DARDEN RESTAURANTS INC MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
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 financial statement notes included in Part II of this report under the caption "Item 8 - Financial Statements and Supplementary Data." We operate on a 52/53-week fiscal year, which ends on the last Sunday in May. Fiscal 2022, which ended May 29, 2022, and fiscal 2021, which ended May 30, 2021, each consisted of 52 weeks.
OVERVIEW OF OPERATIONS
Our business operates in the full-service dining segment of the restaurant industry. At
May 29, 2022, we operated 1,867 restaurants through subsidiaries in the United Statesand Canadaunder the 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® trademarks. We own and operate all of our restaurants in the United Statesand Canada, except for 2 joint venture restaurants managed by us and 34 franchised restaurants. We also have 26 franchised restaurants in operation located in Latin America. All intercompany balances and transactions have been eliminated in consolidation.
COVID-19 pandemic and other impacts on our operating environment
For much of fiscal 2021, the COVID-19 pandemic resulted in a significant reduction in guest traffic at our restaurants due to changes in consumer behavior as public health officials encouraged social distancing and required personal protective equipment. Also, some state and local governments mandated restrictions including suspension of dine-in operations, reduced restaurant seating capacity, table spacing requirements, bar closures and additional physical barriers. Once COVID-19 vaccines were approved and moved into wider distribution in
the United Statesin early 2021, public health conditions improved and almost all of the COVID-19 restrictions on businesses eased. During fiscal 2022, increases in the number of cases of COVID-19 throughout the United Statesincluding the Omicron variant which significantly impacted our restaurants in the third quarter, mostly in January 2022, subjected some of our restaurants to other 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.
Fiscal 2022 Financial Highlights
• Total sales increased by 33.8% to reach
•Reported diluted net earnings per share from continuing operations increased to
$7.40in 2022 from $4.80in fiscal 2021, a 54.2 percent increase. •Net earnings from continuing operations increased to $954.7 millionin 2022 from $632.4 millionin fiscal 2021, a 51.0 percent increase. •Net loss from discontinued operations decreased to $1.9 million( $0.01per diluted share) for fiscal 2022, from $3.1 million( $0.03per diluted share) in fiscal 2021. When combined with results from continuing operations, our diluted net earnings per share was $7.39for fiscal 2022 and diluted net earnings per share was $4.77for fiscal 2021.
We expect fiscal 2023 sales from continuing operations to increase between 6 percent and 8 percent, driven by Darden same-restaurant sales growth of 4 percent to 6 percent, as well as sales from approximately 55-60 new restaurants. In fiscal 2023, we expect our annual effective tax rate to be 13.5 percent and we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and technology initiatives to be between
$500.0 millionand $550.0 million. 27 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR FISCAL 2022 AND 2021
To facilitate the review of our results of operations, the following table sets forth our financial results for the periods indicated. All information is taken from the consolidated statements of earnings for the years ended
Fiscal Year Ended Percent Change (in millions) May 29, 2022 May 30, 2021 2022 v. 2021 Sales
$ 9,630.0 $ 7,196.133.8% Costs and expenses: Food and beverage 2,943.6 2,072.1 42.1% Restaurant labor 3,108.8 2,286.3 36.0% Restaurant expenses 1,582.6 1,344.2 17.7% Marketing expenses 93.2 91.1 2.3% General and administrative expenses 373.2 396.2 (5.8)% Depreciation and amortization 368.4 350.9 5.0% Impairments and disposal of assets, net (2.0) 6.6 NM Total operating costs and expenses $ 8,467.8 $ 6,547.429.3% Operating income $ 1,162.2 $ 648.779.2% Interest, net 68.7 63.5 8.2% Other (income) expense, net - 8.7 NM Earnings before income taxes $ 1,093.5 $ 576.589.7% Income tax expense (benefit) (1) 138.8 (55.9) NM Earnings from continuing operations $ 954.7 $ 632.451.0% Losses from discontinued operations, net of tax (1.9) (3.1) (38.7)% Net earnings $ 952.8 $ 629.351.4% (1) Effective tax rate 12.7 % (9.7) % NM- Percentage change not considered meaningful. 