• Our total sales growth from continuing operations continued to reflect a balance of new- and same-restaurant sales growth. Combined U.S. same-restaurant sales increased 1.8 percent in fiscal 2012 for the Company's large brands (Olive Garden, Red Lobster and LongHorn Steakhouse), which was higher than the 1.4 percent increase in fiscal 2011 and exceeded the 1.3 percent same-restaurant sales increase in fiscal 2012 for the Knapp-Track^™ restaurant benchmark, excluding Darden. Combined U.S. same-restaurant sales increased 4.6 percent in fiscal 2012 for the Company's Specialty Restaurant Group (The Capital Grille, Bahama Breeze, Seasons 52 and Eddie V's). The Company also had a 4.7 percent increase in sales in fiscal year 2012 due to new restaurants, which included the acquisition of 11 Eddie V's restaurants in fiscal 2012 and the net addition of 89 net new restaurants during the year at our other brands.

• Net earnings from continuing operations were $476.5 million in fiscal 2012, a 0.5 percent decrease from net earnings from continuing operations of $478.7 million in fiscal 2011. Diluted net earnings per share from continuing operations were $3.58 in fiscal 2012, a 5.0 percent increase from diluted net earnings per share of $3.41 in fiscal 2011.

• In fiscal 2012, on an after-tax basis, net losses from discontinued operations were $1.0 million and diluted net losses per share from discontinued operations were $0.01, related primarily to the carrying costs and losses on the remaining properties held for disposition associated with Smokey Bones Barbeque & Grill and Bahama Breeze closings from fiscal 2007 and fiscal 2008. Including losses from discontinued operations, combined net earnings were $475.5 million in fiscal 2012, 0.2 percent below the combined net earnings of $476.3 million in fiscal 2011. Including losses from discontinued operations, combined diluted net earnings per share were $3.57 in fiscal 2012, compared to $3.39 in fiscal 2011.

• Olive Garden's total sales were $3.58 billion, up 2.5 percent from fiscal 2011. This reflected average annual sales per restaurant of $4.7 million, the addition of 38 net new restaurants and a U.S. same-restaurant sales decrease of 1.2 percent.

• Red Lobster's total sales were $2.67 billion, a 5.9 percent increase from fiscal 2011. This reflected average annual sales per restaurant of $3.8 million, the addition of six net new restaurants and a U.S. same-restaurant sales increase of 4.6 percent.

• LongHorn Steakhouse's total sales were $1.12 billion, up 13.5 percent from fiscal 2011. This reflected average annual sales per restaurant of $3.0 million in fiscal 2012, the addition of 32 net new restaurants and a U.S. same-restaurant sales increase of 5.3 percent.

• The Specialty Restaurant Group's total sales were $623 million, a 24.1 percent increase from fiscal 2011, and reflected strong growth from its three legacy brands as well as the addition of Eddie V's. Total sales increased 10.3 percent at The Capital Grille to $305 million, based on a same-restaurant sales increase of 5.3 percent and the addition of two net new restaurants. Total sales increased 12.5 percent for Bahama Breeze to $154 million, based on a same-restaurant sales increase of 3.4 percent and the addition of four new restaurants. And total sales increased 45.3 percent at Seasons 52 to $128 million, based on a same-restaurant sales increase of 3.8 percent and the addition of six new restaurants. Finally, the acquisition and operation of the 11 Eddie V's restaurants added $35 million of sales in fiscal 2012.

• We continued the buyback of Darden common stock, spending $375 million in fiscal 2012 to repurchase 8.2 million shares. Since our share repurchase program began in 1995, we have repurchased over 170 million shares of our common stock for $3.77 billion, which amounts to approximately 55 percent of our market capitalization as of the end of fiscal 2012.

Creating Compelling Value

As we look forward, we believe that over the next five years we have the opportunity to increase our annual revenues by $3 billion to $4.5 billion and increase our annual diluted net earnings per share from continuing operations by $2.15 to $3.65, while returning $2.9 billion to $3.6 billion to shareholders through dividends and repurchase of our common stock. And, we have this level of opportunity even before including the effect of our pending acquisition of Yard House, which is expected to close early in our fiscal second quarter.

One of the most exciting brands in the full-service restaurant industry, Yard House currently operates 39 restaurants in 13 states, its average sales per restaurant are $8.4 million, it achieved compound annual sales growth of 21 percent from 2009 through 2011, and today it is on track to open at least five new restaurants each year for the next several years. Based on its success and expansion since the first restaurant opened in 1996, we believe Yard House has the potential to reach at least 150 to 200 restaurants nationally.

Given Darden's current scale, scope and capital cost, we think it is appropriate to define the level of sales, earnings and cash flow growth we envision – which will be elevated by the addition of Yard House – as compelling value creation.

