8-KEarnings & ResultsFinancial EventsExhibits & Filings

DARDEN RESTAURANTS INC 8-K Report, Financial Results (Dec 17, 2004)

Filed December 17, 2004For Securities:DRI

Summary

Darden Restaurants, Inc. (DRI) has filed an 8-K report on December 17, 2004, to announce a significant restatement of its financial statements. This restatement pertains to the incorrect calculation of straight-line rent expense and related deferred rent liability, affecting fiscal years 1996 through 2004 and the first quarter of fiscal 2005. The company will be revising its accounting for leases, including option periods, to align with accounting standards. While this restatement will reduce retained earnings by approximately $74 million by the end of fiscal 2004, it is not expected to impact cash flows, sales, or same-restaurant sales, nor will it affect compliance with debt covenants. Darden also reported its second-quarter results and increased its outlook for fiscal year 2005 diluted net earnings per share growth.

Key Highlights

  • 1Darden Restaurants is restating financial statements for fiscal years 1996-2004 and Q1 fiscal 2005 due to accounting errors in lease expense recognition.
  • 2The restatement addresses the incorrect calculation of straight-line rent expense and deferred rent liability.
  • 3The company will now recognize rent expense over the entire lease term, including option periods with economic penalties, and will commence the lease term when legally obligated for payments.
  • 4An estimated cumulative increase of $120 million in deferred rent liability and a decrease of $46 million in deferred income tax liability are expected.
  • 5Retained earnings are estimated to decrease by approximately $74 million by the end of fiscal 2004 as a result of the restatement.
  • 6Diluted net earnings per share will be reduced by an estimated $0.03, $0.04, and $0.03 for fiscal years 2002, 2003, and 2004, respectively.
  • 7The restatement will not impact cash flows, sales, same-restaurant sales, or debt covenant compliance.

Frequently Asked Questions

The primary reason for the 8-K filing is to announce that Darden Restaurants needs to restate its previously issued financial statements for fiscal years 1996 through 2004 and the first quarter of fiscal 2005. This is due to an incorrect calculation of straight-line rent expense and related deferred rent liability.

The restatement is expected to result in a cumulative increase in deferred rent liability of approximately $120 million and a decrease in deferred income tax liability of approximately $46 million by the end of fiscal 2004. Consequently, retained earnings are estimated to decrease by about $74 million. Rent expense will increase in fiscal years 2002-2004 and Q1 fiscal 2005, leading to a reduction in diluted net earnings per share for those periods.

No, the company explicitly states that the restatement will not have any impact on its previously reported cash flows, sales, or same-restaurant sales. Furthermore, it will not affect Darden's compliance with any covenants under its credit facility or other debt instruments.

The company will now recognize rent expense on a straight-line basis over the entire lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty. The lease term will commence on the date the company becomes legally obligated for rent payments. Previously, rent was expensed over the initial non-cancelable term, starting when rent payments began.