Three Months Ended
                                                           August 26, 2012      August 28, 2011
Sales                                                           100.0  %             100.0  %
Costs and expenses:
Cost of sales:
Food and beverage                                                30.4                 30.6
Restaurant labor                                                 30.8                 31.6
Restaurant expenses                                              15.0                 15.4
Total cost of sales, excluding restaurant depreciation and
amortization of 4.3% and 4.0%, respectively                      76.2  %              77.6  %
Selling, general and administrative                              10.6                  9.4
Depreciation and amortization                                     4.6                  4.3
Interest, net                                                     1.4                  1.1
Total costs and expenses                                         92.8  %              92.4  %
Earnings before income taxes                                      7.2                  7.6
Income taxes                                                     (1.7 )               (2.1 )
Earnings from continuing operations                               5.5                  5.5
Losses from discontinued operations                              (0.1 )                  -
Net earnings                                                      5.4  %               5.5  %

OVERVIEW OF OPERATIONS
Our sales from continuing operations were $2.03 billion for the first quarter of fiscal 2013 compared to $1.94 billion for the first quarter of fiscal 2012. The increase of 4.8 percent in sales for the first quarter of fiscal 2013 was driven primarily by the operation of 92 net new company-owned restaurants plus the addition of 11 Eddie V's restaurants since the first quarter of fiscal 2012 and a blended same-restaurant sales increase for The Capital Grille, Bahama Breeze and Seasons 52 of 2.2 percent. The increases were partially offset by a blended U.S. same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse of 0.3 percent for the first quarter of fiscal 2013. For the first quarter of fiscal 2013, our net earnings from continuing operations were $111.0 million compared to $106.8 million for the first quarter of fiscal 2012, a 3.9 percent increase, and our diluted net earnings per share from continuing operations were $0.85 for the first quarter of fiscal 2013 compared to $0.78 for the first quarter of fiscal 2012, a 9.0 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 2013 compared to the first quarter of fiscal 2012 were primarily due to increased sales and lower food and beverage costs, restaurant labor expenses and restaurant expenses as a percent of sales, which were partially offset by higher selling, general and administrative expenses, depreciation and amortization expense and net interest expense as a percent of sales. In addition to an increase in earnings, diluted net earnings per share from continuing operations increased due to a reduction in the average diluted shares outstanding primarily as a result of the cumulative impact of our continuing repurchase of our common stock.
SALES
Sales from continuing operations were $2.03 billion and $1.94 billion for the quarters ended August 26, 2012 and August 28, 2011, respectively. The 4.8 percent increase in sales for the first quarter of fiscal 2013 was driven by the operation of 92 net new company-owned restaurants plus the addition of 11 Eddie V's restaurants since the first quarter of fiscal 2012 and a blended same-restaurant sales increase for The Capital Grille, Bahama Breeze and Seasons 52 of 2.2 percent. The increases were partially offset by a 0.3 percent blended U.S. same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse. Olive Garden's sales of $921.8 million for the first quarter of fiscal 2013 were 4.3 percent above last year's first

