UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended August 28, 2022

or

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

For the transition period from              to             

1-13666

Commission File Number

 DARDEN RESTAURANTS, INC.

(Exact name of registrant as specified in its charter)

 

Florida		59-3305930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1000 Darden Center Drive
Orlando,	Florida	32837
(Address of principal executive offices)		(Zip Code)

407-245-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without par value	DRI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Number of shares of common stock outstanding as of September 15, 2022: 122,387,059.

TABLE OF CONTENTS

			Page
Part I -	Financial Information
	Item 1.	Financial Statements (Unaudited)	4
		Consolidated Statements of Earnings	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Balance Sheets	6
		Consolidated Statements of Changes in Stockholders’ Equity	7
		Consolidated Statements of Cash Flows	8
		Notes to Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4.	Controls and Procedures	30
Part II -	Other Information
	Item 1.	Legal Proceedings	31
	Item 1A.	Risk Factors	31
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 6.	Exhibits	32
Signature			33

2

Cautionary Statement Regarding Forward-Looking Statements

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

3

PART I

FINANCIAL INFORMATION

Item  1. Financial Statements (Unaudited)

DARDEN RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except per share data)

(Unaudited)

	Three Months Ended
	August 28, 2022		August 29, 2021
Sales	$	2,446.1	$	2,306.0
Costs and expenses:
Food and beverage	795.3		685.4
Restaurant labor	793.8		736.0
Restaurant expenses	403.5		378.1
Marketing expenses	30.3		23.9
General and administrative expenses	88.3		113.0
Depreciation and amortization	95.6		89.0
Impairments and disposal of assets, net	(4.9)		—
Total operating costs and expenses	$	2,201.9	$	2,025.4
Operating income	244.2		280.6
Interest, net	19.8		15.6
Earnings before income taxes	224.4		265.0
Income tax expense	30.8		33.3
Earnings from continuing operations	$	193.6	$	231.7
Losses from discontinued operations, net of tax benefit of $0.0 and $0.5, respectively	(0.6)		(0.8)
Net earnings	$	193.0	$	230.9
Basic net earnings per share:
Earnings from continuing operations	$	1.58	$	1.78
Losses from discontinued operations	(0.01)		(0.01)
Net earnings	$	1.57	$	1.77
Diluted net earnings per share:
Earnings from continuing operations	$	1.56	$	1.76
Losses from discontinued operations	—		(0.01)
Net earnings	$	1.56	$	1.75
Average number of common shares outstanding:
Basic	122.9		130.3
Diluted	123.9		131.7

See accompanying notes to our unaudited consolidated financial statements.

4

DARDEN RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

	Three Months Ended
	August 28, 2022		August 29, 2021
Net earnings	$	193.0	$	230.9
Foreign currency adjustment	—		(0.4)
Change in fair value of derivatives and amortization of unrecognized gains and losses on derivatives, net of taxes of $0.6 and $0.0, respectively	2.2		1.8
Net unamortized gain (loss) arising during the period, including amortization of unrecognized net actuarial gain (loss), net of taxes of $0.1 and $0.1, respectively, related to pension and other post-employment benefits	0.1		0.2
Other comprehensive income	$	2.3	$	1.6
Total comprehensive income	$	195.3	$	232.5

See accompanying notes to our unaudited consolidated financial statements.

5

DARDEN RESTAURANTS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions)

