Fitzpatrick Timothy Darden Acct503 Sp10

Darden Restaurants Inc.Timothy E. Fitzpatrick

ACCT 503 – M70Spring, 2010

http://www.olivegarden.com/

http://www.longhornsteakhouse.com/default.asp

http://www.thecapitalgrille.com/default.asp

http://www.bahamabreeze.com/

http://www.seasons52.com/

Executive SummaryDarden Restaurants Inc. has become the world leader in the foodservice industry. Owning and

operating nearly 1,800 restaurants worldwide with most of their emphasis within the United States. They serve approximately 400 million meals each year through their popular brand identified restaurants.

Darden’s company vision is “To be a company that positively affects meaningfully more guests, employees, communities and business partners – a company that matters even more than we do today.”

Operating in an environment that has been severely impacted by the recent economic slowdown, Darden has shown that it is not immune to the challenges that face the industry. It’s management team has been able to maintain its revenue earnings through much improved administrative processes and renovating its current restaurants in order to bring efficiency and an increased pleasurable experience to diners who patronize their establishments. Darden is a company that is leading the way with its growth and satisfaction from employees and customers alike. It’s current financial challenges are not unlike any of its competitors although it has placed itself in a position of having the established brands and management to sustain and grow.

Click the link below for Annual Report

http://www.darden.com/numbers/2009ar/

http://www.darden.com/

Introduction• Chairman / Chief Executive Officer: Clarence Otis, Jr.• Home offices located at: Darden Restaurants, Inc.

1000 Darden Center Drive Orlando, FL 32837 (407)-245-4000 • Ending date of latest fiscal year: May 31, 2009.• Darden Restaurants, Inc., (NYSE: DRI) headquartered in

Orlando, Fla., is the world’s largest company-owned and operated restaurant company with almost $7.2 billion in annual sales and employs approximately 180,000 employees.

• Through subsidiaries, the Company owns and operates more than 1,800 restaurants including Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 Nationally and Internationally.

"To nourish and delight everyone we serve."

Audit Report

• Independent Auditor: KPMG AUDIT•TAX•ADVISORY• KPMG operates as an international network of member firms offering

audit, tax and advisory services. In their audit of Darden Restaurant Inc., KPMG concluded that the company maintained effective internal control over their finance reporting based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. They also concluded that Darden Restaurant Inc. recorded accurate consolidated balance sheets and related consolidated statements of earnings, changes in stockholder’s equity and accumulated other comprehensive loss income and cash flows for a three year period ending May 31, 2009.


Click here to visit KPMG AUDIT•TAX•ADVISORY website

http://www.kpmg.com/





Stock Market Information

• Dividend per share: Darden's Board of Directors declared a quarterly cashdividend of 25 cents per share on the Company's outstanding common stock.The dividend is payable on February 1, 2010 to shareholders of record at theclose of business on January 8, 2010.

• Date of the above information: January 29, 2010."To nourish and delight everyone we serve."

Most recent price of the company’s stock: $36.96Twelve month trading range of the company’s stock:52-Week High (22-Apr-09): $41.21; 52-Week Low (06-Mar-09):24.11; 50-Day Moving Average: $35.01; 52-Week S&P500 Change: 30.03% ;52-Week Change: 40.96% ; Beta: 0.95.

Industry Situation & Company Plans• The industry is currently suffering from the slowdown

in the economy and recent recession. Sales remain weak and the outlook for the future of the industry is one that is reshaping the way firms are doing business. US food service industry revenues will decrease 1.3% in 2009 to $545 billion, down from 2008 sales of $552 billion.


Darden 2009 Annual ReportCited Sources:

• According to Zacks Equity Research article “Restaurant Industry Update - Jan. 2010”, Darden Restaurants Inc. expects to slow their growth and open only 50 to 55 new restaurants in fiscal year 2010, drastically down from 71 restaurants opened in the last fiscal year. Darden CEO Clarence Otis confirms that new growth will be slowed and emphasis put on accelerating the pace of remodels of existing locations will ensure brand support and valued customer experience.