fiscal quarter, driven by revenue from 40 net new restaurants and a U.S. same-restaurant sales increase of 0.3 percent. The increase in U.S. same-restaurant sales resulted from a 3.1 percent increase in average check, partially offset by a 2.8 percent decrease in same-restaurant guest counts. Red Lobster's sales of $660.3 million for the first quarter of fiscal 2013 were 2.1 percent below last fiscal year's first quarter, driven by a 2.6 percent decrease in U.S. same-restaurant sales, partially offset by revenue from six net new restaurants. The decrease in U.S. same-restaurant sales resulted from a 4.6 percent decrease in same-restaurant guest counts, partially offset by a 2.0 percent increase in average check. LongHorn Steakhouse's sales of $285.0 million for the first quarter of fiscal 2013 were 12.7 percent above last fiscal year's first quarter, driven by revenue from 34 net new restaurants and a 3.6 percent increase in same-restaurant sales. The increase in same-restaurant sales resulted from a 3.3 percent increase in same-restaurant guest counts combined with a 0.3 percent increase in average check. In total, The Capital Grille, Bahama Breeze, Seasons 52 and Eddie V's generated sales of $163.0 million for the first quarter of fiscal 2013, which were 26.4 percent above last fiscal year's first quarter, primarily driven by five new restaurants at Seasons 52, four new restaurants at Bahama Breeze, one new restaurant at The Capital Grille, and the addition of 11 Eddie V's purchased restaurants. Additionally, sales growth reflected same-restaurant sales increases of 4.0 percent at The Capital Grille, 1.2 percent at Bahama Breeze and 1.3 percent at Seasons 52. 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.
COSTS AND EXPENSES
Total costs and expenses were $1.89 billion and $1.80 billion for the quarters ended August 26, 2012 and August 28, 2011, respectively. As a percent of sales, total costs and expenses increased from 92.4 percent in the first quarter of fiscal 2012 to 92.8 percent in the first quarter of fiscal 2013.
Food and beverage costs were $618.8 million in the first quarter of fiscal 2013, an increase of $25.3 million, or 4.3 percent, from food and beverage costs of $593.5 million in the first quarter of fiscal 2012. As a percent of sales, food and beverage costs decreased for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012, primarily as a result of pricing leverage and lower seafood costs, partially offset by higher beef costs and unfavorable menu-mix. Restaurant labor costs were $626.7 million in the first quarter of fiscal 2013, an increase of $13.6 million, or 2.2 percent, from restaurant labor costs of $613.1 million in the first quarter of fiscal 2012. Restaurant labor costs as a percent of sales decreased primarily as a result of sales leveraging, increased employee productivity, lower employee insurance claims costs and lower manager incentive compensation, partially offset by wage-rate inflation. Restaurant expenses (which include utilities, repairs and maintenance, credit card, lease, property tax, workers' compensation, new restaurant pre-opening and other restaurant-level operating expenses) were $304.3 million in the first quarter of fiscal 2013, an increase of $4.5 million, or 1.5 percent, from restaurant expenses of $299.8 million in the first quarter of fiscal 2012. As a percent of sales, restaurant expenses decreased in the first quarter of fiscal 2013 primarily due to, lower credit card fees, workers' compensation expenses and utilities expenses, partially offset by higher pre-opening expenses. Selling, general and administrative expenses were $218.2 million in the first quarter of fiscal 2013, an increase of $35.4 million, or 19.4 percent, from selling, general and administrative expenses of $182.8 million in the first quarter of fiscal 2012. As a percent of sales, selling, general and administrative expenses increased for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 primarily due to higher media costs and unfavorable market-driven changes in fair value related to our non-qualified deferred compensation plans partially offset by sales leverage. As our non-qualified deferred compensation plans are economically hedged on an after-tax basis, the net increase in selling, general and administrative expense related to unfavorable market-driven changes is offset in our consolidated earnings from continuing operations by a corresponding reduction in income tax expense.
Depreciation and amortization expense was $92.6 million in the first quarter of fiscal 2013, an increase of $8.5 million, or 10.1 percent, from depreciation and amortization expense of $84.1 million in the first quarter of fiscal 2012. As a percent of sales, depreciation and amortization expense increased in the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 primarily due to an increase in depreciable assets related to new restaurants and remodel activities.
Net interest expense was $27.9 million in the first quarter of fiscal 2013, an increase of $6.2 million, or 28.6 percent, from net interest expense of $21.7 million in the first quarter of fiscal 2012. As a percent of sales, net interest expense for the first quarter of fiscal 2013 increased compared to the first quarter of fiscal 2012 primarily due to higher average long-term debt balances.

INCOME TAXES
The effective income tax rate for the quarter ended August 26, 2012 was 24.1 percent compared to an effective income tax rate of 27.3 percent for the quarter ended August 28, 2011. The decrease in the effective income tax rate during the quarter ended August 26, 2012 is primarily attributable to an increase in the impact of FICA tax credits for employee reported tips and the impact of market-driven changes in the value of our trust-owned life insurance that are excluded for tax purposes, partially offset by a decrease in federal income tax credits related to the Hiring Incentives to Restore Employment (HIRE) Act.
NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS For the first quarter of fiscal 2013, our net earnings from continuing operations were $111.0 million compared to $106.8 million in the first quarter of fiscal 2012, a 3.9 percent increase, and our diluted net earnings per share from continuing operations were $0.85 compared to $0.78 in the first quarter of fiscal 2012, a 9.0 percent increase. At Olive Garden, lower food and beverage costs, restaurant labor expenses and restaurant expenses as a percent of sales more than offset higher selling, general and administrative expenses and depreciation expenses as a percent of sales. As a result, operating profit as a percent of sales increased in the first quarter of fiscal 2013, compared to the first quarter of fiscal 2012. At Red Lobster, lower food and beverage costs, restaurant labor expenses and restaurant expenses as a percent of sales more than offset higher selling, general and administrative 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 first quarter of fiscal 2013, compared to the first quarter of fiscal 2012. At LongHorn Steakhouse, higher food and beverage costs, selling, general and administrative expenses and depreciation expenses as a percent of sales more than offset lower restaurant labor expenses and restaurant expenses as a percent of sales. As a result, operating profit as a percent of sales decreased for LongHorn Steakhouse in the first quarter of fiscal 2013, compared to the first quarter of fiscal 2012. In addition to an increase in consolidated net earnings from continuing operations, diluted net earnings per share from continuing operations increased due to a reduction in the average diluted shares outstanding primarily as a result of the cumulative impact of our continuing repurchase of our common stock.
SEASONALITY
Our sales volumes fluctuate seasonally. During fiscal 2012 and 2011, our average sales per restaurant were highest in the winter and spring, 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 company-owned restaurants currently
reported in continuing operations that were open at the end of the first quarter
of fiscal 2013, compared with the number open at the end of fiscal 2012 and the
end of the first quarter of fiscal 2012.