We are confident we can achieve these growth goals for two reasons. First, we have a track record of creating comparable value. Since fiscal 2008, for example, our annual revenues increased by $1.4 billion, our annual diluted net earnings per share from continuing operations increased by $1.03 and our cumulative dividends and share repurchase totaled $1.9 billion. Second, we believe our Company has what it takes to deliver on the opportunity before us. Our brands have strong individual and collective growth profiles. We have a wealth of collective experience and expertise. Our operating support platform is robust and ever more cost-effective. In addition, we have a vibrant culture that is marked by both an insatiable appetite to win in the marketplace and a burning desire to make a positive difference in the lives of our guests, employees, partners and neighbors.

Strong Brands

We have a demonstrated ability to build compelling brands and evolve them over time so that they remain highly relevant to restaurant consumers. These capabilities show in the competitively superior same-restaurant sales growth we achieved in fiscal 2012 at Red Lobster and LongHorn Steakhouse, which are in their fifth and fourth decades of operation, respectively. Their performance reflects considerable work over the past several years in refreshing critical brand elements, including each brand's promotional approach, core menu, advertising, and restaurant design and décor. They show as well in the fundamental strength of Olive Garden, which – in its fourth decade of operation – has average sales per restaurant that are among the highest in the industry for nationally advertised casual dining chains.

Our brand management capabilities also show in our comprehensive action plan to address Olive Garden's recent same-restaurant sales softness. We believe the loss of sales momentum is the result of erosion over time in the value leadership position Olive Garden has long enjoyed compared to competitors. In response, we are taking a number of steps. For one, we have been changing Olive Garden's promotional approach. In the second half of fiscal 2012, we accelerated our movement away from promotions that feature one or two new dishes, sometimes at a price point – an approach that worked well for over a decade but has grown increasingly less effective over the past 18 months. Our new approach is consistent with Red Lobster's and LongHorn Steakhouse's strategy for the past two years. We are featuring a wider variety of dishes that are part of a broader value and/or culinary theme, and when there is a price point, our advertising is focusing more intensively on price and affordability.

In fiscal 2013, we will also introduce a new advertising campaign at Olive Garden that communicates key brand attributes, including value and affordability, in a fresher way. In addition, we will make meaningful changes to the core menu to increase the number of approachable price points in each menu category and begin ramping up the remodeling of our earliest 430 Olive Garden restaurants.

With these and other enhancements at Olive Garden and continued momentum at Red Lobster, LongHorn Steakhouse and our Specialty Restaurant Group brands, we continue to target compound annual same-restaurant sales growth of 2 percent to 4 percent over the long-term. We expect, however, that fiscal 2013 will be another year of below normalized economic growth. Therefore, we are planning same-restaurant sales growth of 1 percent to 2 percent this year.

The performance of our new restaurants, which are generating value-creating returns on an overall basis, is another indication of the strength of our brands. In fiscal 2013, we will once again accelerate new-restaurant expansion, opening a total of 100 to 110 net new restaurants, excluding Yard House, up from 89 in fiscal 2012. At LongHorn Steakhouse, which remains on track to become a national brand, we plan to add 44 to 48 net new restaurants in fiscal 2013 and 200 to 220 new units over the next five years. At Olive Garden, which continues to have an ultimate unit potential in North America of 925 to 975 restaurants, our plan is to open 35 to 40 net new restaurants in fiscal 2013 and 125 to 135 new restaurants over the next five years. Excluding Yard House's addition to the Group, we plan to add 14 to 16 net new restaurants at our Specialty Restaurant Group in fiscal 2013 and 100 to 110 over the next five years.

In total, excluding Yard House, we expect overall new-restaurant growth for the Company to be approximately 5 percent in fiscal 2013, reaching what has been our long-range target for some time now. And including or excluding Yard House, we expect to meet or exceed that level of growth each of the following four years.

A WEALTH OF COLLECTIVE EXPERIENCE AND EXPERTISE

We believe the breadth and depth of our collective experience and expertise – which the addition of the talented team at Yard House will only increase – sets us apart in the full-service restaurant industry. This collective capability is the product of investments over many years in areas that are critical to success in our business, including brand-management excellence, restaurant operations excellence, supply chain, talent management and information technology, among other things. To support future growth, we are changing in two important ways. We are modifying our organizational structure so we can better leverage our existing experience and expertise. And we are adding new expertise in additional areas that are critical to future success.

A significant structural change occurred in fiscal 2008, with the acquisition of LongHorn Steakhouse and The Capital Grille, when we created the Specialty Restaurant Group. The Specialty Restaurant Group provides our smaller brands with world-class leadership and with support that is tailored to meet their needs, without burdening them with costs that compromise their ability to create value.

