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 nine months ended February 22, 2009 and February 24, 2008.

                                                Quarter Ended                       Nine Months Ended
                                       February 22,       February 24,       February 22,       February 24,
                                           2009               2008               2009               2008
Sales                                         100.0 %            100.0 %            100.0 %            100.0 %
Costs and expenses:
Cost of sales:
Food and beverage                              30.5               30.6               30.7               29.9
Restaurant labor                               31.6               31.2               32.0               32.1
Restaurant expenses                            15.4               15.4               16.1               15.5

Total cost of sales, excluding
restaurant depreciation and
amortization of 3.8%, 3.5%, 3.8%
and 3.5%, respectively                         77.5 %             77.2 %             78.8 %             77.5 %
Selling, general and
administrative                                  8.9                9.0                9.1                9.9
Depreciation and amortization                   3.9                3.7                4.0                3.7
Interest, net                                   1.4                1.4                1.5                1.2

Total costs and expenses                       91.7 %             91.3 %             93.4 %             92.3 %


Earnings before income taxes                    8.3                8.7                6.6                7.7
Income taxes                                   (2.3 )             (2.3 )             (1.8 )             (2.1 )

Earnings from continuing
operations                                      6.0                6.4                4.8                5.6
(Losses) earnings from
discontinued operations, net of
tax                                              -                 0.6                 -                 0.2

Net earnings                                    6.0 %              7.0 %              4.8 %              5.8 %

OVERVIEW OF OPERATIONS

Our sales from continuing operations were $1.80 billion and $5.24 billion for the third quarter and first nine months of fiscal 2009, respectively, compared to $1.81 billion and $4.80 billion for the third quarter and first nine months of fiscal 2008, respectively. The 0.7 percent decrease in sales for the third quarter fiscal 2009 was driven primarily by a 3.2 percent combined same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse which was partially offset by the addition of 69 net new restaurants since the third quarter of fiscal 2008. The 9.2 percent increase in sales for the first nine months of fiscal 2009 was driven primarily by the acquisition of RARE Hospitality International, Inc. (RARE), which occurred in the second quarter of fiscal 2008, a net increase of 69 restaurants since the third quarter of fiscal 2008 and increased U.S. same-restaurant sales at Olive Garden. For the third quarter of fiscal 2009, our net earnings from continuing operations were $108.1 million compared to $115.6 million for the third quarter of fiscal 2008, a 6.4 percent decrease, and our diluted net earnings per share from continuing operations were $0.78 for the third quarter of fiscal 2009 compared to $0.80 for the third quarter of fiscal 2008, a 2.5 percent decrease. The decreases in net earnings from continuing operations and diluted net earnings per share from continuing operations for the third quarter of fiscal 2009 compared to the same periods in the prior year were primarily due to the decrease in sales. For the first nine months of fiscal 2009, our net earnings from continuing operations were $249.1 million compared to $266.2 million for the first nine months of fiscal 2008, a 6.4 percent decrease, and our diluted net earnings per share from continuing operations were $1.78 for the first nine months of fiscal 2009 compared to $1.83 for the first nine months of fiscal 2008, a 2.7 percent decrease. The decreases in net earnings from continuing operations and diluted net earnings per share from continuing operations for the nine months ended February 22, 2009 compared to the same period in the prior year were primarily due to an

approximately 1.3 percent decline of blended same-restaurant sales results for Olive Garden, Red Lobster and LongHorn Steakhouse and increased food and beverage costs, wage rates, utilities and interest costs, which were only partially offset by pricing, 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 nine 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 nine months ended February 22, 2009 and February 24, 2008, 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 "(Losses) earnings from discontinued operations, net of tax (benefit) expense" on the accompanying consolidated statements of earnings.