Zacks Equity Research

http://www.darden.com/numbers/2009ar/

http://www.zacks.com/stock/news/28913/Restaurant+Industry+Update+-+Jan.+2010

Income Statement Horizontal Analysis

• The 2 year Horizontal Analysis shows these changes:1. Net Sales increased $591 million, or 8.9%2. Cost of goods sold increased $498.2 million, or 9.7%3. Operating income increased $19.5 million, or 3.2%4. Interest expense increased $30.7 million, or 35.3%5. Income tax expense decreased $4.5 million, or -3.1%


(1.3)(5,000)377,200 372,200 Net income

(94.8)(7,300)7,700 400 Dicontinued Operations

0.6 2,300 369,500 371,800 Income from operations

(3.1)(4,500)145,200 140,700 Income tax expense

(0.4)(2,200)514,700 512,500 Income before taxes

35.3 30,700 86,900 117,600 Interest expense

4.7 28,500 601,600 630,100 Earn before int and taxes

750.0 9,000 1,200 10,200 Total Other income/exp net

3.2 19,500 600,400 619,900 Operating income

15.2 37,400 245,700 283,100 Others

N/A12,000 0 12,000 Non Recurring

3.7 23,900 641,700 665,600 Selling and Admin expense

6.2 92,800 1,487,800 1,580,600 Gross profit

9.7 498,200 5,138,700 5,636,900 Cost of goods sold

8.9 591,000 6,626,500 7,217,500 Net Sales

PercentAmount20082009

Increase (Decrease)during 2009

DARDEN RESTAURANTS, INC. Condensed Income Statement

For the Years Ended May 31, 2009(In millions)

(1.3)(5,000)377,200 372,200 Net income

(94.8)(7,300)7,700 400 Dicontinued Operations

0.6 2,300 369,500 371,800 Income from operations

(3.1)(4,500)145,200 140,700 Income tax expense

(0.4)(2,200)514,700 512,500 Income before taxes

35.3 30,700 86,900 117,600 Interest expense

4.7 28,500 601,600 630,100 Earn before int and taxes

750.0 9,000 1,200 10,200 Total Other income/exp net

3.2 19,500 600,400 619,900 Operating income

15.2 37,400 245,700 283,100 Others

N/A12,000 0 12,000 Non Recurring

3.7 23,900 641,700 665,600 Selling and Admin expense

6.2 92,800 1,487,800 1,580,600 Gross profit

9.7 498,200 5,138,700 5,636,900 Cost of goods sold

8.9 591,000 6,626,500 7,217,500 Net Sales





The summary of the data shows that Darden Restaurant Inc. maintained a positive growth rate during the beginning of the recession period. Net Sales increased enough to offset the cost of goods sold by 0.8 %. Although the interest expense also increased due to the banking system rate hikes but taxes decreased.

