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 23, 2008 and November 25, 2007.

                                                Quarter Ended                       Six Months Ended
                                       November 23,       November 25,       November 23,       November 25,
                                           2008               2007               2008               2007
Sales                                         100.0 %            100.0 %            100.0 %            100.0 %
Costs and expenses:
Cost of sales:
Food and beverage                              30.9               30.2               30.9               29.5
Restaurant labor                               32.9               33.2               32.1               32.7
Restaurant expenses                            16.6               16.1               16.4               15.5

Total cost of sales, excluding
restaurant depreciation and
amortization of 4.0%, 3.7%, 3.8%
and 3.5%, respectively                         80.4 %             79.5 %             79.4 %             77.7 %
Selling, general and
administrative                                  8.8               11.2                9.2               10.5
Depreciation and amortization                   4.2                4.0                4.1                3.7
Interest, net                                   1.7                1.4                1.6                1.1

Total costs and expenses                       95.1 %             96.1 %             94.3 %             93.0 %

Earnings before income taxes                    4.9                3.9                5.7                7.0
Income taxes                                   (1.4 )             (1.0 )             (1.6 )             (2.0 )

Earnings from continuing
operations                                      3.5                2.9                4.1                5.0
Earnings (losses) from
discontinued operations                         0.1                 -                  -                  -

Net earnings                                    3.6 %              2.9 %              4.1 %              5.0 %

OVERVIEW OF OPERATIONS

Our sales from continuing operations were $1.67 billion and $3.44 billion for the second quarter and first six months of fiscal 2009, respectively, compared to $1.52 billion and $2.99 billion for the second quarter and first six months of fiscal 2008, respectively. The 9.6 percent and 15.2 percent increase in sales for the second quarter and first six months of fiscal 2009, respectively, were driven primarily by the acquisition of RARE Hospitality International, Inc. (RARE), a net increase of 42 Olive Garden restaurants and 19 LongHorn Steakhouse restaurants since the second quarter of fiscal 2008 and increased U.S. same-restaurant sales at Olive Garden and Red Lobster. For the second quarter of fiscal 2009, our net earnings from continuing operations were $58.5 million compared to $44.1 million for the second quarter of fiscal 2008, a 32.7 percent increase, and our diluted net earnings per share from continuing operations were $0.42 for the second quarter of fiscal 2009 compared to $0.30 for the second quarter of fiscal 2008, a 40.0 percent increase. The increases in net earnings from continuing operations and diluted net earnings per share from continuing operations for the second quarter of fiscal 2009 compared to the same periods in the prior year were primarily due to integration costs recorded in the second quarter of 2008 which unfavorably impacted diluted net earnings per share from continuing operations by approximately nine cents, compared to only two cents in the second quarter of fiscal 2009, as well as a reduction in market and performance related employee benefit costs in the second quarter of fiscal 2009. For the first six months of fiscal 2009, our net earnings from continuing operations were $140.9 million compared to $150.7 million for the first six months of fiscal 2008, a 6.5 percent decrease, and our diluted net earnings per share from continuing operations were $1.00 for the first six months of fiscal 2009 compared to $1.03 for the first six months of fiscal 2008, a 2.9 percent decrease. The

decreases in net earnings from continuing operations and diluted net earnings per share from continuing operations for the six months ended November 23, 2008 compared to the same period in the prior year were primarily due to an approximately 0.7 percent decline of blended same-restaurant sales results for Olive Garden, Red Lobster and LongHorn Steakhouse and increased food and beverage costs, wage rates and interest costs, which were only partially offset by reduced integration costs related to the RARE acquisition as compared with the prior year period, as well as a reduction in market and performance related employee benefit costs in the first six months of fiscal 2009.

During the second quarter of fiscal 2008, we completed the acquisition of RARE for approximately $1.27 billion in total purchase price. RARE owned 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 consolidated financial statements from the date of acquisition.

During fiscal 2007 and 2008 we closed or sold all Smokey Bones Barbeque & Grill and Rocky River Grillhouse restaurants and we closed nine Bahama Breeze restaurants. These restaurants and their related activities have been classified as discontinued operations. Therefore, for the quarters and six months ended November 23, 2008 and November 25, 2007, all impairment charges and disposal costs, gains and losses on disposition, along with the sales, costs and expenses and income taxes attributable to these restaurants have been aggregated in a single caption entitled "Earnings (losses) from discontinued operations, net of tax expense (benefit)" on the accompanying consolidated statements of earnings.