SALES

Sales from continuing operations were $1.80 billion and $1.81 billion for the quarters ended February 22, 2009 and February 24, 2008, respectively. The 0.7 percent decrease in sales for the third quarter fiscal 2009 was driven mostly due to a 3.2 percent combined same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse which was partially offset by the addition of 69 net new restaurants since the third quarter of fiscal 2008. Olive Garden's sales of $826.9 million were 3.0 percent above last year's third quarter, driven primarily by revenue from 36 net new restaurants offset partially by a U.S. same-restaurant sales decrease of 1.4 percent. The decrease in U.S. same-restaurant sales resulted from a 3.5 percent decrease in same-restaurant guest counts, partially offset by a 2.1 percent increase in average check. Red Lobster's sales of $643.1 million were 4.3 percent below last year's third quarter, which resulted primarily from a 4.6 percent decrease in U.S. same-restaurant sales. The decrease in U.S. same-restaurant sales resulted from a 6.8 percent decrease in same-restaurant guest counts, partially offset by a 2.2 percent increase in average check. LongHorn Steakhouse's sales of $227.4 million were 1.4 percent above the prior year period, driven by sales from 19 net new restaurants, partially offset by a decrease in same-restaurant sales of 5.4 percent. The decrease in U.S. same-restaurant sales resulted from a 6.9 percent decrease in same-restaurant guest counts, partially offset by a 1.5 percent increase in average check. The Capital Grille's sales of $60.9 million were 10.0 percent below the prior year period, driven by a same-restaurant sales decrease of 19.0 percent, partially offset by the addition of four new restaurants. Bahama Breeze sales of $28.2 million were 9.1 percent below last year's third quarter, driven by an 8.8 percent decrease in same-restaurant sales. The shift of the Thanksgiving holiday week into the third fiscal quarter of this year adversely affected same-restaurant sales results by approximately 0.7 percentage points for the quarter ended February 22, 2009.

Sales were $5.24 billion and $4.80 billion for the nine months ended February 22, 2009 and February 24, 2008, respectively. The 9.2 percent increase in sales for the first nine months of fiscal 2009 was primarily due to incremental sales from LongHorn Steakhouse and The Capital Grille during the first nine months of fiscal 2009, as we acquired RARE during the second quarter of fiscal 2008, a net increase of 69 restaurants since the third quarter of fiscal 2008 and increased U.S. same-restaurant sales at Olive Garden. Olive Garden's sales of $2.40 billion were 5.7 percent above last year, driven primarily by 36 net new restaurants in operation since the third quarter of last year and a 0.6 percent increase in U.S. same-restaurant sales. The increase in U.S. same-restaurant sales resulted primarily from a 2.2 percent increase in average check, partially offset by a 1.6 percent decrease in same-restaurant guest counts. Red Lobster sales of $1.89 billion were 2.6 percent below last year, which resulted primarily from a 2.8 percent decrease in U.S. same-restaurant sales. The decrease in U.S. same-restaurant sales resulted primarily from a 5.3 percent decrease in same-restaurant guest counts, partially offset by a 2.5 percent increase in average check. LongHorn Steakhouse's sales of $649.3 million were 2.6 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 decrease in U.S. same-restaurant sales resulted primarily from a 6.9 percent decrease in same-restaurant guest counts, partially offset by a 1.6 percent increase in average check. The Capital Grille's sales of $175.9 million were 0.9 percent below the

comparable prior year period (which were partially included in RARE's separately reported results of operations), driven by a same-restaurant sales decrease of 12.9 percent, partially offset by the addition of four new restaurants. Bahama Breeze sales of $92.0 million were 6.7 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 acquired restaurants, absent consideration of the date we acquired the restaurants.

COSTS AND EXPENSES

Quarter Ended February 22, 2009 Compared to Quarter Ended February 24, 2008

Total costs and expenses were $1.65 billion for the quarters ended February 22, 2009 and February 24, 2008. As a percent of sales, total costs and expenses increased to 91.7 percent in the third quarter of fiscal 2009 as compared to 91.3 percent in the third quarter of fiscal 2008.