                        August 26, 2012    May 27, 2012    August 28, 2011
Red Lobster - USA                   678             677                671
Red Lobster - Canada                 27              27                 28
Total                               705             704                699
Olive Garden - USA                  791             786                751
Olive Garden - Canada                 6               6                  6
Total                               797             792                757
LongHorn Steakhouse                 391             386                357
The Capital Grille                   46              46                 45
Bahama Breeze                        30              30                 26
Seasons 52                           23              23                 18
Eddie V's                            11              11                  -
Other                                 3               2                  1
Total                             2,006           1,994              1,903

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 for new restaurants and to remodel existing restaurants, to pay dividends to our shareholders 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 5 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 "Baa2" (Moody's Investors Service), "BBB" (Standard & Poor's) and "BBB" (Fitch) ratings. Our commercial paper has ratings of "P-2" (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.
We maintain a $750.0 million revolving Credit Agreement (Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to the Company and contains customary representations and 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 26, 2012, we were in compliance with all covenants under the Revolving Credit Agreement. The Revolving Credit Agreement matures on October 3, 2016, and the proceeds may be used for commercial paper back-up, working capital and capital expenditures, the refinancing of certain indebtedness, certain acquisitions and general corporate purposes. Additional information regarding the terms and conditions of the Revolving Credit Agreement is incorporated by reference from Note 5 to our unaudited consolidated financial statements in Part I, Item 1 of this report. As of August 26, 2012, we had no outstanding balances under the Revolving Credit Agreement. As of August 26, 2012, $245.7 million of commercial paper and $8.5 million of letters of credit were outstanding, which are backed by this facility. After consideration of commercial paper and letters of credit backed by the Revolving Credit Agreement, as of August 26, 2012, we had $495.8 million of credit available under the Revolving Credit Agreement. As of August 26, 2012, our long-term debt consisted principally of:
• $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;

• $400.0 million of unsecured 4.500 percent senior notes due in October 2021;

• $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 $5.4 million commercial bank loan due in December 2018 that is used to support two loans from us to the Employee Stock Ownership Plan (ESOP) portion of the Darden Savings Plan.

We also have $350.0 million of unsecured 5.625 percent senior notes due in October 2012 included in current liabilities as current portion of long-term debt. Upon maturity of the notes due October 2012, we expect to issue unsecured debt securities that will effectively refinance the notes due October 2012. On August 22, 2012, we entered into a $300.0 million Term Loan Agreement (the "Term Loan Agreement") with BOA, as administrative agent, and the lenders and other agents party thereto. We may make up to three borrowings under the Term Loan Agreement before November 22, 2012 in a total aggregate principal amount of up to $300.0 million. The Term Loan Agreement is a senior unsecured term loan commitment to the Company and contains customary representations and 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).
The Term Loan Agreement matures on August 22, 2017, and the proceeds may be used for the refinancing of certain indebtedness, certain acquisitions and general corporate purposes. The loans under the Term Loan Agreement are subject to

