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 ended August 30, 2009 and August 24, 2008.

                                                                   Quarter Ended
                                                            August 30,       August 24,
                                                               2009             2008

Sales                                                            100.0 %          100.0 %
Costs and expenses:
Cost of sales:
Food and beverage                                                 28.8             30.8
Restaurant labor                                                  32.8             31.5
Restaurant expenses                                               15.4             16.2

Total cost of sales, excluding restaurant depreciation
and amortization of 4.0% and 3.6%, respectively                   77.0 %           78.5 %
Selling, general and administrative                                9.9              9.6
Depreciation and amortization                                      4.2              3.9
Interest, net                                                      1.4              1.6

Total costs and expenses                                          92.5 %           93.6 %


Earnings before income taxes                                       7.5              6.4
Income taxes                                                      (2.0 )           (1.8 )

Earnings from continuing operations                                5.5              4.6
Losses from discontinued operations                               (0.1 )             -

Net earnings                                                       5.4 %            4.6 %

OVERVIEW OF OPERATIONS

Our sales from continuing operations were $1.73 billion for the first quarter of fiscal 2010 compared to $1.77 billion for the first quarter of fiscal 2009. The 2.3 percent decrease in sales for the first quarter of fiscal 2010 was driven primarily by a 5.3 percent combined same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse which was partially offset by the addition of 64 net new restaurants since the first quarter of fiscal 2009. For the first quarter of fiscal 2010, our net earnings from continuing operations were $95.0 million compared to $82.4 million for the first quarter of fiscal 2009, a 15.3 percent increase, and our diluted net earnings per share from continuing operations were $0.67 for the first quarter of fiscal 2010 compared to $0.58 for the first quarter of fiscal 2009, a 15.5 percent increase. The increases in net earnings from continuing operations and diluted net earnings per share from continuing operations for the first quarter of fiscal 2010 compared to the same quarter in the prior year were primarily due to lower food and beverage costs and utility expenses, which were partially offset by lower sales.

During fiscal 2007 and 2008, we closed or sold all Smokey Bones Barbeque & Grill and Rocky River Grillhouse restaurants and closed nine Bahama Breeze restaurants. These restaurants and their related activities have been classified as discontinued operations. Therefore, for the quarters ended August 30, 2009 and August 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 from discontinued operations, net of tax benefit" on the accompanying consolidated statements of earnings.

SALES

Sales from continuing operations were $1.73 billion and $1.77 billion for the quarters ended August 30, 2009 and August 24, 2008, respectively. The 2.3 percent decrease in sales for the first quarter of fiscal 2010 was driven primarily by a 5.3 percent combined same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse which was partially offset by the addition of 64 net new restaurants since the first quarter of fiscal 2009. Olive Garden's sales of $820.7 million were 1.2 percent above last fiscal year's first quarter, driven primarily by revenue from 33 net new restaurants, partially offset by a U.S. same-restaurant sales decrease of 2.9 percent. The decrease in U.S. same-restaurant sales resulted from a 4.3 percent decrease in same-restaurant guest counts, partially offset by a 1.4 percent increase in average check. Red Lobster's sales of $605.3 million were 6.3 percent below last fiscal year's first quarter, which resulted primarily from a 7.9 percent decrease in U.S. same-restaurant sales, partially offset by sales from 11 net new restaurants. The decrease in U.S. same-restaurant sales resulted from a 9.6 percent decrease in same-restaurant guest counts, partially offset by a 1.7 percent increase in average check. LongHorn Steakhouse's sales of $211.3 million were 2.0 percent below last fiscal year's first quarter, which resulted primarily from a 6.2 percent decrease in U.S. same-restaurant sales, partially offset by sales from 14 net new restaurants. The decrease in U.S. same-restaurant sales resulted from a 7.9 percent decrease in same-restaurant guest counts, partially offset by a 1.7 percent increase in average check. The Capital Grille's sales of $49.8 million were 8.4 percent below last fiscal year's first quarter, driven by a same-restaurant sales decrease of 18.0 percent, partially offset by the addition of five new restaurants. Bahama Breeze sales of $35.3 million were 1.5 percent below last fiscal year's first quarter, driven by a 6.3 percent decrease in same-restaurant sales, partially offset by the addition of one net new restaurant.

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

Total costs and expenses were $1.60 billion and $1.66 billion for the quarters ended August 30, 2009 and August 24, 2008, respectively. As a percent of sales, total costs and expenses decreased to 92.5 percent in the first quarter of fiscal 2010 as compared to 93.6 percent in the first quarter of fiscal 2009.