SALES

Sales from continuing operations were $1.67 billion and $1.52 billion for the quarters ended November 23, 2008 and November 25, 2007, respectively. The 9.6 percent increase in sales for the second quarter of fiscal 2009 was primarily due to a net increase of 42 Olive Garden restaurants and 19 LongHorn Steakhouse restaurants since the second quarter of fiscal 2008 and increased U.S. same-restaurant sales at Olive Garden and Red Lobster. Olive Garden's sales of $761.1 million were 6.2 percent above last year's second quarter, driven primarily by a 0.8 percent increase in U.S. same-restaurant sales and its 42 net new restaurants in operation since the second quarter of last year. Olive Garden achieved its 57th consecutive quarter of U.S. same-restaurant sales growth as a result of a 2.6 percent increase in average check, partially offset by a 1.8 percent decrease in same-restaurant guest counts. Red Lobster's sales of $601.5 million were 0.2 percent above last year's second quarter, which resulted primarily from a 0.3 percent increase in U.S. same-restaurant sales. The increase in U.S. same-restaurant sales resulted from a 3.5 percent increase in average check, partially offset by a 3.2 percent decrease in same-restaurant guest counts. LongHorn Steakhouse's sales of $206.2 million were 2.4 percent above the comparable prior year period (which were partially included in RARE's separately reported results of operations), driven by sales from 19 net new restaurants, partially offset by a decrease in same-restaurant sales of 5.7 percent. The Capital Grille's sales of $60.7 million were 3.0 percent above the comparable prior year period (which were partially included in RARE's separately reported results of operations), driven by the addition of four new restaurants, partially offset by a same-restaurant sales decrease of 8.7 percent. Bahama Breeze sales of $27.9 million were 8.0 percent below last year's second quarter, driven by an 8.0 percent decrease in same-restaurant sales. The shift of the Thanksgiving holiday week into the fiscal third quarter of this year favorably affected same-restaurant sales results by approximately 0.7 percentage points for the quarter ended November 23, 2008.

Sales were $3.44 billion and $2.99 billion for the six months ended November 23, 2008 and November 25, 2007, respectively. The 15.1 percent increase in sales for the first six months of fiscal 2009 was primarily due to sales resulting from the acquisition of RARE, a net increase of 42 Olive Garden restaurants and 19 LongHorn Steakhouse restaurants since the second quarter of fiscal 2008 and increased U.S. same-restaurant sales at Olive Garden. Olive Garden's sales of $1.57 billion were 7.2 percent above last year, driven primarily by a 1.7 percent increase in U.S. same-restaurant sales and its 42 net new restaurants in operation since the second quarter of last year. The increase in U.S. same-restaurant sales resulted primarily from a 2.4 percent increase in average check, partially offset by a 0.7 percent decrease in same-restaurant guest counts. Red Lobster sales of $1.25 billion were 1.8 percent below last year, which resulted primarily from a 1.8 percent decrease in U.S. same-restaurant sales. The decrease in U.S. same-restaurant sales resulted primarily from a 4.5 percent decrease in same-restaurant guest counts, partially offset by a 2.7 percent increase in average check. LongHorn Steakhouse's sales of $421.9 million were 3.3 percent above the comparable prior year period (which were partially included in RARE's separately reported results

of operations), driven by sales from 19 net new restaurants, partially offset by a decrease in same-restaurant sales of 5.3 percent. The Capital Grille's sales of $115.1 million were 4.7 percent above the comparable prior year period (which were partially included in RARE's separately reported results of operations), driven by the addition of four new restaurants, partially offset by a same-restaurant sales decrease of 9.0 percent. Bahama Breeze sales of $63.7 million were 5.6 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 acquired restaurants, absent consideration of the date we acquired the restaurants.

COSTS AND EXPENSES

Quarter Ended November 23, 2008 Compared to Quarter Ended November 25, 2007

Total costs and expenses were $1.59 billion and $1.46 billion for the quarters ended November 23, 2008 and November 25, 2007, respectively. As a percent of sales, total costs and expenses decreased to 95.1 percent in the second quarter of fiscal 2009 as compared to 96.1 percent in the second quarter of fiscal 2008.

Food and beverage costs were $516.4 million during the second quarter of fiscal 2009, an increase of $57.3 million, or 12.5 percent, from food and beverage costs of $459.1 million during the second quarter of fiscal 2008. Food and beverage costs, as a percent of sales, increased primarily as a result of an increase in food costs, such as proteins and commodities, and the acquisition of RARE, whose concepts have historically had higher food and beverage costs, as a percent of sales, compared to our consolidated average. These increases were only partially offset by increases in pricing. Restaurant labor costs were $548.0 million during the second quarter of fiscal 2009, an increase of $42.6 million, or 8.4 percent, from restaurant labor costs of $505.4 million during the second quarter of fiscal 2008. 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 and as well as increased sales leveraging, which were partially offset by an increase in wage rates and employee insurance costs. Restaurant expenses (which include utility, lease, property tax, maintenance, credit card, workers' compensation, insurance, new restaurant pre-opening and other restaurant-level operating expenses) were $276.9 million during the second quarter of fiscal 2009, an increase of $31.9 million, or 13.0 percent, from restaurant expenses of $245.0 million during the second quarter of fiscal 2008. As a percent of sales, restaurant expenses increased in the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008 primarily as a result of higher utility expenses, RARE's higher restaurant expenses as a percentage of sales compared to our consolidated average, and higher workers' compensation and public liability expenses as compared with the prior year.