	August 28, 2022		May 29, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	377.5	$	420.6
Receivables, net	50.7		72.0
Inventories	273.1		270.6
Prepaid income taxes	68.8		274.8
Prepaid expenses and other current assets	170.9		141.4
Total current assets	$	941.0	$	1,179.4
Land, buildings and equipment, net of accumulated depreciation and amortization of $3,215.2 and $3,140.9, respectively	3,485.8		3,356.0
Operating lease right-of-use assets	3,452.8		3,465.1
Goodwill	1,037.4		1,037.4
Trademarks	806.3		806.3
Other assets	291.2		291.6
Total assets	$	10,014.5	$	10,135.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	406.9	$	366.9
Accrued payroll	137.2		181.5
Accrued income taxes	43.0		32.1
Other accrued taxes	70.8		64.5
Unearned revenues	467.9		498.0
Other current liabilities	699.5		704.5
Total current liabilities	$	1,825.3	$	1,847.5
Long-term debt	895.1		901.0
Deferred income taxes	192.4		201.1
Operating lease liabilities - non-current	3,745.5		3,755.8
Other liabilities	1,292.1		1,232.2
Total liabilities	$	7,950.4	$	7,937.6
Stockholders’ equity:
Common stock and surplus	$	2,215.4	$	2,226.0
Retained earnings (deficit)	(151.7)		(25.9)
Accumulated other comprehensive income (loss)	0.4		(1.9)
Total stockholders’ equity	$	2,064.1	$	2,198.2
Total liabilities and stockholders’ equity	$	10,014.5	$	10,135.8

See accompanying notes to our unaudited consolidated financial statements.

6

DARDEN RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Three Months Ended August 28, 2022 and August 29, 2021

(In millions)

(Unaudited)

	Common Stock And Surplus
	Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
Balance at May 29, 2022	123.9	$	2,226.0	$	(25.9)	$	(1.9)	$	2,198.2
Net earnings	—	—		193.0		—		193.0
Other comprehensive income	—	—		—		2.3		2.3
Dividends declared ($1.21 per share)	—	—		(150.0)		—		(150.0)
Stock option exercises	0.1	3.6		—		—		3.6
Stock-based compensation	—	12.1		—		—		12.1
Repurchases of common stock	(1.7)	(30.2)		(168.8)		—		(199.0)
Issuance of stock under Employee Stock Purchase Plan and other plans	0.2	2.8		—		—		2.8
Other	—	1.1		—		—		1.1
Balance at August 28, 2022	122.5	$	2,215.4	$	(151.7)	$	0.4	$	2,064.1

Balance at May 30, 2021	130.8	$	2,286.6	$	522.3	$	4.2	$	2,813.1
Net earnings	—	—		230.9		—		230.9
Other comprehensive income	—	—		—		1.6		1.6
Dividends declared ($1.10 per share)	—	—		(144.1)		—		(144.1)
Stock option exercises	0.3	17.0		—		—		17.0
Stock-based compensation	—	16.3		—		—		16.3
Repurchases of common stock	(1.3)	(23.1)		(163.2)		—		(186.3)
Issuance of stock under Employee Stock Purchase Plan and other plans	0.2	2.6		—		—		2.6
Other	—	1.3		—		—		1.3
Balance at August 29, 2021	130.0	$	2,300.7	$	445.9	$	5.8	$	2,752.4

See accompanying notes to our unaudited consolidated financial statements.

7

DARDEN RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	Three Months Ended
	August 28, 2022		August 29, 2021
Cash flows—operating activities
Net earnings	$	193.0	$	230.9
Losses from discontinued operations, net of tax	0.6		0.8
Adjustments to reconcile net earnings from continuing operations to cash flows:
Depreciation and amortization	95.6		89.0
Impairments and disposal of assets, net	(4.9)		—
Stock-based compensation expense	20.3		27.6
Change in current assets and liabilities	133.5		(151.8)
Contributions to pension and postretirement plans	(0.5)		(0.5)
Deferred income taxes	(9.6)		(5.4)
Change in other assets and liabilities	(4.2)		(5.4)
Other, net	4.0		(4.9)
Net cash provided by operating activities of continuing operations	$	427.8	$	180.3
Cash flows—investing activities
Purchases of land, buildings and equipment	(122.8)		(82.7)
Proceeds from disposal of land, buildings and equipment	10.4		3.4
Purchases of capitalized software and other assets	(5.8)		(5.5)
Other, net	0.1		1.1
Net cash used in investing activities of continuing operations	$	(118.1)	$	(83.7)
Cash flows—financing activities
Proceeds from issuance of common stock	6.4		19.6
Dividends paid	(148.5)		(143.5)
Repurchases of common stock	(199.0)		(186.3)
Principal payments on finance leases	(4.3)		(2.6)
Net cash used in financing activities of continuing operations	$	(345.4)	$	(312.8)
Cash flows—discontinued operations
Net cash (used in) provided by operating activities of discontinued operations	(0.5)		0.8
Net cash (used in) provided by discontinued operations	$	(0.5)	$	0.8
Decrease in cash, cash equivalents, and restricted cash	(36.2)		(215.4)
Cash, cash equivalents, and restricted cash - beginning of period	472.1		1,214.7
Cash, cash equivalents, and restricted cash - end of period	$	435.9	$	999.3