28 -------------------------------------------------------------------------------- The following table details the number of company-owned restaurants currently reported in continuing operations, compared with the number open at the end of fiscal 2021: May 29, 2022 May 30, 2021 Olive Garden 884 875 LongHorn Steakhouse 546 533 Cheddar's Scratch Kitchen 172 170 Yard House 85 81 The Capital Grille 62 60 Seasons 52 45 44 Bahama Breeze 42 42 Eddie V's 28 26 The Capital Burger 3 3 Total 1,867 1,834 SALES The following table presents our company-owned restaurant sales, U.S.same-restaurant sales (SRS) and average annual sales per restaurant by segment for the periods indicated: Average Annual Sales per Restaurant Sales (2) Fiscal Year Ended Fiscal Year Ended (in millions) May 29, 2022 May 30, 2021 Percent Change SRS (1) May 29, 2022 May 30, 2021 Olive Garden $ 4,503.9 $ 3,593.425.3 % 24.1 % $ 5.1$ 4.1 LongHorn Steakhouse $ 2,374.3 $ 1,810.431.1 % 28.1 % $ 4.4$ 3.4 Fine Dining (3) $ 776.2 $ 443.275.1 % 62.7 % $ 8.8$ 5.4 Other Business (3) $ 1,975.6 $ 1,349.146.4 % 42.4 % $ 5.7$ 4.0 $ 9,630.0 $ 7,196.1
(1) Comparable restaurant sales are a year-over-year comparison of sales volumes in each period for a 52-week year and are limited to restaurants that have been open for at least 16 months.
(2) Average annual sales are calculated as sales divided by the restaurant’s total number of weeks in operation multiplied by 52 weeks; excludes franchise locations.
(3)In the first quarter of fiscal 2022, we changed our internal management reporting to include The Capital Burger in the Other Business segment. Previously, The Capital Burger was included in the Fine Dining segment due to its adjacency with The Capital Grille brand and overall immateriality. Fiscal 2021 figures have been restated for comparability. Olive Garden's sales increase for fiscal 2022 was primarily driven by a
U.S.same-restaurant sales increase combined with revenue from new restaurants. The increase in U.S.same-restaurant sales in fiscal 2022 resulted from a 18.9 percent increase in same-restaurant guest counts combined with a 4.4 percent increase in average check. LongHorn Steakhouse'ssales increase for fiscal 2022 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2022 resulted from a 22.8 percent increase in same-restaurant guest counts combined with a 4.3 percent increase in average check. Fine Dining's sales increase for fiscal 2022 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2022 resulted from a 53.9 percent increase in same-restaurant guest counts combined with a 5.8 percent increase in average check. Other Business's sales increase for fiscal 2022 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2022 resulted from a 30.4 percent increase in same-restaurant guest counts combined with a 9.3 percent increase in average check. 29 --------------------------------------------------------------------------------
COSTS AND EXPENSES
The following table sets forth selected operating data as a percent of sales from continuing operations for the periods indicated. This information is derived from the consolidated statements of earnings for the fiscal years ended
May 29, 2022and May 30, 2021. Fiscal Year Ended May 29, 2022 May 30, 2021 Sales 100.0 % 100.0 % Costs and expenses: Food and beverage 30.6 28.8 Restaurant labor 32.3 31.8 Restaurant expenses 16.4 18.7 Marketing expenses 1.0 1.3 General and administrative expenses 3.9 5.5 Depreciation and amortization 3.8 4.9 Impairments and disposal of assets, net - 0.1 Total operating costs and expenses 87.9 % 91.0 % Operating income 12.1 % 9.0 % Interest, net 0.7 0.9 Other (income) expense, net - 0.1 Earnings before income taxes 11.4 % 8.0 % Income tax expense (benefit) 1.4 (0.8) Earnings from continuing operations 9.9 % 8.8
Total operating expenses and expenses from continuing operations were
in fiscal year 2022 and
Financial year 2022 compared to financial year 2021:
•Food and beverage costs increased as a percent of sales primarily due to a 2.5% impact from inflation, partially offset by a 0.9% impact from pricing. •Restaurant labor costs increased as a percent of sales primarily due to a 2.4% impact from decreased productivity and a 2.3% impact from inflation, partially offset by a 4.2% impact from sales and pricing leverage. •Restaurant expenses decreased as a percent of sales primarily due to a 3.7% impact from sales and pricing leverage, partially offset by a 1.0% impact from higher repairs and maintenance expenses and utility costs and a 0.2% impact from higher credit card expense. •Marketing expenses decreased as a percent of sales primarily due to sales leverage. •General and administrative expenses decreased as a percent of sales primarily due to a 1.4% impact from sales leverage, and a 0.5% impact related to our corporate restructuring actions during the first quarter of fiscal 2021. •Depreciation and amortization expenses decreased as a percent of sales primarily due to sales leverage.
