaries would constitute a “significant subsidiary” as defined in Regulation S-X, Rule 1-02(w).

EX-23

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Darden Restaurants, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 33-93854, 333-41350 and 333-127046) and on Form S-8 (Nos. 333-57410, 333-91579, 333-69037, 333-105056, 333-106278, 333-124363 and 333-122560) of Darden Restaurants, Inc. of our reports dated July 27, 2006, with respect to the consolidated balance sheets of Darden Restaurants, Inc. and subsidiaries as of May 28, 2006 and May 29, 2005, and the related consolidated statements of earnings, changes in stockholders’ equity and accumulated other comprehensive income (loss), and cash flows for each of the fiscal years in the three-year period ended May 28, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of May 28, 2006, and the effectiveness of internal control over financial reporting as of May 28, 2006, which reports are included in the 2006 Annual Report to Shareholders included as an exhibit to this annual report on Form 10-K of Darden Restaurants, Inc.

/s/ KPMG LLP

Orlando, Florida

July 27, 2006

Certified Public Accountants

EX-24

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Paula J. Shives, Clarence Otis, Jr. and Linda J. Dimopoulos, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his or her name, place and stead, in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal year ended May 28, 2006 and any and all amendments thereto and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, this Power of Attorney has been signed on this 8th day of June, 2006, by the following persons.

By: /s/ Leonard L. Berry		By: /s/ Clarence Otis, Jr.
	Leonard L. Berry		Clarence Otis, Jr.

By: /s/ Odie C. Donald		By: /s/ Michael D. Rose
	Odie C. Donald		Michael D. Rose

By: /s/ David H. Hughes		By: /s/ Maria A. Sastre
	David H. Hughes		Maria A. Sastre

By: /s/ Charles A. Ledsinger, Jr.		By: /s/ Jack A. Smith
	Charles A. Ledsinger, Jr.		Jack A. Smith

By: /s/ William M. Lewis, Jr.		By: /s/ Blaine Sweatt, III
	William M. Lewis, Jr.		Blaine Sweatt, III

By: /s/ Cornelius McGillicuddy, III		By: /s/ Rita P. Wilson
	Cornelius McGillicuddy, III		Rita P. Wilson

By: /s/ Andrew H. Madsen
	Andrew H. Madsen

EX-31

EXHIBIT 31(a)

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Clarence Otis, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of Darden Restaurants, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

July 27, 2006

/s/ Clarence Otis, Jr.

Clarence Otis, Jr.

Chairman and Chief Executive Officer

EX-31

EXHIBIT 31(b)

CERTIFICATION PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Linda J. Dimopoulos, certify that:

1. I have reviewed this annual report on Form 10-K of Darden Restaurants, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

July 27, 2006

/s/ Linda J. Dimopoulos

Linda J. Dimopoulos

Senior Vice President and

Chief Financial Officer

EX-32

EXHIBIT 32(a)

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Darden Restaurants, Inc. (“Company”) on Form 10-K for the year ended May 28, 2006, as filed with the Securities and Exchange Commission (“Report”), I, Clarence Otis, Jr., Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Clarence Otis, Jr.

Clarence Otis, Jr.
Chairman and Chief Executive Officer
July 27, 2006

EX-32

EXHIBIT 32(b)

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Darden Restaurants, Inc. (“Company”) on Form 10-K for the year ended May 28, 2006, as filed with the Securities and Exchange Commission (“Report”), I, Linda J. Dimopoulos, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Linda J. Dimopoulos

Linda J. Dimopoulos
Senior Vice President and
Chief Financial Officer
July 27, 2006