Reconciliation of cash, cash equivalents, and restricted cash:	August 28, 2022		August 29, 2021
Cash and cash equivalents	$	377.5	$	947.8
Restricted cash included in prepaid expenses and other current assets	58.4		51.5
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	435.9	$	999.3

8

DARDEN RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In millions)

(Unaudited)

	Three Months Ended
	August 28, 2022		August 29, 2021
Cash flows from changes in current assets and liabilities
Receivables, net	21.3		0.8
Inventories	(2.5)		(20.0)
Prepaid expenses and other current assets	(28.0)		(11.8)
Accounts payable	12.6		14.7
Accrued payroll	(44.3)		(23.1)
Prepaid/accrued income taxes	217.0		33.0
Other accrued taxes	6.3		7.4
Unearned revenues	(30.2)		(27.1)
Other current liabilities	(18.7)		(125.7)
Change in current assets and liabilities	$	133.5	$	(151.8)

See accompanying notes to our unaudited consolidated financial statements.

9

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1.Basis of Presentation

Darden Restaurants, Inc. (we, our, Darden or the Company) owns and operates full-service dining restaurants in the United States and Canada under the trade names Olive Garden®, LongHorn Steakhouse®, Cheddar’s Scratch Kitchen®, Yard House®, The Capital Grille®, Seasons 52®, Bahama Breeze®, Eddie V’s Prime Seafood® and The Capital Burger®. As of August 28, 2022, through subsidiaries, we own and operate all of our restaurants in the United States and Canada, except for 2 joint venture restaurants managed by us and 34 franchised restaurants. We also have 28 franchised restaurants in operation located in Latin America and the Caribbean.

We have prepared these consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. We operate on a 52/53-week fiscal year which ends on the last Sunday in May. Our fiscal year ending May 28, 2023 will contain 52 weeks of operation. Operating results for interim periods presented are not necessarily indicative of results that may be expected for the full fiscal year.

These statements should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 29, 2022. We prepare our consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and costs and expenses during the reporting period. Actual results could differ from those estimates.

We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.

COVID-19 Pandemic and Other Impacts to our Operating Environment

During fiscal 2022, increasing numbers of COVID-19 cases throughout the United States including the Omicron variant which significantly impacted our restaurants in the third quarter, mostly in January 2022, subjected some of our restaurants to COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both. Exclusions and quarantines of restaurant team members or groups thereof disrupt an individual restaurant’s operations and often come with little or no notice to the local restaurant management. During fiscal 2022, along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold. These events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to further capacity restrictions, mask and vaccination mandates, wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operations.

Recently Adopted Accounting Standards

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures that increase the transparency of transactions involving government grants, including (i) information about the nature of the transactions and related accounting policy used to account for the transactions; (ii) the line items on the balance sheet and income statement affected by these transactions including amounts applicable to each line; and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The guidance is effective for annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2023, but the adoption did not have a material impact on our financial statements.

10

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2.Revenue Recognition  

Deferred revenue liabilities from contracts with customers included on our accompanying consolidated balance sheets is comprised of the following:

(in millions)	August 28, 2022		May 29, 2022
Unearned revenues
Deferred gift card revenue	$	488.5	$	521.1
Deferred gift card discounts	(21.1)		(23.5)
Other	0.5		0.4
Total	$	467.9	$	498.0
Other liabilities
Deferred franchise fees - non-current	$	2.7	$	2.8

The following table presents a rollforward of deferred gift card revenue.