The effective income tax rates for fiscal 2022 and 2021 for continuing operations were 12.7 percent and (9.7) percent, respectively. During fiscal 2022, we had income tax expense of
$138.8 millionon earnings before income tax of $1.09 billioncompared to an income tax benefit of $55.9 millionon earnings before income taxes of $576.5 millionin fiscal 2021. The change was driven primarily by an increase in earnings before income taxes in fiscal 2022, in addition to the generation of a net operating loss for tax purposes in fiscal 2021 that was carried back to the previous five tax years. An income tax benefit was generated due to the difference in federal tax rates between fiscal year 2021 and the years to which the federal net operating loss was carried back. 30 --------------------------------------------------------------------------------
NET INCOME AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Net income from continuing operations for fiscal 2022 was
Net earnings from continuing operations for fiscal 2022 increased 51.0 percent and diluted net earnings per share from continuing operations increased 54.2 percent compared with fiscal 2021. In fiscal 2021, our diluted per share results from continuing operations were positively impacted by
$0.76due to a non-recurring income tax benefit, partially offset by $0.27due to our corporate restructuring in the first quarter of fiscal 2021.
LOSS OF DISCONTINUED OPERATIONS
On an after-tax basis, results from discontinued operations for fiscal 2022 were a net loss of
$1.9 million( $0.01per diluted share) compared with a net loss for fiscal 2021 of $3.1 million( $0.03per diluted share).
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 the U.S.and Canadaas operating segments. 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. Our four reportable segments are: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business. In the first quarter of fiscal 2022, we changed our internal management reporting to include The Capital Burger in the Other Business segment. Previously, The Capital Burger was included in the Fine Dining segment due to its adjacency with The Capital Grille brand and overall immateriality. Fiscal 2021 figures have been restated for comparability. See Note 5 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for further details. Our management uses segment profit as the measure for assessing performance of our segments. The following table presents segment profit margin for the periods indicated: Fiscal Year Ended Change Segment May 29, 2022 May 30, 2021 2022 vs 2021 Olive Garden 22.1% 23.2% (110) BP LongHorn Steakhouse 17.6% 17.9% (30) BP Fine Dining 21.3% 18.1% 320 BP Other Business 15.2% 14.3% 90 BP The decrease in the Olive Garden segment profit margin for fiscal 2022 was driven primarily by higher restaurant labor and food and beverage costs, offset by lower restaurant expenses. The decrease in the LongHorn Steakhousesegment profit margin for fiscal 2022 was driven primarily by higher food and beverage costs, offset by lower restaurant expenses. The increase in the Fine Dining segment profit margin for fiscal 2022 was driven primarily by lower restaurant expenses and restaurant labor, offset by higher food and beverage costs. The increase in the Other Business segment profit margin for fiscal 2022 was driven by lower restaurant expenses, offset by higher food and beverage costs.
RESULTS OF OPERATIONS FOR FISCAL YEAR 2021 COMPARED TO FISCAL YEAR 2020
For a comparison of our results of operations for the fiscal years ended
May 30, 2021and May 31, 2020, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended May 30, 2021, filed with the SECon July 23, 2021. SEASONALITY Our sales volumes have historically fluctuated seasonally. Typically, our average sales per restaurant are highest in the winter and spring, followed by the summer, and lowest in the fall. Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the historical seasonality of our business and these other factors, results for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. 31 --------------------------------------------------------------------------------
IMPACT OF INFLATION
We attempt to minimize the annual effects of inflation through appropriate planning, operating practices and menu price increases. We are currently operating in a period of higher than usual inflation, led by food and beverage cost and labor inflation. Food and beverage inflation is principally due to increased costs incurred by our vendors related to higher labor, transportation, packaging, and raw materials costs. Some of the impacts of the inflation have been offset by menu price increases and other adjustments made during the year. Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.
CRITICAL ACCOUNTING 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. Our significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report). 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 estimates to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements.