Food and beverage costs were $548.4 million during the third quarter of fiscal 2009, a decrease of $5.1 million, or 0.9 percent, from food and beverage costs of $553.5 million during the third quarter of fiscal 2008. Food and beverage costs decreased, as a percent of sales, primarily as a result of favorable pricing, changes in menu mix, and reduction in waste partially offset by cost inflation. Restaurant labor costs were $569.1 million during the third quarter of fiscal 2009, an increase of $4.6 million, or 0.8 percent, from restaurant labor costs of $564.5 million during the third quarter of fiscal 2008. Restaurant labor costs, as a percent of sales, increased primarily as a result of an increase in wage rates and a decrease in sales leveraging which were partially offset by an increase in productivity and lower employee insurance expenses. 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 $276.5 million during the third quarter of fiscal 2009, a decrease of $3.7 million, or 1.3 percent, from restaurant expenses of $280.2 million during the third quarter of fiscal 2008. As a percent of sales, restaurant expenses were flat between the third quarter of fiscal 2009 and the third quarter of fiscal 2008 mostly due to sales deleveraging offset by favorable credit card fees and a reduction in pre-opening expenses.

Selling, general and administrative expenses were $159.7 million during the third quarter of fiscal 2009, a decrease of $3.1 million, or 1.9 percent, from selling, general and administrative expenses of $162.8 million during the third quarter of fiscal 2008. As a percent of sales, selling, general and administrative expenses decreased in the third quarter of fiscal 2009 primarily as a result of integration costs incurred during the third quarter of fiscal 2008 as a result of the RARE acquisition and lower corporate level expenses as a result of savings initiatives, partially offset by increased marketing expenses, market driven changes in fair value related to our non-qualified deferred compensation plans, an increase in performance based incentive compensation, and sales deleveraging.

Depreciation and amortization expense was $71.2 million during the third quarter of fiscal 2009, an increase of $4.5 million, or 6.7 percent, from depreciation and amortization expense of $66.7 million during the third quarter of fiscal 2008. As a percent of sales, depreciation and amortization expense increased between the third quarter of fiscal 2009 and the third quarter of fiscal 2008 as a result of new restaurant activity and sales deleveraging.

Net interest expense was $25.5 million during the third quarter of fiscal 2009, a decrease of $1.3 million, or 4.7 percent, from net interest expense of $26.8 million during the third quarter of fiscal 2008. As a percent of sales, net interest was flat between the third quarter of fiscal 2009 and the third quarter of fiscal 2008.

Nine Months Ended February 22, 2009 Compared to Nine Months Ended February 24, 2008

Total costs and expenses were $4.90 billion and $4.43 billion for the nine months ended February 22, 2009 and February 24, 2008, respectively. As a percent of sales, total costs and expenses increased to 93.4 percent in the first nine months of fiscal 2009 as compared with 92.3 percent in the first nine months of fiscal 2008.

Food and beverage costs were $1.61 billion during the first nine months of fiscal 2009, an increase of $175.1 million, or 12.2 percent, from food and beverage costs of $1.44 billion during the first nine months of fiscal 2008. As a percent of sales, food and beverage costs increased in the first nine months of fiscal 2009 primarily as a result of an increase in commodity costs. 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 $1.68 billion during the first nine months of fiscal 2009, an increase of $133.8 million, or 8.7 percent, from restaurant labor costs of $1.54 billion during the first nine 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, 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 $841.5 million during the first nine months of fiscal 2009, an increase of $99.4 million, or 13.4 percent, from restaurant expenses of $742.1 million during the first nine months of fiscal 2008. As a percent of sales, restaurant expenses increased in the first nine months of fiscal 2009 primarily as a result of higher utility expenses, RARE's higher restaurant expenses as a percent 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 $476.9 million during the first nine months of fiscal 2009, an increase of $0.7 million, or 0.1 percent, from selling, general and administrative expenses of $476.2 million during the first nine months of fiscal 2008. As a percent of sales, selling, general and administrative expenses decreased in the first nine months of fiscal 2009 primarily as a result of integration costs incurred during the first nine months of fiscal 2008 as a result of the RARE acquisition, a reduction in legal expenses and lower corporate level expenses as a result of savings initiatives, partially offset by increased marketing expenses.

