The discussion and analysis below for the Company should be read in conjunction with the unaudited financial statements and the notes to such financial statements included elsewhere in this Form 10-Q. The discussion below contains forward looking statements which should be read in conjunction with "Forward-Looking Statements" included elsewhere in this Form 10-Q. The following table sets forth selected operating data as a percent of sales for the periods indicated. All information is derived from the consolidated statements of earnings for the quarters and six months ended November 25, 2007 and November 26, 2006.

                                                Quarter Ended                       Six Months Ended
                                       November 25,       November 26,       November 25,       November 26,
                                           2007               2006               2007               2006
Sales                                         100.0 %            100.0 %            100.0 %            100.0 %
Costs and expenses:
Cost of sales:
Food and beverage                              30.2               28.9               29.5               28.6
Restaurant labor                               33.2               33.5               32.7               32.7
Restaurant expenses                            16.1               15.3               15.5               15.2

Total cost of sales, excluding
restaurant depreciation and
amortization of 3.7%, 3.6%, 3.5%
and 3.5%, respectively                         79.5 %             77.7 %             77.7 %             76.5 %
Selling, general and
administrative                                 11.2               10.3               10.5               10.0
Depreciation and amortization                   4.0                3.8                3.7                3.8
Interest, net                                   1.4                0.8                1.1                0.8

Total costs and expenses                       96.1 %             92.6 %             93.0 %             91.1 %

Earnings before income taxes                    3.9                7.4                7.0                8.9
Income taxes                                   (1.0 )             (2.2 )             (2.0 )             (2.8 )

Earnings from continuing
operations                                      2.9                5.2                5.0                6.1
Losses from discontinued
operations                                       -                (0.5 )               -                (0.4 )

Net earnings                                    2.9 %              4.7 %              5.0 %              5.7 %

OVERVIEW OF OPERATIONS

On August 16, 2007, we announced that we had entered into an agreement to purchase the common stock of RARE Hospitality International, Inc. (RARE) through a tender offer for $38.15 per share in cash, to be followed by a merger in which the remaining RARE shareholders would each receive $38.15 per share in cash, or approximately $1.27 billion in total purchase price. Additionally, as a result of the acquisition, we repaid RARE's 2.5 percent convertible notes for approximately $134.8 million, including $9.8 million related to a conversion premium. RARE owns two principal restaurant concepts, LongHorn Steakhouse and The Capital Grille, of which 288 and 29 locations, respectively, were in operation as of the date of acquisition. The acquisition was completed on October 1, 2007 and the acquired operations are included in our financial statements from the date of acquisition.

Our sales from continuing operations were $1.52 billion and $2.99 billion for the second quarter and first six months of fiscal 2008, respectively, compared to $1.30 billion and $2.66 billion for the second quarter and first six months of fiscal 2007, respectively. The 17.2 percent and 12.5 percent increase in sales for the second quarter and first six months of fiscal 2008, respectively, were driven primarily by the acquisition of RARE, increased U.S. same-restaurant sales at Olive Garden and a net increase of 33 Olive Garden restaurants since the second quarter of fiscal 2007. For the second quarter of fiscal 2008, our net earnings from continuing operations were $44.1 million compared to $67.6 million for the second quarter of fiscal 2007, a 34.8 percent decrease, and our diluted net earnings per share from continuing operations were $0.30 for the second quarter of fiscal 2008 compared to $0.45 for the second quarter of fiscal 2007, a 33.3 percent decrease. For the first six months of fiscal 2008, our net earnings from continued operations were $150.7 million compared to $160.9 million for the first six months of fiscal 2007, a 6.3 percent decrease, and our diluted net earnings per share were $1.03 for the first six months of fiscal 2008

compared to $1.07 for the first six months of fiscal 2007, a 3.8 percent decrease. The decrease in net earnings from continuing operations and diluted net earnings per share for the quarter and six month period ended November 25, 2007 compared to the same periods in the prior year was primarily due to fees and expenses related to the RARE acquisition and related integration costs of approximately $20.5 million. In addition, net earnings from continuing operations and diluted net earnings per share from the quarter and six month period ended November 25, 2007 was adversely impacted by increased legal costs and food and beverage costs.