We evaluate our leases at their inception to estimate their expected term, which commences on the date when we have the right to control the use of the leased property and includes the non-cancelable base term plus all option periods we are reasonably certain to exercise. Our judgment in determining the appropriate expected term and discount rate for each lease affects our evaluation of:
•Classification and recognition of leases as operations versus financing;
•Rent holidays and indexation of payments that are included in the calculation of the rental obligation and the right-of-use asset; and
•The period over which each restaurant’s leasehold improvements are amortized.
These judgments may produce materially different amounts of lease liabilities and right-of-use assets recognized on our consolidated balance sheets, as well as depreciation, amortization, interest and rent expense recognized in our consolidated statements of earnings if different discount rates and expected lease terms were used. Valuation of Long-Lived Assets Land, buildings and equipment, operating lease right-of-use assets 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. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; changes in expected useful life; unanticipated competition; slower growth rates, ongoing maintenance and improvements of the assets, or changes in the usage or operating performance. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. Based on a review of operating results for each of our restaurants, given the current operating environment, the amount of net book value associated with lower performing restaurants that would be deemed at risk for impairment is not material to our consolidated financial statements. Valuation and Recoverability of
Goodwilland Trademarks Goodwilland trademarks are not subject to amortization and goodwill has been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant brands. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. We review our goodwill and trademarks for impairment annually, as of the first day of our fourth fiscal quarter, or more frequently if indicators of impairment exist. 32 -------------------------------------------------------------------------------- During fiscal 2022, we elected to perform a qualitative assessment for our annual impairment review of goodwill and trademarks to determine whether or not indicators of impairment exist. In considering the qualitative approach related to goodwill, we evaluated factors including, but not limited to, COVID-19, macro-economic conditions, market and industry conditions, commodity cost fluctuations, competitive environment, share price performance, results of prior impairment tests, operational stability, the overall financial performance of the reporting units and the impacts of discount rates. As it relates to trademarks, we evaluate similar factors from the goodwill assessment, in addition to impacts of royalty rates. Based on the results of the qualitative assessment which considered the improvements of each of our brands' financial performance, as well as the improved overall operating environment, no indicators of impairment were identified. Changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management's judgments and assumptions made in assessing the fair value of our goodwill and trademarks, could result in an impairment loss of a portion or all of our goodwill or trademarks. Impairment of our assets, including goodwill or trademarks, adversely affects our financial position and results of operations, and our leverage ratio for purposes of our revolving credit agreement (Revolving Credit Agreement) increases. A leverage ratio exceeding the maximum permitted under our Revolving Credit Agreement would be a default under our Revolving Credit Agreement. At May 29, 2022, additional write-downs of goodwill, other indefinite-lived intangible assets, or any other assets in excess of approximately $1.03 billionwould have been required to cause our leverage ratio to exceed the permitted maximum. As our leverage ratio is determined on a quarterly basis, and due to the seasonal nature of our business, a lesser amount of impairment in future quarters could cause our leverage ratio to exceed the permitted maximum. Unearned Revenues Unearned revenues primarily represent our liability for gift cards that have been sold but not yet redeemed. The estimated value of gift cards expected to remain unused is recognized over the expected period of redemption as the remaining gift card values are redeemed, generally over a period of 12 years. Utilizing this method, we estimate both the amount of breakage and the time period of redemption. If actual redemption patterns vary from our estimates, actual gift card breakage income may differ from the amounts recorded. We update our estimates of our redemption period and our breakage rate periodically and apply that rate to gift card redemptions on a prospective basis. Changing our breakage-rate estimates by 50 basis points would have resulted in an adjustment in our breakage income of approximately $3.1 millionfor fiscal 2022. 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. Assessment of uncertain tax positions requires judgments relating to the amounts, timing and likelihood of resolution. As described in Note 12 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report), the $22.2 millionbalance of unrecognized tax benefits at May 29, 2022, includes $5.8 millionrelated to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations. Of the $5.8 million, $3.7 millionrelates to items that would impact our effective income tax rate.
CASH AND CAPITAL RESOURCES
Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures for new restaurants and to remodel and maintain existing restaurants, to pay dividends to our shareholders and to repurchase shares of our common stock. Since substantially all of our sales are for cash and cash equivalents, and accounts payable are generally paid in 5 to 90 days, we are typically able to carry current liabilities in excess of current assets.
