DARDEN RESTAURANTS

Darden Restaurants, Inc. (Darden or the Company) operates 1,139 Red Lobster, Olive Garden, Bahama Breeze and Smokey Bones restaurants in the U.S. and Canada and licenses 35 restaurants in Japan. All of the restaurants in the U.S. and Canada are operated by the Company with no franchising.

This discussion should be read in conjunction with the business information and the consolidated financial statements and related notes found elsewhere in this report. Darden's fiscal year ends on the last Sunday in May.

Revenues
Total revenues in 2000 (52 weeks) were $3.70 billion, a seven percent increase from 1999 (52 weeks). Total revenues in 1999 were $3.46 billion, a five percent increase from 1998 (53 weeks).

Costs and Expenses
Food and beverage costs for 2000 were 32.4 percent of sales, a decrease of 0.4 percentage points from 1999 and a decrease of 0.6 percentage points from 1998. The lower level of food and beverage costs for 2000, as a percentage of sales, is primarily attributable to pricing, margin improving initiatives such as waste reduction, and a lower-margin promotion run by Red Lobster during the first quarter last year.

Restaurant labor decreased in 2000 to 31.9 percent of sales compared to 32.3 percent of sales in 1999 and 1998 primarily due to efficiencies resulting from higher sales volumes.

Restaurant expenses (primarily lease expenses, property taxes, utilities and workers’ compensation costs) decreased in 2000 to 14.1 percent of sales compared to 14.3 percent in 1999 and 14.7 percent in 1998 primarily as a result of higher sales volumes and the fixed component of these expenses which are not impacted by higher sales volumes.

Selling, general and administrative expenses decreased in 2000 to 10.3 percent of sales compared to
10.4 percent in 1999 and 10.9 percent in 1998. The decreases in 2000 and 1999 in comparison to 1998 are principally a result of reduced marketing expenses as a percent of sales offset by additional labor costs associated with new concept expansion and development. Depreciation and amortization expense of 3.5 percent of sales in 2000 decreased from 3.6 percent in 1999 and 3.8 percent in 1998 primarily as a result of increased sales levels. Interest expense was comparable from year to year at 0.6 percent of sales.

Income From Operations
Pre-tax earnings before net restructuring and asset impairment credit increased by 29.2 percent in 2000 to $268.0 million, compared to $207.4 million in 1999 and $153.7 million in 1998. The increase in 2000 was mainly attributable to annual same-restaurant sales increases in the U.S. for both Red Lobster and Olive Garden totaling 7.6 percent and 7.2 percent, respectively. The increase in 1999 was mainly attributable to annual same-restaurant sales increases in the U.S. for both Red Lobster and Olive Garden totaling 7.4 percent and 9.0 percent, respectively. Red Lobster and Olive Garden have enjoyed ten and 23 consecutive quarters of U.S. same-restaurant sales increases, respectively.

Provision for Income Taxes
The effective tax rate for 2000 before net restructuring and asset impairment credit was 35.4 percent compared to 34.8 percent in 1999 and 33.8 percent in 1998. The increase in the effective tax rates each year is a result of higher annual pre-tax earnings.