Real Estate Transactions

As a result of a comprehensive evaluation for the monetization of our real estate portfolio, we undertook strategies to pursue sale-leaseback transactions of individual restaurant properties and our corporate headquarters and to transfer 424 of our restaurant properties into a REIT, with substantially all of the REIT’s initial assets being leased back to Darden.

Sale leasebacks

During fiscal 2015, we implemented a plan to pursue sale-leaseback transactions of 64 restaurant properties, 14 of which were completed in fiscal 2015, 48 were completed in the first six months of fiscal 2016, and the remaining properties are expected to be completed in fiscal 2016. The 62 completed transactions generated net proceeds of $228.3 million resulting in deferred gains totaling $44.8 million which will be amortized over the expected leaseback periods on a straight-line basis. Additionally, during the quarter ended November 29, 2015, we completed the sale leaseback of our corporate headquarters, generating net proceeds of $131.0 million resulting in a deferred gain of $6.3 million which will be amortized over the expected leaseback period on a straight-line basis.

REIT Transaction - Separation of Four Corners

On June 23, 2015, we announced our plan to separate our business into two separate and independent publicly traded companies. We accomplished this separation on November 9, 2015 with the pro rata distribution of one share of Four Corners Property Trust, Inc. (Four Corners) common stock for every three shares of Darden common stock to holders of Darden common stock. The separation, which was completed pursuant to a separation and distribution agreement between Darden and Four Corners, includes (i) the transfer of 6 LongHorn Steakhouse restaurants located in the San Antonio, Texas area (the LongHorn San Antonio Business) and 418 restaurant properties (the Four Corners Properties) to Four Corners; (ii) the issuance to us of all of the outstanding common stock of Four Corners and corresponding pro rata distribution to our shareholders of the outstanding shares of Four Corners common stock as a tax-free stock dividend; and (iii) a cash dividend of $315.0 million received by us from Four Corners from the proceeds of Four Corners’ term loan borrowings. We requested and received a private letter ruling from the Internal Revenue Service on certain issues relevant to the qualification of the spin-off as a tax-free transaction.

Our shareholders’ equity decreased by $436.8 million as a result of the separation of Four Corners. The components of the decrease, principally comprised of the net book value of the net assets that we contributed to Four Corners in connection with the separation, included $835.6 million in net book value of fixed assets, $83.8 million consisting primarily of deferred tax liabilities, offset by the $315.0 million cash dividend received by us from Four Corners.

Agreements with Four Corners

We entered into lease agreements with Four Corners, pursuant to which we leased the Four Corners Properties on a triple net basis with terms comparable to similar leases negotiated on an arm’s length basis. Under the lease agreements our subsidiaries are the tenant while Four Corners is the landlord. The leases are triple-net leases that provide for an average initial term of approximately 15 years with stated annual rental payments and options to extend the leases for another 15 years

. Under the lease agreements the rent is subject to annual escalations of 1.5 percent, as well as, in most of the leases, a fair market value adjustment at the start of one of the renewal options.

We entered into franchise agreements with Four Corners pursuant to which we provide certain franchising services to Four Corners’ subsidiary which operates the LongHorn San Antonio Business. The franchising services consist of licensing the right to use and display certain trademarks in connection with the operation of the LongHorn San Antonio Business, marketing services, training and access to certain LongHorn operating procedures. The fees and conditions of these franchising services are on terms comparable to similar franchising services negotiated on an arm’s length basis.

Debt Retirement

During the quarter ended November 29, 2015, utilizing the proceeds of the Four Corners cash dividend in addition to cash proceeds from the sale leasebacks of restaurant properties and our corporate headquarters, we repaid $255.0 million of our variable-rate term loan. Additionally, subsequent to the end of the quarter, we completed the retirement of an additional $743.0 million aggregate principal of long-term debt consisting of:


•	$500.0 million of unsecured 6.200 percent senior notes due in October 2017;


•	$121.9 million of unsecured 4.500 percent senior notes due in October 2021;


•	$111.1 million of unsecured 3.350 percent senior notes due in November 2022; and


•	$10.0 million of unsecured 4.520 percent senior notes due in August 2024

We plan to retire the remaining $15.0 million balance of our variable-rate term loan in fiscal 2016. As of November 29, 2015, in association with the planned debt repayments, these balances were included in current liabilities on our consolidated balance sheet as current portion of long-term debt. Additionally, in association with the planned debt repayments, during the second quarter of fiscal 2016, we recorded approximately $35.2 million of expense resulting from the accelerated amortization of previously settled interest-rate related cash flow hedges on the issuance of our senior notes due October 2021 and November 2022. This expense was recorded in interest, net in our consolidated statement of earnings for the quarter and six months ended November 29, 2015.