Income Statement Vertical Analysis


5.7 377,200 5.2 372,200 Net income

0.1 7,700 0.0 400 Dicontinued Operations

5.6 369,500 5.2 371,800 Income from operations

2.2 145,200 1.9 140,700 Income tax expense

7.8 514,700 7.1 512,500 Income before taxes

1.3 86,900 1.6 117,600 Interest expense

9.1 601,600 8.7 630,100 Earn before int and taxes

0.0 1,200 0.1 10,200 Total Other income/exp net

9.1 600,400 8.6 619,900 Operating income

3.7 245,700 3.9 283,100 Others

0.0 0 0.2 12,000 Non Recurring

9.7 641,700 9.2 665,600 Selling and Admin expense

22.5 1,487,800 21.9 1,580,600 Gross profit

77.5 5,138,700 78.1 5,636,900 Cost of goods sold

100.0 6,626,500 100.0 7,217,500 Net Sales

PercentAmountPercentAmount

20082009



5.7 377,200 5.2 372,200 Net income

0.1 7,700 0.0 400 Dicontinued Operations

5.6 369,500 5.2 371,800 Income from operations

2.2 145,200 1.9 140,700 Income tax expense

7.8 514,700 7.1 512,500 Income before taxes

1.3 86,900 1.6 117,600 Interest expense

9.1 601,600 8.7 630,100 Earn before int and taxes

0.0 1,200 0.1 10,200 Total Other income/exp net

9.1 600,400 8.6 619,900 Operating income

3.7 245,700 3.9 283,100 Others

0.0 0 0.2 12,000 Non Recurring

9.7 641,700 9.2 665,600 Selling and Admin expense

22.5 1,487,800 21.9 1,580,600 Gross profit

77.5 5,138,700 78.1 5,636,900 Cost of goods sold

100.0 6,626,500 100.0 7,217,500 Net Sales


20082009



• The 2 year Vertical Analysis shows these changes:1. Cost of goods sold as a percentage of net sales increased

from 77.5% to 78.1%2. Selling and administrative expenses decreased from 9.7%

to 9.2%3. Interest expense increased from 1.3% to 1.6%4. Net income decreased from 5.7% to 5.2%

The summary of the data shows that Darden Restaurant Inc. had a decline in net income of 0.5% due to the increase in interest expense and other expenses. The company is operating more efficiently in it selling and administration. It has recovered from its costs from discontinued operation by nearly 7.3 million.

Balance Sheet Horizontal Analysis


2.9 97,700 3,321,500 3,419,200 Total Liabilities

34.2 115,000 336,600 451,600 Deferrred long liabilitiy charges

16.7 25,800 154,500 180,300 Other liabilities

(0.2)(3,000)1,694,200 1,691,200 Long term debt

(3.5)(40,100)1,136,200 1,096,100 Total Current Liabilities

12.5 56,600 454,000 510,600 other current liabilities

(15.9)(28,400)178,400 150,000 Short/Current/long term debt

(13.6)(68,300)503,800 435,500 Liabilities Accounts Payable

6.2 294,600 4,730,600 5,025,200 Total Assets

(49.4)(65,200)132,100 66,900 Other Assets

3.6 18,600 520,900 539,500 Intangeable assets

(0.2)(1,200)519,900 518,700 Goodwill

7.9 240,700 3,066,000 3,306,700 Property Plant & Equipment

62.2 14,800 23,800 38,600 Long term investments

18.6 86,900 467,900 554,800 Total Current Assets

108.6 50,700 46,700 97,400 Other current assets

14.0 30,300 216,700 247,000 Inventory

(8.6)(13,800)161,300 147,500 Net recievables

45.6 19,700 43,200 62,900 Current Assets (Cash)



DARDEN RESTAURANTS, INC. Condensed Balance Sheet

May 31, 2009(In millions)

2.9 97,700 3,321,500 3,419,200 Total Liabilities

34.2 115,000 336,600 451,600 Deferrred long liabilitiy charges

16.7 25,800 154,500 180,300 Other liabilities

(0.2)(3,000)1,694,200 1,691,200 Long term debt

(3.5)(40,100)1,136,200 1,096,100 Total Current Liabilities

12.5 56,600 454,000 510,600 other current liabilities

(15.9)(28,400)178,400 150,000 Short/Current/long term debt

(13.6)(68,300)503,800 435,500 Liabilities Accounts Payable

6.2 294,600 4,730,600 5,025,200 Total Assets

(49.4)(65,200)132,100 66,900 Other Assets

3.6 18,600 520,900 539,500 Intangeable assets

(0.2)(1,200)519,900 518,700 Goodwill

7.9 240,700 3,066,000 3,306,700 Property Plant & Equipment

62.2 14,800 23,800 38,600 Long term investments

18.6 86,900 467,900 554,800 Total Current Assets

108.6 50,700 46,700 97,400 Other current assets

14.0 30,300 216,700 247,000 Inventory

(8.6)(13,800)161,300 147,500 Net recievables

45.6 19,700 43,200 62,900 Current Assets (Cash)





• The 2 year Horizontal Analysis shows these changes:1. Current assets increased $19.7 million, or 45.6%2. Property assets increased $240.7 million, or 7.9%3. Other current assets increased $50.7 million, or 108.6%4. Total current liabilities decreased 40.1 million, or 3.5%5. Short term debt decreased 28.4 million, or 15.9%

The summary of the data shows that Darden Restaurant Inc. has been acquiring more assets such as property, plant and equipment and the size of the firm is growing at nearly 50%. It is also lowering its liabilities and paying off short term and long term debt. The company is taking long term loans at higher rates to finance operations.