SALES

Sales from continuing operations were $1.52 billion and $1.30 billion for the quarters ended November 25, 2007 and November 26, 2006, respectively. The 17.2 percent increase in sales for the second quarter of fiscal 2008 was primarily due to sales resulting from the acquisition of RARE, increased U.S. same-restaurant sales at Olive Garden and a net increase of 33 net new restaurants since the second quarter of fiscal 2007. Olive Garden's sales of $716.5 million were 8.2 percent above last year's second quarter, driven primarily by a 3.2 percent increase in U.S. same-restaurant sales and its 33 net new restaurants in operation since the second quarter of last year. Olive Garden achieved its 53rd consecutive quarter of U.S. same-restaurant sales growth primarily as a result of a 3.3 percent increase in average check, which was partially offset by a 0.1 percent decrease in same-restaurant guest counts. Red Lobster's sales of $600.3 million were 0.6 percent above last year's second quarter, which resulted primarily from a 0.1 percent increase in U.S. same-restaurant sales. The increase in U.S. same-restaurant sales resulted primarily from a 2.6 percent increase in average check, which was partially offset by a 2.5 percent decrease in same-restaurant guest counts. LongHorn Steakhouse's sales for the second quarter of fiscal 2008 (consisting of fiscal October and November only) were 6.4 percent above the comparable prior year period, driven by sales from 30 net new restaurants, partially offset by a decrease in same-restaurant sales of 3.9 percent. The Capital Grille's second quarter sales (consisting of fiscal October and November only) were 11.3 percent above the comparable prior year period driven by sales from four net new restaurants in addition to a same-restaurant sales increase of 0.7 percent. Bahama Breeze sales of $30.3 million were slightly above last year's second quarter, driven by a 0.1 percent increase in same-restaurant sales.

Sales were $2.99 billion and $2.66 billion for the six months ended November 25, 2007 and November 26, 2006, respectively. The 12.5 percent increase in sales for the first six months of fiscal 2008 was primarily due to sales resulting from the acquisition of RARE, increased U.S. same-restaurant sales at Olive Garden and Red Lobster and a net increase of 33 Olive Garden restaurants since the second quarter of fiscal 2007. Olive Garden's sales of $1.47 billion were 8.9 percent above last year, driven primarily by a 4.0 percent increase in U.S. same-restaurant sales and its 33 net new restaurants in operation since the second quarter of last year. The increase in U.S. same-restaurant sales resulted primarily from a 3.3 percent increase in average check and a 0.7 percent increase in same-restaurant guest counts. Red Lobster sales of $1.27 billion were 3.5 percent above last year, which resulted primarily from a 3.6 percent increase in U.S. same-restaurant sales. The increase in U.S. same-restaurant sales resulted primarily from a 3.1 percent increase in average check and a 0.5 percent increase in same-restaurant guest counts. Bahama Breeze sales of $67.5 million were 0.7 percent below last year.

Same-restaurant sales is a year-over-year comparison of each period's sales volumes and is limited to restaurants open at least 16 months, including recently acquired restaurants, absent consideration of the date we acquired the restaurants.

COSTS AND EXPENSES

Quarter Ended November 25, 2007 Compared to Quarter Ended November 26, 2006

Total costs and expenses were $1.46 billion and $1.20 billion for the quarters ended November 25, 2007 and November 26, 2006, respectively. As a percent of sales, total costs and expenses increased to 96.1 percent in the second quarter of fiscal 2008 as compared to 92.6 percent in the second quarter of fiscal 2007.

Food and beverage costs were $459.1 million during the second quarter of fiscal 2008, an increase of $83.6 million, or 22.3 percent, from food and beverage costs of $375.5 million during the second quarter of fiscal 2007. Food and beverage costs, as a percent of sales, increased primarily as a result of the acquisition of RARE, whose concepts have historically had higher food and beverage costs, as a percent of sales, compared to our consolidated average. As a percent of sales, food and beverage costs also increased in the second quarter of fiscal 2008 as a result of an increase in food costs, such as dairy, non-perishables and seafood, and menu mix changes related to the timing of Olive Garden and Red Lobster promotions, partially offset by pricing increases. Restaurant labor costs were $505.4 million during the second quarter of fiscal 2008, an increase of $71.1 million, or 16.4 percent, from restaurant labor costs of $434.3 million during the second quarter of fiscal 2007. Restaurant labor costs, as a percent