Food and beverage costs were $500.3 million during the first quarter of fiscal 2010, a decrease of $46.5 million, or 8.5 percent, from food and beverage costs of $546.8 million during the first quarter of fiscal 2009. Food and beverage costs decreased, as a percent of sales, primarily as a result of pricing and lower seafood, beef, chicken and commodity costs. Restaurant labor costs were $568.0 million during the first quarter of fiscal 2010, an increase of $9.7 million, or 1.7 percent, from restaurant labor costs of $558.3 million during the first quarter of fiscal 2009. Restaurant labor costs, as a percent of sales, increased primarily as a result of an increase in wage rates and manager bonuses and a decrease in sales leveraging which were partially offset by an increase in productivity. 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 $267.4 million during the first quarter of fiscal 2010, a decrease of $20.6 million, or 7.2 percent, from restaurant expenses of $288.0 million during the first quarter of fiscal 2009. As a percent of sales, restaurant expenses decreased in the first quarter of fiscal 2010 primarily due to lower utility costs and repair and maintenance expenses, which were partially offset by sales deleveraging.

Selling, general and administrative expenses were $171.4 million during the first quarter of fiscal 2010, an increase of $0.9 million, or 0.5 percent, from selling, general and administrative expenses of $170.5 million during the first quarter of fiscal 2009. As a percent of sales, selling, general and administrative expenses increased in the first quarter of fiscal 2010 primarily as a result of market driven changes in fair value related to our non-qualified deferred compensation plans, increased marketing expenses and sales deleveraging, which were partially offset by lower corporate level expenses as a result of savings initiatives.

Depreciation and amortization expense was $72.9 million during the first quarter of fiscal 2010, an increase of $4.1 million, or 6.0 percent, from depreciation and amortization expense of $68.8 million during the first quarter of fiscal 2009. As a percent of sales, depreciation and amortization expense increased between the first quarter of fiscal 2010 and the first quarter of fiscal 2009 as a result of new restaurant activity and sales deleveraging.

Net interest expense was $23.7 million during the first quarter of fiscal 2010, a decrease of $3.7 million, or 13.5 percent, from net interest expense of $27.4 million during the first quarter of fiscal 2009. As a percent of sales, net interest expense decreased between the first quarter of fiscal 2010 and the first quarter of fiscal 2009 primarily as a result of lower average debt balances associated with the repayment of a portion of our short-term debt and a decrease in interest rates on our short-term debt.

INCOME TAXES

The effective income tax rate for the first fiscal quarter of 2010 was 27.1 percent compared to an effective income tax rate of 28.0 percent for the first fiscal quarter of 2009. The decrease in the effective income tax rate during the current fiscal quarter is primarily attributable to gains on our trust owned life insurance that are not deemed income for tax purposes and an increase in the impact of certain tax credits and deductions.

NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS

For the first quarter of fiscal 2010, our net earnings from continuing operations were $95.0 million compared to $82.4 million in the first quarter of fiscal 2009, a 15.3 percent increase, and our diluted net earnings per share from continuing operations were $0.67 compared to $0.58 in the first quarter of fiscal 2009, a 15.5 percent increase. At Olive Garden, increased sales, lower food and beverage costs, restaurant expenses and selling, general and administrative expenses, as a percent of sales, were partially offset by increased restaurant labor and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, increased for Olive Garden in the first quarter of fiscal 2010, compared to the first quarter of fiscal 2009. At Red Lobster, lower food and beverage costs, and restaurant expenses as a percent of sales, were partially offset by increased restaurant labor costs, selling, general and administrative expenses and depreciation expenses as a percent of sales. While absolute operating profit for Red Lobster declined in the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009, operating profit, as a percent of sales, increased for Red Lobster. At LongHorn Steakhouse, lower food and beverage costs, restaurant expenses, and lower selling, general and administrative expenses as a percent of sales, were partially offset by increased restaurant labor costs and depreciation expenses as a percent of sales. As a result, operating profit, as a percent of sales, increased for LongHorn Steakhouse in the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009. The increase in our net earnings from continuing operations and diluted net earnings per share from continuing operations for the first quarter of fiscal 2010 as compared with the first quarter of fiscal 2009 was primarily due to sales from new restaurants, lower food and beverage costs and restaurant 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 higher restaurant labor costs, selling, general and administrative expenses and depreciation expenses as a percent of sales.

SEASONALITY

Our sales volumes fluctuate seasonally. During fiscal 2009, our average sales per restaurant were highest in the summer and spring, followed by the winter, and lowest in the fall. During 2008 and 2007 our average sales per restaurant were highest in the spring and winter, followed by the summer, and lowest in the fall. Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally 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 first quarter of fiscal
2010, compared with the number open at the end of fiscal 2009 and the end of the
first quarter of fiscal 2009.