Balance Sheet Vertical Analysis


70.2 3,321,500 68.0 3,419,200 Total Liabilities

7.1 336,600 9.0 451,600 Deferred long liability charges

3.3 154,500 3.6 180,300 Other liabilities

35.8 1,694,200 33.7 1,691,200 Long term debt

24.0 1,136,200 21.8 1,096,100 Total current liabilities

9.6 454,000 10.2 510,600 Other current liabilities

3.8 178,400 3.0 150,000 Short/Current/long term debt

10.6 503,800 8.7 435,500 Liabilities Accounts Payable

100.0 4,730,600 100.0 5,025,200 Total Assets

2.8 132,100 1.3 66,900 Other assets

11.0 520,900 10.7 539,500 Intangeable assets

11.0 519,900 10.3 518,700 Goodwill

64.8 3,066,000 65.8 3,306,700 Property plant & equipment

0.5 23,800 0.8 38,600 Long term investments

9.9 467,900 11.0 554,800 Total Current Assets

1.0 46,700 1.9 97,400 Other current assets

4.6 216,700 4.9 247,000 Inventory

3.4 161,300 2.9 147,500 Net Recievables

0.9 43,200 1.3 62,900 Current Assets (Cash)


20082009



70.2 3,321,500 68.0 3,419,200 Total Liabilities

7.1 336,600 9.0 451,600 Deferred long liability charges

3.3 154,500 3.6 180,300 Other liabilities

35.8 1,694,200 33.7 1,691,200 Long term debt

24.0 1,136,200 21.8 1,096,100 Total current liabilities

9.6 454,000 10.2 510,600 Other current liabilities

3.8 178,400 3.0 150,000 Short/Current/long term debt

10.6 503,800 8.7 435,500 Liabilities Accounts Payable

100.0 4,730,600 100.0 5,025,200 Total Assets

2.8 132,100 1.3 66,900 Other assets

11.0 520,900 10.7 539,500 Intangeable assets

11.0 519,900 10.3 518,700 Goodwill

64.8 3,066,000 65.8 3,306,700 Property plant & equipment

0.5 23,800 0.8 38,600 Long term investments

9.9 467,900 11.0 554,800 Total Current Assets

1.0 46,700 1.9 97,400 Other current assets

4.6 216,700 4.9 247,000 Inventory

3.4 161,300 2.9 147,500 Net Recievables

0.9 43,200 1.3 62,900 Current Assets (Cash)


20082009



• The 2 year Vertical Analysis shows these changes:1. Current assets have grown slowly at 0.9%2. Property, plant and equipment increased 64.8%3. Liabilities and accounts payable has increased 10.6%4. Long term debt increased by 35.8%5. Total liabilities increased 70.2% over a two year period.

The summary of the data shows that Darden Restaurant Inc. has been acquiring more assets such as property, plant and equipment and is taking advantage of lowered property costs due to the recession. The company is also increasing its long term liability and debt by financing at higher rates. Darden stands to become the largest foodservice company in the world for some time to come.

Statement of Cash Flows• Cash flows for the years ending 31-May-09 and 25-May-08 have superseded Net Income

for the same years respectfully by almost a 2:1 margin. Cash flow in 2008 was $734.2 million compared to net income of $377.2 million and Cash flow in 2009 was $782.4 million compared to net income $372.2 million.

• The Darden Restaurant Inc. company has been actively purchasing new property, plant and equipment at a rate of $240.7 million over a two year period. It has increased it assets to over $3.3 billion up from $3.0 billion. The company vision is to continue expansion and provide a quality experience to its customers through its chain of restaurants.

• The company is using long term financing to acquire its property, plant and equipment assets by taking on long term debt. It is maintaining its cash flow balance and has credit leverage through its continued growth margin of $591 million or 8.9%.

• Cash flow for the company has increased $48.2 million over the past two years. Darden is currently retaining cash and leveraging long term debt.