of sales, decreased primarily as a result of the acquisition of RARE, whose concepts have historically had lower restaurant labor, as a percent of sales, compared to our consolidated average. As a percent of sales, this decrease in restaurant labor costs was partially offset by an increase in wage rates and manager compensation. Restaurant expenses (which include lease, property tax, maintenance, credit card, utility, workers' compensation, insurance, new restaurant pre-opening and other restaurant-level operating expenses) were $245.0 million during the second quarter of fiscal 2008, an increase of $46.8 million, or 23.6 percent, from restaurant expenses of $198.2 million during the second quarter of fiscal 2007. As a percent of sales, restaurant expenses increased in the second quarter of fiscal 2008 primarily as a result of favorable workers' compensation and general liability experience in the second quarter of fiscal 2007.

Selling, general and administrative expenses were $170.4 million during the second quarter of fiscal 2008, an increase of $37.0 million, or 27.7 percent, from selling, general and administrative expenses of $133.4 million during the second quarter of fiscal 2007. As a percent of sales, selling, general and administrative expenses increased in the second quarter of fiscal 2008 primarily as a result of the RARE acquisition and integration related costs and increased legal costs, partially offset by increased sales leverage at Olive Garden and Red Lobster.

Depreciation and amortization expense was $60.3 million during the second quarter of fiscal 2008, an increase of $10.5 million, or 21.1 percent, from depreciation and amortization expense of $49.8 million during the second quarter of fiscal 2007. As a percent of sales, depreciation and amortization expense increased slightly between the second quarter of fiscal 2008 and the second quarter of fiscal 2007 as new restaurant activity was largely offset by increased sales leverage at Olive Garden and Red Lobster.

Net interest expense was $22.6 million during the second quarter of fiscal 2008, an increase of $12.3 million, or 119.5 percent, from interest expense of $10.3 million during the second quarter of fiscal 2007. As a percent of sales, net interest expense increased between the second quarter of fiscal 2008 and the second quarter of fiscal 2007 due to an increase in average debt balances, primarily as a result of the RARE acquisition.

Six Months Ended November 25, 2007 Compared to Six Months Ended November 26, 2006

Total costs and expenses were $2.78 billion and $2.42 billion for the six months ended November 25, 2007 and November 26, 2006, respectively. As a percent of sales, total costs and expenses increased to 93.0 percent in the first six months of fiscal 2008 as compared with 91.1 percent in the first six months of fiscal 2007.

Food and beverage costs were $882.9 million during the first six months of fiscal 2008, an increase of $121.5 million, or 16.0 percent, from food and beverage costs of $761.4 million during the first six months of fiscal 2007. As a percent of sales, food and beverage costs increased in the first six months of fiscal 2008 primarily as a result of an increase in food costs, such as dairy, non-perishables and seafood, and menu mix changes related to the timing of Olive Garden and Red Lobster promotions. Food and beverage costs, as a percent of sales, also increased as a result of the acquisition of RARE, whose concepts have historically had higher food and beverage costs, as a percent of sales, compared to our consolidated average. Restaurant labor costs were $977.0 million during the first six months of fiscal 2008, an increase of $107.0 million, or 12.3 percent, from restaurant labor costs of $870.0 million during the first six months of fiscal 2007. Restaurant labor costs, as a percent of sales, decreased primarily as a result of the acquisition of RARE, whose concepts have historically had lower restaurant labor, as a percent of sales, compared to our consolidated average. As a percent of sales, this decrease in restaurant labor costs was partially offset by an increase in wage rates and manager compensation. Restaurant expenses (which include lease, property tax, maintenance, credit card, utility, workers' compensation, insurance, new restaurant pre-opening and other restaurant-level operating expenses) were $461.9 million during the first six months of fiscal 2008, an increase of $59.0 million, or 14.6 percent, from restaurant expenses of $402.9 million during the first six months of fiscal 2007. As a percent of sales, restaurant expenses increased in the first six months of fiscal 2008 primarily as a result of insurance recoveries received in fiscal 2007 and an increase in credit card and gift card fees, partially offset by increased sales leverage.

Selling, general and administrative expenses were $313.4 million during the first six months of fiscal 2008, an increase of $46.3 million, or 17.3 percent, from selling, general and administrative expenses of $267.1 million during the first six months of fiscal 2007. As a percent of sales, selling, general and administrative expenses increased in the first six months of fiscal 2008 primarily as a result of the RARE acquisition and integration related costs, increased advertising to generate awareness of the availability of fresh fish at Red Lobster and increased legal costs, partially offset by increased sales leverage.

