DARDEN RESTAURANTS, INC. This discussion and analysis below forDarden 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 endedMay 29, 2022 , and fiscal 2021, which endedMay 30, 2021 , each consisted of 52 weeks.
OVERVIEW OF OPERATIONS
Our business operates in the full-service dining segment of the restaurant industry. AtMay 29, 2022 , we operated 1,867 restaurants through subsidiaries inthe United States andCanada under 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 inthe United States andCanada , except for 2 joint venture restaurants managed by us and 34 franchised restaurants. We also have 26 franchised restaurants in operation located inLatin America . All intercompany balances and transactions have been eliminated in consolidation.
COVID-19 Pandemic and Other Impacts to 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 inthe United States in 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 throughoutthe United States including the Omicron variant which significantly impacted our restaurants in the third quarter, mostly inJanuary 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 33.8% to
•Reported diluted net earnings per share from continuing operations increased to$7.40 in 2022 from$4.80 in fiscal 2021, a 54.2 percent increase. •Net earnings from continuing operations increased to$954.7 million in 2022 from$632.4 million in fiscal 2021, a 51.0 percent increase. •Net loss from discontinued operations decreased to$1.9 million ($0.01 per diluted share) for fiscal 2022, from$3.1 million ($0.03 per diluted share) in fiscal 2021. When combined with results from continuing operations, our diluted net earnings per share was$7.39 for fiscal 2022 and diluted net earnings per share was$4.77 for fiscal 2021.
Outlook
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 million and$550.0 million . 27 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR FISCAL 2022 AND 2021
To facilitate review of our results of operations, the following table sets
forth our financial results for the periods indicated. All information is
derived from the consolidated statements of earnings for the fiscal years ended
Fiscal Year Ended Percent Change
(in millions) May 29, 2022 May 30, 2021 2022 v. 2021
Sales $ 9,630.0 $ 7,196.1 33.8%
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 $ 6,547.4 29.3%
Operating income $ 1,162.2 $ 648.7 79.2%
Interest, net 68.7 63.5 8.2%
Other (income) expense, net - 8.7 NM
Earnings before income taxes $ 1,093.5 $ 576.5 89.7%
Income tax expense (benefit) (1) 138.8 (55.9) NM
Earnings from continuing operations $ 954.7 $ 632.4 51.0%
Losses from discontinued operations, net of tax (1.9) (3.1) (38.7)%
Net earnings $ 952.8 $ 629.3 51.4%
(1) Effective tax rate 12.7 % (9.7) %
NM- Percentage change not considered meaningful.
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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 $ 3,593.4 25.3 % 24.1 % $ 5.1 $ 4.1
LongHorn Steakhouse $ 2,374.3 $ 1,810.4 31.1 % 28.1 % $ 4.4 $ 3.4
Fine Dining (3) $ 776.2 $ 443.2 75.1 % 62.7 % $ 8.8 $ 5.4
Other Business (3) $ 1,975.6 $ 1,349.1 46.4 % 42.4 % $ 5.7 $ 4.0
$ 9,630.0 $ 7,196.1 (1)Same-restaurant sales is a year-over-year comparison of each period's sales volumes for a 52-week year and is limited to restaurants open at least 16 months.
(2)Average annual sales are calculated as sales divided by total restaurant operating weeks 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 aU.S. same-restaurant sales increase combined with revenue from new restaurants. The increase inU.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'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 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 endedMay 29, 2022 andMay 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 costs and expenses from continuing operations were
Fiscal 2022 Compared to Fiscal 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.
INCOME TAXES
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 million on earnings before income tax of$1.09 billion compared to an income tax benefit of$55.9 million on earnings before income taxes of$576.5 million in 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 EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Net earnings from continuing operations for fiscal 2022 were
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$0.76 due to a non-recurring income tax benefit, partially offset by$0.27 due to our corporate restructuring in the first quarter of fiscal 2021.
LOSS FROM DISCONTINUED OPERATIONS
On an after-tax basis, results from discontinued operations for fiscal 2022 were a net loss of$1.9 million ($0.01 per diluted share) compared with a net loss for fiscal 2021 of$3.1 million ($0.03 per diluted share).