                               August 30, 2009   May 31, 2009   August 24, 2008
       Red Lobster - USA                   661            661               650
       Red Lobster - Canada                 29             29                29

       Total                               690            690               679


       Olive Garden - USA                  689            685               656
       Olive Garden - Canada                 6              6                 6

       Total                               695            691               662


       LongHorn Steakhouse                 322            321               308
       The Capital Grille                   38             37                33
       Bahama Breeze                        24             24                23
       Seasons 52                            8              8                 7
       Other                                 1              2                 2

       Total                             1,778          1,773             1,714

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 has historically allowed 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 Form 10-Q 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 revolving credit facility and our commercial paper program serve as our primary source of short-term financing. Accordingly, we maintain a $750.0 million revolving credit facility under a Credit Agreement (Revolving Credit Agreement) dated September 20, 2007 with Bank of America, N.A. (BOA), as administrative agent, and the lenders (Revolving Credit Lenders) and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to 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 August 30, 2009, we were in compliance with all covenants under the Revolving Credit Agreement.

The Revolving Credit Agreement matures on September 20, 2012, and the proceeds may be used for commercial paper back-up, working capital and capital expenditures, the refinancing of certain indebtedness as well as general corporate purposes. The Revolving Credit Agreement also contains a sub-limit of $150.0 million for the issuance of letters of credit. The borrowings and letters of credit obtained under the Revolving Credit Agreement may be denominated in U.S. Dollars, Euro, Sterling, Yen, Canadian Dollars and each other currency approved by the Revolving Credit Lenders. The Company may elect to increase the commitments under the Revolving Credit

Agreement by up to $250.0 million (to an aggregate amount of up to $1.0 billion), subject to the Company obtaining commitments from new and existing lenders for the additional amounts.

Loans under the Revolving Credit Agreement bear interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid, or the base rate (which is defined as the higher of the BOA prime rate or the Federal Funds rate plus 0.500 percent). Assuming a "BBB" equivalent credit rating level, the applicable margin under the Revolving Credit Agreement will be 0.350 percent. We may also request that loans under the Revolving Credit Agreement be made at interest rates offered by one or more of the Revolving Credit Lenders, which may vary from the LIBOR or base rate, for up to $100.0 million of borrowings. The Revolving Credit Agreement requires that we pay a facility fee on the total amount of such facility (ranging from 0.070 percent to 0.175 percent, based on our credit ratings) and, in the event that the outstanding amounts under the applicable Revolving Credit Agreement exceeds 50 percent of such Revolving Credit Agreement, a utilization fee on the total amount outstanding under such facility (ranging from 0.050 percent to 0.150 percent, based on our credit ratings). As of August 30, 2009, $85.0 million was outstanding under the Revolving Credit Agreement. At August 30, 2009 we had $28.2 million of commercial paper outstanding and $54.3 million of letters of credit, which are backed by this facility.

Lehman Brothers Holdings Inc. and certain of its subsidiaries (Lehman Brothers) have filed for bankruptcy protection. A subsidiary of Lehman Brothers is one of the Revolving Credit Lenders with a commitment of $50.0 million, and has defaulted on its obligation to fund our request for borrowings under the Revolving Credit Agreement. Accordingly, as of August 30, 2009, we believe that our ability to borrow under the Revolving Credit Agreement is reduced by the amount of Lehman Brothers' commitment. After consideration of this reduction, in addition to amounts currently outstanding or backed by the Revolving Credit Agreement, as of August 30, 2009, we had $532.5 million of availability under the Revolving Credit Agreement.

At August 30, 2009, our long-term debt consisted principally of:

• $75.0 million of unsecured 7.450 percent medium-term notes due in April 2011;

• $350.0 million of unsecured 5.625 percent senior notes due in October 2012;

• $100.0 million of unsecured 7.125 percent debentures due in February 2016;

• $500.0 million of unsecured 6.200 percent senior notes due in October 2017;

• $150.0 million of unsecured 6.000 percent senior notes due in August 2035;

• $300.0 million of unsecured 6.800 percent senior notes due in October 2037; and

• An unsecured, variable rate $11.3 million commercial bank loan due in December 2018 that is used to support two loans from us to the Employee Stock Ownership Plan portion of the Darden Savings Plan.

We also have $150 million of unsecured 4.875 percent senior notes due in August 2010 included in current liabilities as current portion of long-term debt, which we plan to repay through the issuance of unsecured debt securities in fiscal 2011.

The interest rates on our $350.0 million senior notes due October 2012, $500.0 million senior notes due October 2017 and $300.0 million senior notes due October 2037 are subject to adjustment from time to time if the debt rating assigned to such series of notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As of August 30, 2009, no adjustments to these interest rates had been made.