Depreciation and amortization expense was $110.9 million during the first six months of fiscal 2008, an increase of $11.2 million, or 11.2 percent, from depreciation and amortization expense of $99.7 million during the first six months of fiscal 2007. As a percent of sales, depreciation and amortization expense decreased slightly between the first six months of fiscal 2008 and the first six months of fiscal 2007 as new restaurant activity was offset by increased sales leverage.

Net interest expense was $32.3 million during the first six months of fiscal 2008, an increase of $11.7 million, or 56.8 percent, from interest expense of $20.6 million during the first six months of fiscal 2007. As a percent of sales, net interest expense increased between the first six months of fiscal 2008 and the first six months of fiscal 2007 due mainly to an increase in average debt balances, primarily as a result of the RARE acquisition.

INCOME TAXES

The effective income tax rate for the second quarter and first six months of fiscal 2008 was 25.5 percent and 28.6 percent, respectively, compared to an effective income tax rate of 30.0 percent and 31.8 percent, respectively, in the second quarter and first six months of fiscal 2007. The rate decrease in fiscal 2008 was primarily attributable to a decrease in our effective federal income tax rate due to an increase in FICA tip and other tax credits. Additionally, our effective state income tax rate decreased from fiscal 2007 to fiscal 2008 because of a decrease in state income tax liabilities during fiscal 2008 related to uncertain income tax positions.

NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS

For the second quarter of fiscal 2008, our net earnings from continuing operations were $44.1 million compared to $67.6 million in the second quarter of fiscal 2007, a 34.8 percent decrease, and our diluted net earnings per share from continuing operations were $0.30 compared to $0.45 in the second quarter of fiscal 2007, a 33.3 percent decrease. At Olive Garden, increased sales and lower selling, general and administrative expenses as a percent of sales partially offset increased food and beverage costs, restaurant labor costs, restaurant expenses and depreciation and amortization expenses as a percent of sales. As a result, operating profit decreased for Olive Garden in the second quarter of fiscal 2008, compared to the second quarter of fiscal 2007. At Red Lobster, increased sales partially offset increased food and beverage costs, restaurant labor costs, restaurant expenses, selling, general and administrative expenses and depreciation and amortization expenses as a percent of sales. As a result, operating profit decreased for Red Lobster in the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007. The decrease in both our net earnings and diluted net earnings per share for the second quarter of fiscal 2008 was primarily due to approximately $20.5 million in fees and expenses related to the RARE acquisition and related integration efforts, in addition to increased legal and food and beverage costs.

For the first six months of fiscal 2008, our net earnings from continuing operations were $150.7 million compared to $160.9 million in the first six months of fiscal 2007, a 6.3 percent decrease, and our diluted net earnings per share from continuing operations were $1.03 compared to $1.07 in the first six months of fiscal 2007, a 3.8 percent decrease. At Olive Garden, increased sales and lower selling, general and administrative expenses and depreciation and amortization expenses as a percent of sales partially offset increased food and beverage costs, restaurant labor costs and restaurant expenses as a percent of sales. While operating profit increased for Olive Garden in the first six months of fiscal 2008, as a percent of sales, operating profit decreased from fiscal 2007. At Red Lobster, increased sales and lower depreciation and amortization expenses as a percent of sales partially offset higher food and beverage costs, restaurant labor costs, restaurant expenses and selling, general and administrative expenses as a percent of sales. As a result, operating profit for Red Lobster decreased in the first six months of fiscal 2008 compared to the first six months of fiscal 2007. The decrease in both our net earnings and diluted net earnings per share for the first six months of fiscal 2008 was primarily due to approximately $21.0 million in fees and expenses related to the RARE acquisition and related integration efforts, in addition to increased legal and food and beverage costs.

LOSSES FROM DISCONTINUED OPERATIONS

On an after-tax basis, losses from discontinued operations for the second quarter and first six months of fiscal 2008 were $0.6 million ($0.00 per diluted share) and $1.3 million ($0.01 per diluted share), respectively, compared with losses from discontinued operations for the second quarter and first six months of fiscal 2007 of $5.9 million ($0.04 per diluted share) and $10.7 million ($0.07 per diluted share). During the second quarter of fiscal 2007, we recorded $4.1 million of long-lived asset impairment charges related to three Smokey Bones restaurants based on an evaluation of cash flows.