We are currently managing our commercial and financial ratios to target an investment grade bond rating, which has historically provided flexible access to funding at reasonable costs. Our publicly issued long-term debt currently bears the following ratings:
•Moody's Investors Service "Baa2"; •Standard & Poor's "BBB"; and •Fitch "BBB". Our commercial paper has ratings of: •Moody's Investors Service "P-2"; •Standard & Poor's "A-2"; and •Fitch "F-2". 33 -------------------------------------------------------------------------------- These ratings are as of the date of the filing of this report and have been obtained with the understanding that Moody's Investors Service,
Standard & Poor'sand 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. On September 10, 2021, we entered into a $1 billionRevolving Credit Agreement (Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to the Company and contains customary representations and affirmative and negative covenants (including limitations on liens and subsidiary debt and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. The Revolving Credit Agreement replaced our prior $750.0 millionrevolving credit agreement, dated as of October 27, 2017and amended as of March 25, 2020. As of May 29, 2022, we had no outstanding balances and we were in compliance with all covenants under the Revolving Credit Agreement. The Revolving Credit Agreement matures on September 10, 2026, and the proceeds may be used for working capital and capital expenditures, the refinancing of certain indebtedness, certain acquisitions and general corporate purposes. Loans under the Revolving Credit Agreement bear interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid (Applicable Margin), or the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Eurodollar Rate plus 1.00 percent) plus the Applicable Margin. Assuming a "BBB" equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement will be 1.000 percent for LIBOR loans and 0.000 percent for base rate loans.
• $500.0 million of 3.850% senior unsecured notes due in
• $96.3 million of 6,000% senior unsecured notes due in
• $42.8 million of 6.800% senior unsecured notes due in
• $300.0 million of 4.550% senior unsecured notes due in
The interest rate on our
$42.8 million6.800 percent senior notes due October 2037is subject to adjustment from time to time if the debt rating assigned to such series of notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As of May 29, 2022, no such adjustments are made to this rate. Through our shelf registration statement on file with the SEC, depending on conditions prevailing in the public capital markets, we may issue equity securities or unsecured debt securities from time to time in one or more series, which may consist of notes, debentures or other evidences of indebtedness in one or more offerings.
From time to time, we may redeem our outstanding indebtedness in over-the-counter transactions. Such redemptions, if any, will depend on prevailing market conditions, our cash requirements and other factors.
From time to time, we enter into interest rate derivative instruments to manage the interest rate risk inherent in our business. See Note 7 of the Notes to the consolidated financial statements (Part II, Item 8 of this report).
34 -------------------------------------------------------------------------------- A summary of our contractual obligations and commercial commitments at
May 29, 2022, is as follows: (in millions) Payments Due by Period Less Than 1-3 3-5 More Than Contractual Obligations Total 1 Year Years Years 5 Years Long-term debt (1) $ 1,513.3 $ 41.6 $ 83.2 $ 583.2 $ 805.3Leases (2) 3,087.1 424.5 791.1 687.5 1,184.0 Purchase obligations (3) 745.6 520.2 221.0 4.4 - Benefit obligations (4) 395.7 33.9 71.2 76.0 214.6 Unrecognized income tax benefits (5) 24.4 7.2 4.6 12.6 - Total contractual obligations $ 5,766.1 $ 1,027.4 $ 1,171.1 $ 1,363.7 $ 2,203.9(in millions)
Commitment expiration amount per period
Total Amounts Less Than 1-3 3-5 More Than Other Commercial Commitments Committed 1 Year Years Years 5 Years Standby letters of credit (6)
$123.6 – $ – $ – Guarantees (7)
101.0 32.0 43.8 19.0 6.2 Total commercial commitments
(1) Includes interest payments associated with existing long-term debt. Excluding discount and issue costs of
(2) Includes future non-cancellable operating lease and finance lease commitments.
(3)Includes commitments for food and beverage and supplies, capital projects, information technology and other miscellaneous items.
(4)Includes expected contributions associated with our supplemental defined benefit pension plan and payments associated with our post-retirement benefit plan and non-qualified deferred compensation plan through fiscal 2032.