Depreciation and amortization expense was $210.5 million during the first nine months of fiscal 2009, an increase of $32.9 million, or 18.6 percent, from depreciation and amortization expense of $177.6 million during the first nine months of fiscal 2008. As a percent of sales, depreciation and amortization expense increased in the first nine months of fiscal 2009 due to the acquisition of RARE during the second fiscal quarter of 2008, new restaurant activity and sales deleveraging.

Net interest expense was $80.7 million during the first nine months of fiscal 2009, an increase of $21.7 million, or 36.8 percent, from interest expense of $59.0 million during the first nine months of fiscal 2008. As a percent of sales, net interest expense increased in the first nine months of fiscal 2009 due to an increase in average debt balances, primarily as a result of the RARE acquisition in the second fiscal quarter of 2008.

INCOME TAXES

The effective income tax rate for the third fiscal quarter and first nine months of 2009 was 27.2 percent and 27.9 percent, respectively, compared to an effective income tax rate of 26.3 percent and 27.7 percent for the third fiscal quarter and first nine months of 2008, respectively. The increase in the effective income tax rate during the current fiscal quarter is primarily attributable to the favorable resolution of unrecognized income tax benefits during the quarter ended February 24, 2008, which exceeded the benefits recognized in the current quarter. The effective income tax rate increase in the current year is primarily attributable to the favorable resolution of unrecognized income tax benefits during the nine months ended February 24, 2008, which exceeded the benefits recognized in the current year and increases in losses on our trust owned life insurance and Darden equity forward contracts that cannot be deducted for tax purposes, which were partially offset by an increase in other deductible items.

NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS

For the third quarter of fiscal 2009, our net earnings from continuing operations were $108.1 million compared to $115.6 million in the third quarter of fiscal 2008, a 6.4 percent decrease, and our diluted net earnings per share from continuing operations were $0.78 compared to $0.80 in the third quarter of fiscal 2008, a 2.5 percent decrease. At Olive Garden, increased sales, lower restaurant labor costs, restaurant expenses and selling, general and administrative expenses, as a percent of sales were partially offset by increased food and beverage costs and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, increased for Olive Garden in the third quarter of fiscal 2009, compared to the third quarter of fiscal 2008. At Red Lobster, lower food and beverage costs as a percent of sales, only partially offset lower sales, increased restaurant labor costs, restaurant expenses, selling, general and administrative expenses and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, decreased for Red Lobster in the third quarter of fiscal 2009 compared to the third quarter of fiscal 2008. At LongHorn Steakhouse, higher sales and lower selling, general and administrative expenses as a percent of sales, only partially offset increased food and beverage costs, restaurant labor costs,

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

For the first nine months of fiscal 2009, our net earnings from continuing operations were $249.1 million compared to $266.2 million in the first nine months of fiscal 2008, a 6.4 percent decrease, and our diluted net earnings per share from continuing operations were $1.78 compared to $1.83 in the first nine months of fiscal 2008, a 2.7 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 nine months of fiscal 2009 from the first nine 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 nine months of fiscal 2009 compared to the first nine 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 nine months of fiscal 2009 as compared with the first nine 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 fair value of the reporting unit is higher than its carrying value, goodwill is deemed not to be impaired, and no further testing is required. 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.

Consistent with our accounting policy for goodwill and other indefinite-lived intangibles, we performed our annual impairment test of our goodwill and other indefinite-lived intangible assets as of the first day of our fourth fiscal quarter. As of the beginning of our fourth fiscal quarter, we had six reporting units; Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52. Two of these 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 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 . . .