Several more recent structural changes reflect the recognition that, with the tremendous day-to-day retail intensity of our business, we were not paying sufficient attention to major sales-building opportunities that have longer lead times. To take full advantage of these opportunities, in the past two years we have created enterprise-level Marketing and Restaurant Operations units and established forward-looking strategy units in our Finance and Information Technology functions. These teams have been resourced with talented leaders who have long tenure with the Company and with talented professionals new to the organization. Together, the teams are developing a more robust longer-term growth agenda to supplement the ongoing work of our brands. In fiscal 2013, we will be in the marketplace with two of the resulting initiatives – a greatly enhanced "To Go!" takeout operation at Olive Garden to respond to guests' increasing need for convenience, and a national Spanish-language advertising campaign for Red Lobster to increase awareness among, and visits from, Hispanic and Latino consumers. We are excited about these efforts and about other aspects of the longer-term growth agenda that are now under development for deployment in fiscal 2014 and beyond.

INCREASINGLY COST-EFFECTIVE SUPPORT

The total sales growth we envision will increase the cost-effectiveness of our support platform by leveraging the meaningful fixed and semi-fixed costs in our business. However, sales growth alone is not sufficient. We anticipate persistent upward pressure on our food costs, for example, driven by a sustained rise in global wealth, especially in emerging nations with large populations. We also expect persistent upward pressure on regulatory and compliance costs as increasing global transparency translates into rising expectations from the public and from non-public policymakers regarding how we conduct our business.

As we noted in our letter to you last year, in response to these and other dynamics we have been supplementing our conventional incremental year-to-year cost-management efforts with an ongoing focus on identifying and aggressively pursuing transformational multi-year cost-reduction opportunities that involve running and supporting the business in fundamentally different and more cost-effective ways. In fiscal 2013, we will continue to implement the four transformational initiatives that were our focus last year – further automating our supply chain; significantly reducing the use of energy, water and cleaning supplies in our restaurants; centralizing management of our restaurant facilities; and optimizing labor costs within our restaurants. In addition, this year we intend to identify at least one additional transformational opportunity that can drive further cost-effectiveness in fiscal 2014 and beyond.

A WINNING CULTURE

Ours is a people business, and the success we envision going forward – just like the success we have enjoyed to this point – is possible only if we have a strong culture that a wide range of people embrace and of which they want to be a part. We have long had that kind of culture, and it is grounded in three things. We have a shared purpose, which is to make a positive difference in the lives of everyone with whom we come into contact. We have a shared identity, which is to be the best at what we do, and demonstrate that by winning in the marketplace, while also being a place where people can achieve their dreams. And we have a strong set of shared values that speak to how we treat one another and how we treat people outside our organization.

An important validation of the strength of our culture is the recognition we earned from FORTUNE magazine in 2011 and again in 2012 as one of the "100 Best Companies to Work For." We are particularly proud because selection relies on an independently administered survey of employees – which, in our case, are largely hourly restaurant employees – and Darden is the first restaurant company to receive such recognition.

A key driver of the high level of engagement behind the FORTUNE recognition is our diversity and inclusiveness, which is best reflected in restaurant operations. It is our largest function and perhaps the most important since our operators most directly interact with our guests. Three of our four most senior Operations leaders are people of color, as are 22 percent of our restaurant General Managers and Managing Partners and 29 percent of our other restaurant Managers.

Looking forward, we believe the growth and expansion we envision will help us maintain a winning culture. Over 90 percent of our restaurant General Managers and Managing Partners are promoted from our restaurant Manager ranks. With the new-restaurant growth we anticipate, this means that over the next five years more than 1,300 people will be promoted to the General Manager and Managing Partner levels internally. Similarly, approximately half of our restaurant Managers are promoted from our hourly employee ranks, which means that over the next five years approximately 4,000 hourly employees will earn such promotions. As so many people continue to see Darden as a diverse and inclusive engine of opportunity, we are confident we can elicit from our workforce the kind of passionate commitment and discretionary effort that, ultimately, makes our brands and brand support platform as powerful as they are.

Conclusion

While we recognize and are responding with urgency to today's challenges, we are also excited about the future. That's because, again, we are convinced we have what it takes to create compelling value for you, our shareholders, and for the people who work at your Company. We have strong brands, considerable collective experience and expertise, an increasingly cost-effective operating platform and a winning culture. As a result, over the next five years we expect to accelerate momentum toward our ultimate goal – which is to build a great company, now and for generations to come.

Thank you for being a shareholder and placing your trust in us.

Clarence Otis, Jr.
Chairman and Chief Executive Officer

Andrew Madsen
President and Chief Operating Officer