Accounting Policies


• 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.

• Leases. We are obligated under various lease agreements for certain restaurants. For operatingleases, we recognize rent expense on a straight-line basis over the expected lease term.

• Impairment of Long-Lived Assets. Land, buildings and equipment and certain other assets, including definite lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

• Valuation and Recoverability of Goodwill and Indefinite-Lived Intangible Assets. We review our goodwill and other indefinite-lived intangible assets, primarily our trademarks, for impairment annually, as of the first day of our fourth fiscal quarter or more frequently if indicators of impairment exist.

• Insurance Accrual. 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.

• 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.

Accounting Policies


1. Operations and Principles of Consolidation2. Basis of Presentation3. Fiscal Year4. Use of Estimates5. Reclassification6. Cash Equivalents7. Accounts Receivable8. Inventories9. Marketable Securities10. Land, Buildings and Equipment, Net11. Trust owned Life insurance12. Liquor Licenses13. Goodwill and other Intangibles14. Capitalized Software Costs intangibles15. Impaired or Disposal of Long lived assets16. Insurance Accruals17. Revenue Recognition18. Food and Beverage Costs19. Income Taxes

20. Derivative instruments and Hedging activities21. Leases22. Equity Forwards23. Pre-Opening Expenses24. Stock Based compensation25. Net Earnings Per Share26. Comprehensive Income Loss27. Foreign Currency28. Segment Reporting29. Application of New Accounting Standards30. Discontinued Operations31. Receivables, NET32. Asset Impairment, NET33. Long Term Debt34. Short Term Debt35. Other Commodity Contracts36. Other Current Liabilities37. Interest Rate Swaps38. Other Assets39. Advertising

(Summary of Significant Accounting Policies)

Financial Analysis - Liquidity Ratios


0.51 2007

0.41 2008

0.51 2009

Current Ratio

$ 1,074,400 $ 545,400 2007

$ 1,136,200 $ 467,900 2008

$ 1,096,100 $ 554,800 2009

Current LiabilitiesCurrent AssetsYear Ending

4 year Current Ratio

Darden Restaurants Inc.

0.51 2007

0.41 2008

0.51 2009

Current Ratio

$ 1,074,400 $ 545,400 2007

$ 1,136,200 $ 467,900 2008

$ 1,096,100 $ 554,800 2009

Current LiabilitiesCurrent AssetsYear Ending

4 year Current Ratio

Darden Restaurants Inc. • The 3 year Current Ratio Analysis shows:The ratio of 0.51 in 2009 means the company will have a hard time meeting short term obligations. The company is heavily leveraged for long term capital acquisitions and long term debt management. Although the company has high cash flowit has to meet its loan debts with higher interest rates due to the inflationary figures driven by the slower economy. Darden is so large that it’s liquidity is not positioned for short term but has a good position with its assets to meet its debt Obligations if it continues to be properly managed.