SEGMENT RESULTS
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 theU.S. andCanada as 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 theLongHorn Steakhouse segment 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 2021 COMPARED TO FISCAL 2020
For a comparison of our results of operations for the fiscal years endedMay 30, 2021 andMay 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 endedMay 30, 2021 , filed with theSEC onJuly 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 withU.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.
Leases
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:
•The classification and accounting for leases as operating versus finance;
•The rent holidays and escalation in payments that are included in the calculation of the lease liability and related right-of-use asset; and
•The term over which leasehold improvements for each restaurant facility 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 ofGoodwill and TrademarksGoodwill and 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. AtMay 29, 2022 , additional write-downs of goodwill, other indefinite-lived intangible assets, or any other assets in excess of approximately$1.03 billion would 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 million for 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 million balance of unrecognized tax benefits atMay 29, 2022 , includes$5.8 million related 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 million relates to items that would impact our effective income tax rate.
LIQUIDITY 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 currently manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable costs. Our publicly issued long-term debt currently carries 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".
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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's and 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 billion Revolving 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 million revolving credit agreement, dated as of
October 27, 2017 and 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.
As of
•$500.0 million of unsecured 3.850 percent senior notes due in
•$96.3 million of unsecured 6.000 percent senior notes due in
•$42.8 million of unsecured 6.800 percent senior notes due in
•$300.0 million of unsecured 4.550 percent senior notes due in
The interest rate on our$42.8 million 6.800 percent senior notes dueOctober 2037 is 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 ofMay 29, 2022 , no such adjustments are made to this rate. Through our shelf registration statement on file with theSEC , 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 repurchase our outstanding debt in privately negotiated transactions. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors.
From time to time, we enter into interest rate derivative instruments to manage interest rate risk inherent in our operations. See Note 7 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report).
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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 $ 805.3
Leases (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) Amount of Commitment Expiration 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 $ 123.6 $ - $ - $ - Guarantees (7)
101.0 32.0 43.8 19.0 6.2
Total commercial commitments $ 224.6 $
155.6
(1)Includes interest payments associated with existing long-term debt. Excludes
discount and issuance costs of
(2)Includes non-cancelable future operating lease and finance lease commitments.
(3)Includes commitments for food and beverage items 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 postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2032.
(5)Includes interest on unrecognized income tax benefits of$2.2 million ,$1.4 million of which relates to contingencies expected to be resolved within one year. (6)Includes letters of credit for$104.8 million of workers' compensation and general liabilities accrued in our consolidated financial statements and letters of credit for$18.8 million of 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 ofMay 29, 2022 andMay 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 million and$385.7 million , respectively. The composition of our capital structure is shown in the following table: (in millions, except ratios) May 29, 2022 May 30, 2021 CAPITAL STRUCTURE Long-term debt, excluding unamortized discount and issuance costs and fair value hedge 939.1 938.9 Total debt$ 939.1 $ 938.9 Stockholders' equity 2,198.2 2,813.1 Total capital$ 3,137.3 $ 3,752.0 CALCULATION OF ADJUSTED CAPITAL Total debt$ 939.1 $ 938.9 Lease-debt equivalent 2,459.0 2,314.2 Guarantees 101.0 121.5 Adjusted debt$ 3,499.1 $ 3,374.6 Stockholders' equity 2,198.2 2,813.1 Adjusted total capital$ 5,697.3 $ 6,187.7 CAPITAL 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 billion and$1.19 billion in fiscal 2022 and 2021, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of$954.7 million in fiscal 2022 and$632.4 million in 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 flows used in investing activities from continuing operations were
Net cash flows used in financing activities from continuing operations were$1.61 billion and$478.9 million in fiscal 2022 and 2021, respectively. Net cash flows used in financing activities in fiscal 2022 included dividend payments of$563.0 million and 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 million from a 364-day term loan, dividend payments of$202.6 million and 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 million to our supplemental defined benefit pension plan and approximately$1.9 million to 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
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OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources.
FINANCIAL CONDITION
Our total current assets were$1.18 billion atMay 29, 2022 , compared with$1.87 billion atMay 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 billion atMay 29, 2022 andMay 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 Consolidated Financial Statements (Part II, Item 8 of this report) for a discussion of recently issued accounting standards.
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