SEASONALITY

Our sales volumes fluctuate seasonally. During fiscal 2007, 2006 and 2005, our sales were highest in the spring and winter, followed by the summer, and lowest in the fall. Holidays, severe weather and similar conditions may impact sales volumes in some operating regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

NUMBER OF RESTAURANTS

The following table details the number of restaurants currently reported in
continuing operations that were open at the end of the second quarter of fiscal
2008, compared with the number open at the end of fiscal 2007 and the end of the
second quarter of fiscal 2007.



                             November 25, 2007   May 27, 2007   November 26, 2006
    Red Lobster - USA                      651            651                 651
    Red Lobster - Canada                    29             29                  30

    Total                                  680            680                 681

    Olive Garden - USA                     622            608                 589
    Olive Garden - Canada                    6              6                   6

    Total                                  628            614                 595

    LongHorn Steakhouse(1)                 295             -                   -
    The Capital Grille(1)                   30             -                   -
    Bahama Breeze                           23             23                  23
    Seasons 52                               7              7                   6
    Other (1)                                2             -                   -

    Total                                1,665          1,324               1,305

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operating activities provide us with a significant source of liquidity, which we use to finance the purchases of land, buildings and equipment, to pay dividends 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 due in five to 30 days, we are able to carry current liabilities in excess of current assets. In addition to cash flows from operations, we use a combination of long-term and short-term borrowings to fund our capital needs.

We currently manage our business and financial ratios to maintain an investment grade bond rating, which allows flexible access to financing at reasonable costs. Currently, our publicly issued long-term debt carries "Baa3" (Moody's Investors Service), "BBB+" (Standard & Poor's) and "BBB" (Fitch) ratings. Our commercial paper has ratings of "P-3" (Moody's Investors Service), "A-2" (Standard & Poor's) and "F-2" (Fitch). 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.

Our commercial paper program serves as our primary source of short-term financing. To support our commercial paper program, until September 20, 2007, we maintained a credit facility under a Credit Agreement dated August 16, 2005 (Prior Credit Agreement) with a consortium of banks under which we could borrow up to $500.0 million. As part of the Prior Credit Agreement, we could request issuance of up to $100.0 million in letters of credit, the outstanding amount of which reduced the net borrowing capacity under the Prior Credit Agreement. The Prior Credit Agreement allowed us to borrow at interest rates that varied based on a spread over (i) LIBOR or (ii) a base rate that was the higher of the prime rate or one-half of one percent above the federal funds rate, at our option. The interest rate spread over LIBOR was determined by our debt rating. We could also request that loans be made at interest rates offered by one or more of the banks, which may have varied from the LIBOR or base rate. The Prior Credit Agreement supported our commercial paper borrowing program and would have expired on August 15, 2010, but was terminated on September 20, 2007 in connection with the new credit arrangements described below. We were required to pay a facility fee of 10 basis points per annum on the average daily amount of loan commitments by the consortium. The amount of interest and annual facility fee were subject to change based on our maintenance of certain debt ratings and financial ratios, such as maximum debt to capital ratios. Advances under the Prior Credit Agreement were unsecured. At May 27, 2007, no borrowings under the Prior Credit Agreement were outstanding.

On September 20, 2007, to fund the RARE acquisition, we entered into (i) a $750.0 million revolving Credit Agreement dated as of September 20, 2007 (New Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders (Revolving Credit Lenders) and other agents party thereto, and (ii) a $1.15 billion 364-Day Credit Agreement dated as of September 20, 2007 (Interim Credit Agreement) with BOA, as administrative agent, and the lenders party thereto. The Interim Credit Agreement became available to us upon the consummation of the RARE acquisition. The Interim Credit Agreement and the New Revolving Credit Agreement were used to fund the RARE acquisition. On October 11, 2007, we completed the issuance of $1.15 billion aggregate principal amount of long-term senior notes described below, the proceeds of which were used to fully repay the Interim Credit Agreement.

The New Revolving Credit Agreement is a senior unsecured debt obligation of the Company and contains customary representations, 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. As of November 25, 2007, we were in compliance with all covenants under the New . . .