	Three Months Ended
(in millions)	August 28, 2022		August 29, 2021
Beginning balance	$	521.1	$	494.3
Activations	114.4		106.6
Redemptions and breakage	(147.0)		(135.9)
Ending balance	$	488.5	$	465.0

11

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3.Additional Financial Information

Supplemental Balance Sheet Information

The components of lease assets and liabilities on the consolidated balance sheet are as follows:

(in millions)	Balance Sheet Classification	August 28, 2022		May 29, 2022
Operating lease right-of-use assets	Operating lease right-of-use assets	$	3,452.8	$	3,465.1
Finance lease right-of-use assets	Land, buildings and equipment, net	898.8		838.1
Total lease assets, net		$	4,351.6	$	4,303.2
Operating lease liabilities - current	Other current liabilities	$	181.1	$	185.8
Finance lease liabilities - current	Other current liabilities	17.5		16.6
Operating lease liabilities - non-current	Operating lease liabilities - non-current	3,745.5		3,755.8
Finance lease liabilities - non-current	Other liabilities	1,087.7		1,018.6
Total lease liabilities		$	5,031.8	$	4,976.8

Supplemental Cash Flow Information

Cash paid for interest and income taxes are as follows:	Three Months Ended
(in millions)	August 28, 2022		August 29, 2021
Interest, net of amounts capitalized	$	21.1	$	15.3
Income taxes, net of refunds	(176.7)		4.2

Non-cash investing and financing activities are as follows:	Three Months Ended
(in millions)	August 28, 2022		August 29, 2021
Increase in land, buildings and equipment through accrued purchases	$	75.9	$	35.0
Right-of-use assets obtained in exchange for new operating lease liabilities	49.6		3.6
Right-of-use assets obtained in exchange for new finance lease liabilities	41.5		67.8
Net change in right-of-use assets mainly due to lease modifications resulting in reclassification of leases from operating to finance	25.3		73.5

We have restricted cash of $58.4 million and $51.5 million as of August 28, 2022 and May 29, 2022, respectively, which represents cash held as security for a standby letter of credit and cash held in escrow related to the sale of a property. Restricted cash is included in Prepaid Expenses and Other Current Assets on the balance sheet. See Note 12, Commitments and Contingencies, for further details around standby letters of credit.

Note 4.Income Taxes

The effective income tax rate for continuing operations for the quarter ended August 28, 2022 was 13.7 percent compared to an effective income tax rate for the quarter ended August 29, 2021 of 12.6 percent. The change was primarily driven by a decrease in excess tax benefits related to option exercises and equity vesting, offset by lower net earnings from continuing operations for the quarter ended August 28, 2022 compared to the quarter ended August 29, 2021.

Included in our remaining balance of unrecognized tax benefits is $7.9 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations or as a result of the expiration of the statute of limitations for specific jurisdictions.

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022 and introduces a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income. The CAMT will be effective for us beginning in fiscal 2024. We currently are not expecting the IRA to have a material adverse impact to our financial statements.

12

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5.Net Earnings per Share

Outstanding stock options, restricted stock and equity-settled performance stock units granted by us represent the only dilutive effect reflected in diluted weighted average shares outstanding, none of which impact the numerator of the diluted net earnings per share computation. Stock options, restricted stock and equity-settled performance stock units excluded from the calculation of diluted net earnings per share because the effect would have been anti-dilutive, are as follows: 

	Three Months Ended
(in millions)	August 28, 2022	August 29, 2021
Anti-dilutive stock-based compensation awards	0.5	—

Note 6.Segment Information

We manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V’s and The Capital Burger in North America as operating segments. The brands operate principally in the U.S. within full-service dining. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. We have four reportable segments: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business.