(5)Includes interest on unrecognized income tax benefits of
$2.2 million, $1.4 millionof which relates to contingencies expected to be resolved within one year. (6)Includes letters of credit for $104.8 millionof workers' compensation and general liabilities accrued in our consolidated financial statements and letters of credit for $18.8 millionof surety bonds related to other payments. (7)Consists solely of guarantees associated with leased properties that have been assigned to third parties and are primarily related to the disposition of Red Lobster in fiscal 2015. 35 -------------------------------------------------------------------------------- Our adjusted debt to adjusted total capital ratio was 61 percent and 55 percent as of May 29, 2022and May 30, 2021, respectively. Based on these ratios, we believe our financial condition is strong. We include the lease-debt equivalent and contractual lease guarantees 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 and because it is consistent with the calculation of the covenant under our Revolving Credit Agreement. For fiscal 2022 and fiscal 2021, the lease-debt equivalent includes 6.00 times the total annual minimum rent for consolidated lease obligations of $409.8 millionand $385.7 million, respectively. The composition of our capital structure is shown in the following table: (in millions, except ratios) May 29, 2022 May 30, 2021 CAPITAL STRUCTURE Long-term debt, excluding unamortized discount and issuance costs and fair value hedge 939.1 938.9 Total debt $ 939.1 $ 938.9Stockholders' equity 2,198.2 2,813.1 Total capital $ 3,137.3 $ 3,752.0CALCULATION OF ADJUSTED CAPITAL Total debt $ 939.1 $ 938.9Lease-debt equivalent 2,459.0 2,314.2 Guarantees 101.0 121.5 Adjusted debt $ 3,499.1 $ 3,374.6Stockholders' equity 2,198.2 2,813.1 Adjusted total capital $ 5,697.3 $ 6,187.7CAPITAL STRUCTURE RATIOS Debt to total capital ratio 30 % 25 % Adjusted debt to adjusted total capital ratio 61 % 55 % Net cash flows provided by operating activities from continuing operations were $1.26 billionand $1.19 billionin fiscal 2022 and 2021, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of $954.7 millionin fiscal 2022 and $632.4 millionin fiscal 2021. Net cash flows provided by operating activities from continuing operations increased in fiscal 2022 primarily due to higher net earnings from continuing operations.
Net cash used in investing activities from continuing operations was
Net cash flows used in financing activities from continuing operations were
$1.61 billionand $478.9 millionin fiscal 2022 and 2021, respectively. Net cash flows used in financing activities in fiscal 2022 included dividend payments of $563.0 millionand share repurchases of $1.07 billion, partially offset by proceeds from the exercise of employee stock options. Net cash flows used in financing activities in fiscal 2021 included repayment of $270.0 millionfrom a 364-day term loan, dividend payments of $202.6 millionand share repurchases of $45.4 million, partially offset by proceeds from the exercise of employee stock options. Our defined benefit and other postretirement benefit costs and liabilities are determined using various actuarial assumptions and methodologies prescribed under Financial Accounting Standards Board Accounting Standards Codification Topic 715, Compensation - Retirement Benefits and Topic 712, Compensation - Nonretirement Postemployment Benefits. We expect to contribute approximately $0.4 millionto our supplemental defined benefit pension plan and approximately $1.9 millionto our postretirement benefit plan during fiscal 2023. 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, the potential issuance of equity or unsecured debt securities under our shelf registration statement and short-term commercial paper or drawings under our Revolving Credit Agreement should be sufficient to finance our capital expenditures, debt maturities and other operating activities through fiscal 2023. 36
OFF-BALANCE SHEET ARRANGEMENTS
We are not party to any off-balance sheet arrangement that has, or is reasonably likely to have, a material current or future effect on our financial condition, changes in our financial condition, our sales or expenses, our results of operations, our cash, capital expenditures or capital resources.
Our total current assets were
$1.18 billionat May 29, 2022, compared with $1.87 billionat May 30, 2021. The decrease was primarily due to a decrease in cash and cash equivalents driven by increased share repurchases in fiscal 2022. Our total current liabilities were $1.85 billionat May 29, 2022and May 30, 2021. Decreases in other current liabilities were offset by increases in accounts payable and unearned revenues associated with gift card sales in excess of gift card redemptions.
APPLICATION OF NEW ACCOUNTING STANDARDS
See note 1 of the notes to the consolidated financial statements (part II, point 8 of this report) for a discussion of recently issued accounting standards.
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