Financial Analysis - Profitability Ratios


3.62%2007

5.69%2008

5.16%2009

Net Profit Margin

$ 5,567,100 $ 201,400 2007

$ 6,626,500 $ 377,200 2008

$ 7,217,500 $ 372,200 2009

Net SalesNet IncomeYear Ending

4 year Net Profit Margin


3.62%2007

5.69%2008

5.16%2009

Net Profit Margin

$ 5,567,100 $ 201,400 2007

$ 6,626,500 $ 377,200 2008

$ 7,217,500 $ 372,200 2009

Net SalesNet IncomeYear Ending

4 year Net Profit Margin


6.99%2007

7.97%2008

7.41%2009

Return on Assets

$ 2,880,800 $ 201,400 2007

$ 4,730,600 $ 377,200 2008

$ 5,025,200 $ 372,200 2009

Avg Total AssetsNet IncomeYear Ending

4 year Return on Assets


6.99%2007

7.97%2008

7.41%2009

Return on Assets

$ 2,880,800 $ 201,400 2007

$ 4,730,600 $ 377,200 2008

$ 5,025,200 $ 372,200 2009

Avg Total AssetsNet IncomeYear Ending

4 year Return on Assets


18.40%2007

26.77%2008

23.18%2009

Return on Equity

$ 1,094,500 $ 201,400 2007

$ 1,409,100 $ 377,200 2008

$ 1,606,000 $ 372,200 2009

Stockholder EquityNet IncomeYear Ending

4 year Return on Equity


18.40%2007

26.77%2008

23.18%2009

Return on Equity

$ 1,094,500 $ 201,400 2007

$ 1,409,100 $ 377,200 2008

$ 1,606,000 $ 372,200 2009

Stockholder EquityNet IncomeYear Ending

4 year Return on Equity


$0.112007

$0.18 2008

$0.172009

EPS

$ 1,904,300 $ 201,400 2007

$ 2,074,900 $ 377,200 2008

$ 2,183,100 $ 372,200 2009

Common StockNet IncomeYear Ending

4 year Earnings per Share


$0.112007

$0.18 2008

$0.172009

EPS

$ 1,904,300 $ 201,400 2007

$ 2,074,900 $ 377,200 2008

$ 2,183,100 $ 372,200 2009

Common StockNet IncomeYear Ending

4 year Earnings per Share

Darden Restaurants Inc.• The Profitability Ratios Analysis shows:The Darden Restaurant Inc. Company has experienced growth in returns during the 2007 - 2008 period but is now reporting a decrease in profit margin, return on assets, return on equity and earnings per share to its stakeholders for the period between 2008 – 2009. This is due to the slowdown in the state of the economy and recession.

Financial Analysis - Solvency Ratio


163.21%2007

235.72%2008

212.90%2009

D/E Ratio

0.622007

0.70 2008

0.682009

D/A Ratios

$ 2,880,800 $ 1,786,300 2007

$ 4,730,600 $ 3,321,500 2008

$ 5,025,200 $ 3,419,200 2009

Total AssetsTotal LiabilitiesYear Ending

3 Year Debt to Equity


163.21%2007

235.72%2008

212.90%2009

D/E Ratio

0.622007

0.70 2008

0.682009

D/A Ratios

$ 2,880,800 $ 1,786,300 2007

$ 4,730,600 $ 3,321,500 2008

$ 5,025,200 $ 3,419,200 2009

Total AssetsTotal LiabilitiesYear Ending

3 Year Debt to Equity

Darden Restaurants Inc. • The Debt to Equity Ratio Analysis shows:The Darden Restaurant Inc. Company has become very aggressive in its growth over the past 5 years. The high Debt to Equity ratio reflects this growth has been heavily financed through long term debt. Darden has the ability to increase earnings for its shareholders however the cost of the debt financing may outweigh the return the company generates on debt through investment and the business activities that may grow too large for the company to handle. This may lead to bankruptcy if they sustain this level of growth without proper management within theindustry.


Corporate Responsibility Practices• Darden Restaurants’ has adopted a Code of Conduct, which it applies to all employees,

including its Company's Chief Executive Officer (CEO), and the Company's Chief Financial Officer (CFO), principal accounting officer, controller and persons performing similar functions ("Senior Financial Officers"). As a supplement to that Code additional specific policies for the executives mentioned above can be found at:DARDEN RESTAURANTS, INC. APPENDIX A, CODE OF ETHICS FOR CEO AND SENIOR FINANCIAL OFFICERS

• Darden Restaurants’ policy is to operate within the letter and spirit of all applicable laws and regulations. Darden’s core purpose is to nourish and delight everyone we serve, as supported by our core values of integrity and fairness, respect and caring, diversity, always learning – always teaching, being “of service”, teamwork and excellence.

• The Company expects each employee to reflect these core values, and exercise the highest levels of integrity, ethics, and objectivity in actions and relationships which may affect the Company, or where the employee represents or negotiates on behalf of the Company. Employees must not misuse the authority or influence of their positions in these relationships. When there is doubt as to whether an action is appropriate, or whether it will cause embarrassment to the Company or its reputation, it should be avoided.

http://www.dardenrestaurants.com/cg_conduct_code_app_a.asp

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Fitzpatrick Timothy Darden Acct503 Sp10