The Olive Garden segment includes the results of our company-owned Olive Garden restaurants in the U.S. and Canada. The LongHorn Steakhouse segment includes the results of our company-owned LongHorn Steakhouse restaurants in the U.S. The Fine Dining segment aggregates our premium brands that operate within the fine-dining sub-segment of full-service dining and includes the results of our company-owned The Capital Grille and Eddie V’s restaurants in the U.S. The Other Business segment aggregates our remaining brands and includes the results of our company-owned Cheddar’s Scratch Kitchen, Yard House, Seasons 52, Bahama Breeze and The Capital Burger restaurants in the U.S and results from our franchise operations.

External sales are derived principally from food and beverage sales. We do not rely on any major customers as a source of sales, and the customers and long-lived assets of our reportable segments are predominantly in the U.S. There were no material transactions among reportable segments.

Our management uses segment profit as the measure for assessing performance of our segments. Segment profit includes revenues and expenses directly attributable to restaurant-level results of operations (sometimes referred to as restaurant-level earnings). These expenses include food and beverage costs, restaurant labor costs, restaurant expenses and marketing expenses (collectively “restaurant and marketing expenses”). Non-cash lease-related expenses included in restaurant expenses (which is a component of segment profit) and lease-related depreciation and amortization are reported at the corporate level as these are expenses for which our operating segments are not being evaluated. Additionally, our lease-related right-of-use assets are not managed or evaluated at the operating segment level, but rather at the corporate level.

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

(in millions)	Olive Garden		LongHorn Steakhouse		Fine Dining		Other Business		Corporate		Consolidated
For the three months ended August 28, 2022
Sales	$	1,130.7	$	604.6	$	183.4	$	527.4	$	—	$	2,446.1
Restaurant and marketing expenses	914.6		512.6		153.4		455.1		(12.8)		2,022.9
Segment profit	$	216.1	$	92.0	$	30.0	$	72.3	$	12.8	$	423.2
Depreciation and amortization	$	35.8	$	16.8	$	8.9	$	24.3	$	9.8	$	95.6
Impairments and disposal of assets, net	—		—		—		—		(4.9)		(4.9)
Purchases of land, buildings and equipment	56.1		28.0		11.3		25.6		1.8		122.8

13

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in millions)	Olive Garden		LongHorn Steakhouse		Fine Dining		Other Business		Corporate		Consolidated
For the three months ended August 29, 2021
Sales	$	1,090.4	$	567.1	$	168.8	$	479.7	$	—	$	2,306.0
Restaurant and marketing expenses	837.1		459.6		135.3		394.9		(3.5)		1,823.4
Segment profit	$	253.3	$	107.5	$	33.5	$	84.8	$	3.5	$	482.6
Depreciation and amortization	$	35.3	$	16.0	$	8.2	$	24.1	$	5.4	$	89.0
Purchases of land, buildings and equipment	35.3		20.1		8.7		17.9		0.7		82.7

A reconciliation of segment profit to earnings from continuing operations before income taxes is below.

	Three Months Ended
(in millions)	August 28, 2022		August 29, 2021
Segment profit	$	423.2	$	482.6
Less general and administrative expenses	(88.3)		(113.0)
Less depreciation and amortization	(95.6)		(89.0)
Less impairments and disposal of assets, net	4.9		—
Less interest, net	(19.8)		(15.6)
Earnings before income taxes	$	224.4	$	265.0

14

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7.Impairments and Disposal of Assets, Net

Impairments and disposal of assets, net, in our accompanying consolidated statements of earnings are comprised of the following:

	Three Months Ended
(in millions)	August 28, 2022		August 29, 2021
Restaurant impairments	$	—	$	—
Disposal (gains) losses	(4.9)		—
Other	—		—
Impairments and disposal of assets, net	$	(4.9)	$	—

Disposal gains for the quarter ended August 28, 2022 were primarily related to the sale of properties.