Selling, general and administrative expenses were $146.7 million during the second quarter of fiscal 2009, a decrease of $23.7 million, or 13.9 percent, from selling, general and administrative expenses of $170.4 million during the second quarter of fiscal 2008. As a percent of sales, selling, general and administrative expenses decreased in the second quarter of fiscal 2009 primarily as a result of integration costs incurred during the second quarter of fiscal 2008 as a result of the RARE acquisition, market driven fair value adjustments related to our non-qualified deferred compensation plans, a reduction in performance based incentive compensation and a reduction in litigation expenses, partially offset by increased marketing expenses.

Depreciation and amortization expense was $70.6 million during the second quarter of fiscal 2009, an increase of $10.3 million, or 17.1 percent, from depreciation and amortization expense of $60.3 million during the second quarter of fiscal 2008. As a percent of sales, depreciation and amortization expense increased between the second quarter of fiscal 2009 and the second quarter of fiscal 2008 as a result of new restaurant activity.

Net interest expense was $27.8 million during the second quarter of fiscal 2009, an increase of $5.2 million, or 23.0 percent, from net interest expense of $22.6 million during the second quarter of fiscal 2008. As a percent of sales, net interest expense increased between the second quarter of fiscal 2009 and the second quarter of fiscal 2008 due to an increase in average debt balances, primarily as a result of the RARE acquisition.

Six Months Ended November 23, 2008 Compared to Six Months Ended November 25, 2007

Total costs and expenses were $3.25 billion and $2.78 billion for the six months ended November 23, 2008 and November 25, 2007, respectively. As a percent of sales, total costs and expenses increased to 94.3 percent in the first six months of fiscal 2009 as compared with 93.0 percent in the first six months of fiscal 2008.

Food and beverage costs were $1.06 billion during the first six months of fiscal 2009, an increase of $180.3 million, or 20.4 percent, from food and beverage costs of $882.9 million during the first six months of fiscal 2008. As a percent of sales, food and beverage costs increased in the first six months of fiscal 2009 primarily as a result of an increase in commodity costs 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. These increases were only partially offset by increases in pricing. Restaurant labor costs were $1.11 billion during the first six months of fiscal 2009, an increase of $129.3 million, or 13.2 percent, from restaurant labor costs of $977.0 million during the first six months of fiscal 2008. 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 and an increase in sales leveraging, which were partially offset by an increase in wage rates. 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 $565.0 million during the first six months of fiscal 2009, an increase of $103.1 million, or 22.3 percent, from restaurant expenses of $461.9 million during the first six months of fiscal 2008. As a percent of sales, restaurant expenses increased in the first six months of fiscal 2009 primarily as a result of higher utility expenses, integration costs related to the RARE acquisition and higher workers compensation and public liability expenses as compared with the prior year.

Selling, general and administrative expenses were $317.2 million during the first six months of fiscal 2009, an increase of $3.8 million, or 1.2 percent, from selling, general and administrative expenses of $313.4 million during the first six months of fiscal 2008. As a percent of sales, selling, general and administrative expenses decreased in the first six months of fiscal 2009 primarily as a result of integration costs incurred during the second quarter of fiscal 2008 as a result of the RARE acquisition, market driven fair value adjustments related to our non-qualified deferred compensation plans, a reduction in performance based incentive compensation and a reduction in litigation expenses, partially offset by increased marketing expenses.

Depreciation and amortization expense was $139.3 million during the first six months of fiscal 2009, an increase of $28.4 million, or 25.6 percent, from depreciation and amortization expense of $110.9 million during the first six months of fiscal 2008. As a percent of sales, depreciation and amortization expense increased in the first six months of fiscal 2009 due to the acquisition of RARE during the quarter ended November 25, 2007 and new restaurant activity.

Net interest expense was $55.2 million during the first six months of fiscal 2009, an increase of $22.9 million, or 70.9 percent, from interest expense of $32.3 million during the first six months of fiscal 2008. As a percent of sales, net interest expense increased in the first six months of fiscal 2009 due to an increase in average debt balances, primarily as a result of the RARE acquisition.

INCOME TAXES

The effective income tax rate for the quarter and six months ended November 23, 2008 was 29.1 percent and 28.4 percent, respectively, compared to an effective income tax rate of 25.5 percent and 28.6 percent for the quarter and six months ended November 25, 2007, respectively. The increase in the effective tax rate during the quarter ended November 23, 2008 is primarily attributable to an increase in losses on our trust owned life insurance and Darden equity forward contracts that cannot be deducted for tax purposes.

NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS

For the second quarter of fiscal 2009, our net earnings from continuing operations were $58.5 million compared to $44.1 million in the second quarter of fiscal 2008, a 32.7 percent increase, and our diluted net earnings per share from continuing operations were $0.42 compared to $0.30 in the second quarter of fiscal 2008, a 40.0

percent increase. At Olive Garden, increased sales and lower restaurant labor costs and selling general and administrative expense as a percent of sales only partially offset increased food and beverage costs, restaurant expenses and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, decreased for Olive Garden in the second quarter of fiscal 2009, compared to the second quarter of fiscal 2008. At Red Lobster, increased sales, lower food and beverage costs and selling, general and administrative expenses as a percent of sales, were only partially offset by increased restaurant labor costs, restaurant expenses and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, increased for Red Lobster in the second quarter of fiscal 2009 compared to the second quarter of fiscal 2008. The increase in our net earnings from continuing operations and diluted net earnings per share from continuing operations for the second quarter of fiscal 2009 as compared with the second quarter of fiscal 2008 was primarily due to integration costs recorded in the second quarter of 2008, an increase in sales from new restaurants, lower restaurant labor costs and selling, general and administrative expenses as a percent of sales, partially offset by a decrease in blended same-restaurant sales results for Olive Garden, Red Lobster and LongHorn Steakhouse and increased food and beverage costs, restaurant expenses, depreciation expenses and interest expense as a percent of sales.

For the first six months of fiscal 2009, our net earnings from continuing operations were $140.9 million compared to $150.7 million in the first six months of fiscal 2008, a 6.5 percent decrease, and our diluted net earnings per share from continuing operations were $1.00 compared to $1.03 in the first six months of fiscal 2008, a 2.9 percent decrease. At Olive Garden, increased sales and lower restaurant labor costs and selling, general and administrative expenses as a percent of sales only partially offset increased food and beverage costs, restaurant expenses and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, decreased for Olive Garden in the first six months of fiscal 2009 from the first six months of fiscal 2008. At Red Lobster, decreased sales, higher restaurant labor costs, restaurant expenses and depreciation expenses as a percent of sales more than offset lower food and beverage costs and selling, general and administrative expenses as a percent of sales. As a result, operating profit, as a percent of sales, decreased for Red Lobster in the first six months of fiscal 2009 compared to the first six months of fiscal 2008. The decrease in our net earnings from continuing operations and diluted net earnings per share from continuing operations for the first six months of fiscal 2009 as compared with the first six months of fiscal 2008 was primarily due to a decrease in blended same-restaurant sales results for Olive Garden, Red Lobster and LongHorn Steakhouse and increased food and beverage costs, restaurant expenses, depreciation expenses and interest expense as a percent of sales, which were only partially offset by an increase in sales from new restaurants, lower restaurant labor costs and selling, general and administrative expenses as a percent of sales.

GOODWILL AND OTHER INDEFINITE-LIVED INTANGIBLE ASSET IMPAIRMENT TESTING

We review our goodwill and other indefinite-lived intangible assets, primarily our trademarks, for impairment annually, as of the first day of our fourth fiscal quarter or more frequently if indicators of impairment exist. Goodwill and other indefinite-lived intangible assets not subject to amortization have been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant concepts.

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.

The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting unit's fair value to its carrying value. We estimate fair value using the best information available, including market information and discounted cash flow projections also referred to as the income approach. The income approach uses a reporting unit's projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects current market conditions. The projection uses management's best estimates of economic and market conditions over the projected period including growth rates in sales, costs and number of units, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. We validate our estimates of fair value under the income approach by comparing the

values to fair value estimates using a market approach. A market approach estimates fair value by applying cash flow multiples to the reporting unit's operating performance. The multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting units.

If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, we would allocate the fair value to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, we would record an impairment charge for the difference.

At the end of the second quarter of fiscal 2009, due to present uncertainty surrounding the global economy and stock price volatility generally, and volatility in our stock price in particular, we concluded a triggering event had occurred indicating potential impairment and performed an impairment test of our goodwill and other indefinite-lived intangible assets.

At November 23, 2008, we had six reporting units; Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52. Two reporting units, LongHorn Steakhouse and The Capital Grille, have a significant amount of goodwill. As part of our process for performing the step one impairment test of goodwill, we estimated the fair value of all of our reporting units utilizing the income approach described above to derive an enterprise value of the Company. We reconciled the enterprise value to our overall estimated market capitalization. The estimated market capitalization considers recent trends in our market capitalization and an expected control premium, based on comparable transactional history. Based on the results of the step one impairment test, no impairment charges of goodwill were required

We also performed sensitivity analyses on our estimated fair value using the income approach of LongHorn Steakhouse and The Capital Grille given the . . .