During the quarter ended August 30, 2009, we entered into interest rate swap agreements with $375.0 million of notional value to limit the risk of changes in fair value of our $150.0 million senior notes due August 2010, $75.0 million medium-term notes due April 2011, and a portion of the $350 million senior notes due October 2012 attributable to changes in the benchmark interest rate, between now and maturity of the related debt. The swap agreements effectively swap the fixed rate obligations for floating rate obligations, thereby mitigating changes in fair value of the related debt prior to maturity. The swap agreements were designated as fair value hedges of the related debt and met the requirements to be accounted for under the short-cut method, resulting in no ineffectiveness in the hedging relationship. Gains and losses on the interest rate swap agreements used to hedge the fair value of the related

debt are recognized in earnings, as are the losses and gains associated with the changes in fair value of the related debt. During the quarter ended August 30, 2009, $0.4 million was recorded as a reduction to interest expense.

During the fourth quarter of fiscal 2008 and the first quarter of fiscal 2009, we entered into treasury lock agreements with $150.0 million of notional value to hedge a portion of the risk of changes in the benchmark interest rate associated with our forecasted interest payments on long-term debt we expect to issue during fiscal 2011 to refinance $150.0 million of senior notes due August 2010 and $75 million of medium-term notes due April 2011. As of August 30, 2009, the fair value of these treasury lock agreements was a loss of $4.4 million and is recorded, net of tax, as a component of accumulated other comprehensive income (loss) on our consolidated financial statements.

A summary of our contractual obligations and commercial commitments at August 30, 2009 is as follows:

(in millions)                                                   Payments Due by Period
                                                            Less than      1-3       3-5     More than
Contractual Obligations                          Total        1 Year      Years     Years     5 Years
Short-term debt                                $    113.2   $    113.2   $    -    $    -    $       -
Long-term debt (1)                                2,850.3        251.9     260.2     500.6      1,837.6
Operating leases                                    730.3        121.9     211.1     153.0        244.3
Purchase obligations (2)                            696.9        575.8     121.1        -            -
Capital lease obligations (3)                       108.8          4.9      10.3      10.8         82.8
Benefit obligations (4)                             283.7         20.6      43.5      51.1        168.5
Unrecognized income tax benefits (5)                 67.1         11.2      50.8       5.1           -

Total contractual obligations                  $  4,850.3   $  1,099.5   $ 697.0   $ 720.6   $  2,333.2


(in millions)                                         Amount of Commitment Expiration per Period
                                                 Total
                                                Amounts     Less than      1-3       3-5     More than
Other Commercial Commitments                   Committed      1 Year      Years     Years     5 Years
Standby letters of credit (6)                  $    119.6   $    119.6   $    -    $    -    $       -
Guarantees (7)                                       11.0          2.0       3.2       2.8          3.0

Total commercial commitments                   $    130.6   $    121.6   $   3.2   $   2.8   $      3.0

(1) Includes interest payments associated with existing long-term debt, including the current portion. Variable-rate interest payments associated with the ESOP loan were estimated based on an average interest rate of 4.5 percent. Excludes issuance discount of $5.3 million.

(2) Includes commitments for food and beverage items, supplies, capital projects and other miscellaneous commitments.

(3) Capital lease obligations include imputed interest of $49.1 million over the life of the obligations.

(4) Includes expected payments associated with our defined benefit plans, postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2019.

(5) Includes interest on unrecognized income tax benefits of $10.3 million, $3.6 million of which relates to contingencies expected to be resolved within one year.

(6) Includes letters of credit for $99.5 million of workers' compensation and general liabilities accrued in our consolidated financial statements, $54.3 million of which are backed by our Revolving Credit Agreement, letters of credit for $1.9 million of lease payments included in the contractual operating lease obligation payments noted above and other letters of credit totaling $18.2 million.

(7) Consists solely of guarantees associated with leased properties that have been assigned to third parties. We are not aware of any non-performance under these arrangements that would result in us having to perform in accordance with the terms of the guarantees.

Our Board of Directors has authorized us to repurchase up to an aggregate of 162.4 million shares of our common stock. During the quarters ended August 30, 2009 and August 24, 2008, we repurchased 0.1 million and 2.1 million shares of our common stock, respectively. As of August 30, 2009, we have repurchased a total of 152.2 million shares of our common stock. The repurchased common stock is reflected as a reduction of stockholders' equity.

Net cash flows provided by operating activities from continuing operations were $177.9 million for the first quarter of fiscal 2010, compared to $161.4 million in the first quarter of fiscal 2009. The increase was primarily a result of higher net earnings in fiscal 2010.

Net cash flows used in investing activities from continuing operations included . . .