15

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8. Stockholders’ Equity

Accumulated Other Comprehensive Income (Loss) (AOCI)

The components of accumulated other comprehensive income (loss), net of tax, for the quarter ended August 28, 2022 are as follows:

(in millions)	Foreign Currency Translation Adjustment		Unrealized Gains (Losses) on Derivatives		Benefit Plan Funding Position		Accumulated Other Comprehensive Income (Loss)
Balance at May 29, 2022	$	4.8	$	(0.4)	$	(6.3)	$	(1.9)
Gain (loss)	—		1.5		—		1.5
Reclassification realized in net earnings	—		0.7		0.1		0.8
Balance at August 28, 2022	$	4.8	$	1.8	$	(6.2)	$	0.4

The components of accumulated other comprehensive income (loss), net of tax, for the quarter ended August 29, 2021 are as follows:

(in millions)	Foreign Currency Translation Adjustment		Unrealized Gains (Losses) on Derivatives		Benefit Plan Funding Position		Accumulated Other Comprehensive Income (Loss)
Balances at May 30, 2021	$	5.2	$	7.9	$	(8.9)	$	4.2
Gain (loss)	(0.4)		2.6		—		2.2
Reclassification realized in net earnings	—		(0.8)		0.2		(0.6)
Balance at August 29, 2021	$	4.8	$	9.7	$	(8.7)	$	5.8

16

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the amounts and line items in our consolidated statements of earnings where adjustments reclassified from AOCI into net earnings were recorded.

		Amount Reclassified from AOCI into Net Earnings
			Three Months Ended
(in millions) AOCI Components	Location of Gain (Loss) Recognized in Earnings		August 28, 2022		August 29, 2021
Derivatives
Commodity contracts	(1)		$	0.1	$	—
Equity contracts	(2)		(0.8)		0.8
Total before tax			$	(0.7)	$	0.8
Tax (expense) benefit			—		—
Net of tax			$	(0.7)	$	0.8
Benefit plan funding position
Recognized net actuarial loss - pension/postretirement plans	(3)		$	—	$	(0.1)
Recognized net actuarial gain (loss) - other plans	(3)		(0.2)		(0.2)
Total before tax			$	(0.2)	$	(0.3)
Tax (expense) benefit			0.1		0.1
Net of tax			$	(0.1)	$	(0.2)

(1)Primarily included in food and beverage costs and restaurant expenses. See Note 10 for additional details.

(2)Included in general and administrative expenses. See Note 10 for additional details.

(3)Included in the computation of net periodic benefit costs, which is a component of general and administrative expenses.

Note 9. Stock-Based Compensation

We grant stock options for a fixed number of shares to certain employees with an exercise price equal to the fair value of the shares at the date of grant. We also grant restricted stock, restricted stock units and performance stock units with a fair value generally determined based on our closing stock price on the date of grant. In addition, we grant cash settled stock units (Darden stock units) which are classified as liabilities and are marked to market as of the end of each period.

The weighted-average fair value of non-qualified stock options and the related assumptions used in the Black-Scholes option pricing model for options granted during the periods presented, were as follows:

	Three Months Ended
	August 28, 2022			August 29, 2021
Weighted-average fair value	$	36.20		$	41.02
Dividend yield	3.8		%	3.2		%
Expected volatility of stock	42.0		%	39.6		%
Risk-free interest rate	2.8		%	0.9		%
Expected option life (in years)	5.9			6.3
Weighted-average exercise price per share	$	121.47		$	148.20

17

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The weighted-average grant date fair value of market-based performance stock units and the related assumptions used in the Monte Carlo simulation to record stock-based compensation for units granted during the periods presented, were as follows:

	Three Months Ended
	August 28, 2022			August 29, 2021
Dividend yield (1)	0.0		%	0.0		%
Expected volatility of stock	55.5		%	53.4		%
Risk-free interest rate	2.9		%	0.4		%
Expected life (in years)	2.8			2.8
Weighted-average grant date fair value per unit	$	137.73		$	172.34

(1)Assumes a reinvestment of dividends.

The following table presents a summary of our stock-based compensation activity for the three months ended August 28, 2022.

(in millions)	Stock Options	Restricted Stock/ Restricted Stock Units	Equity-Settled Performance Stock Units	Cash-Settled Darden Stock Units
Outstanding beginning of period	1.81	0.25	0.41	0.82
Awards granted	0.18	0.05	0.10	0.20
Awards granted performance impact	—	—	(0.04)	—
Awards exercised/vested	(0.07)	(0.04)	(0.11)	(0.14)
Awards forfeited	—	—	—	(0.02)
Outstanding end of period	1.92	0.26	0.36	0.86

We recognized expense from stock-based compensation as follows: 

	Three Months Ended
(in millions)	August 28, 2022		August 29, 2021
Stock options	$	2.6	$	3.4
Restricted stock/restricted stock units	2.8		3.8
Equity-settled performance stock units	5.6		8.1
Cash-settled Darden stock units	8.2		11.3
Employee stock purchase plan	0.7		0.7
Director compensation program/other	0.4		0.3
Total stock-based compensation expense	$	20.3	$	27.6

Note 10. Derivative Instruments and Hedging Activities

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments as provided by FASB ASC Topic 815, Derivatives and Hedging, and those utilized as economic hedges. We use financial derivatives to manage interest rate and compensation risks inherent in our business operations. Cash flows related to derivatives are included in operating activities.

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

18

DARDEN RESTAURANTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

interest rates, commodity prices, or the 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.

We designate commodity contracts and equity forward contracts as cash flow hedging instruments. Our interest rate swap agreements are designated as fair value hedges of the related debt. Further, we entered into equity forward contracts to hedge the risk of changes in future cash flows associated with recognized, employee-directed investments in Darden stock within the non-qualified deferred compensation plan. We did not elect hedge accounting with the expectation that changes in the fair value of the equity forward contracts would offset changes in the fair value of Darden stock investments in the non-qualified deferred compensation plan.

The notional and fair values of our derivative contracts are as follows: 

					Fair Values
(in millions, except per share data)	Number of Shares Outstanding	Weighted-Average  Per Share Forward Rates	Notional Values		Derivative Assets (1)				Derivative Liabilities (1)
	August 28, 2022				August 28, 2022		May 29, 2022		August 28, 2022		May 29, 2022
Equity forwards:
Designated	0.4	$125.13	$	44.4	$	—	$	—	$	2.6	$	0.1
Not designated	0.4	125.28	52.8		—		—		3.0		0.2
Total equity forwards (2)					$	—	$	—	$	5.6	$	0.3
Commodity contracts:
Designated	N/A	N/A	$	9.1	$	3.1	$	0.6	$	—	$	—
Not designated	N/A	N/A	—		—		—		—		—
Total commodity contracts (3)					$	3.1	$	0.6	$	—	$	—
Interest rate related
Designated	N/A	N/A	$	300.0	$	—	$	—	$	34.2	$	28.0
Not designated	N/A	N/A			—		—		—		—
Total interest rate related					$	—	$	—	$	34.2	$	28.0
Total derivative contracts					$	3.1	$	0.6	$	39.8	$	28.3

 

(1)Derivative assets and liabilities are included in receivables, net and other current liabilities, as applicable, on our consolidated balance sheets.

(2)Designated and undesignated equity forwards extend through July 2026 and April 2027, respectively.

(3)Commodity contracts extend through May 2023.

    The effects of derivative instruments accounted for as cash flow hedging instruments in the consolidated statements of earnings are as follows:

	Amount of Gain (Loss) Recognized in AOCI				Amount of Gain (Loss) Reclassified from AOCI to Earnings
	Three Months Ended				Three Months Ended
(in millions)	August 28, 2022		August 29, 2021		August 28, 2022		August 29, 2021
Equity (1)	$	(0.5)	$	2.7	$	(0.8)	$	0.8
Commodity (2)	2.6		(0.1)		0.1		—
Total	$	2.1	$