annual amortization of principal of 5 percent, 5 percent, 5 percent and 85 percent, payable on the second, third, fourth and fifth anniversaries, respectively, of the effective date of the Term Loan Agreement. Additional information regarding the terms and conditions of the Term Loan Agreement is incorporated by reference from Note 5 to our unaudited consolidated financial statements in Part I, Item 1 of this report.
Subsequent to our first quarter of fiscal 2013, on August 28, 2012, we completed the issuance of $80.0 million unsecured 3.790 percent senior notes due August 2019 and $220.0 million unsecured 4.520 percent senior notes due August 2024, pursuant to a Note Purchase Agreement dated June 18, 2012.
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 26, 2012, no adjustments to these interest rates had been made.
From time to time we enter into interest rate derivative instruments. See Note 9 to our unaudited consolidated financial statements in Part I, Item 1 of this report, which is incorporated by reference.
A summary of our contractual obligations and commercial commitments as of August 26, 2012 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                       $    245.7    $    245.7    $     -    $     -    $        -
Long-term debt (1)                       2,909.0         447.2      173.6      261.5       2,026.7
Operating leases                           951.9         154.9      277.0      213.1         306.9
Purchase obligations (2)                   670.6         603.7       58.9        8.0             -
Capital lease obligations (3)               93.4           5.2       11.0       11.4          65.8
Benefit obligations (4)                    442.4          25.2       65.2       79.5         272.5
Unrecognized income tax benefits(5)         16.8           0.3       11.0        5.5             -
Total contractual obligations         $  5,329.8    $  1,482.2    $ 596.7    $ 579.0    $  2,671.9
(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)         $    124.4    $    124.4    $     -    $     -    $        -
Guarantees (7)                               5.1           1.2        2.1        1.2           0.6
Total commercial commitments          $    129.5    $    125.6    $   2.1    $   1.2    $      0.6

(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 1.2 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 $37.8 million over the life of the obligations.

(4) Includes expected contributions associated with our defined benefit plans and payments associated with our postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2022.

(5) Includes interest on unrecognized income tax benefits of $1.6 million, $0.1 million of which relates to contingencies expected to be resolved within one year.

(6) Includes letters of credit for $103.6 million of workers' compensation and general liabilities accrued in our consolidated financial statements, letters of credit for $0.6 million of lease payments included in the contractual operating lease obligation payments noted above and other letters of credit totaling $20.2 million. Letters of credit totaling $8.5 million are backed by our Revolving Credit Agreement.

(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 our 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 187.4 million shares of our common stock. During the quarter ended August 26, 2012, we repurchased 1.0 million shares of our common stock compared to 1.9 million

shares of our common stock during the quarter ended August 28, 2011. As of August 26, 2012, we have repurchased a total of 171.9 million shares of our common stock. The repurchased common stock is reflected as a reduction of stockholders' equity.
We may from time to time repurchase our outstanding debt in privately negotiated transactions. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors.
Net cash flows provided by operating activities of continuing operations increased to $253.2 million for the first three months of fiscal 2013, from $118.3 million for the first three months of fiscal 2012. The increase was primarily due the timing of inventory purchases as a result of our strategy to take ownership of our inventory earlier in the supply chain to ensure a more secure and efficient supply of inventory to our restaurants, the timing of income tax accruals and related payments and a decrease in fiscal 2012 performance compensation payments paid in the first three months of fiscal 2013. Net cash flows used in investing activities of continuing operations increased to $158.8 million for the first three months of fiscal 2013, from $140.1 million for the first three months of fiscal 2012, and included capital expenditures incurred principally for building new restaurants, remodeling existing restaurants, replacing equipment and technology initiatives. Capital expenditures were $149.3 million for the first three months of fiscal 2013, compared to $138.2 million for the first three months of fiscal 2012. The increased expenditures for the first three months of fiscal 2013 resulted primarily from an increase in remodel activity and new restaurant construction during fiscal 2013.
Net cash flows used in financing activities of continuing operations were $116.1 million for the first three months of fiscal 2013, compared to net cash flows provided by financing activities of $25.7 million for the first three months of fiscal 2012, representing a decrease of $141.8 million in cash related to financing activities. Net cash flows from financing activities for the first three months of fiscal 2013 included net repayments of short-term debt of $16.9 million as compared to net proceeds from the issuance of short-term debt $145.0 million in the first three months of fiscal 2012. Purchases of treasury stock were $52.2 million during the first three months of fiscal 2013, a decrease from purchases of $91.3 million during the first three months of fiscal 2012. Net cash flows from financing activities also included $64.0 million in dividends paid for the first three months of fiscal 2013, compared to $57.7 million in dividends paid for the first three months of fiscal 2012. In June 2012, our Board of Directors approved an increase in the quarterly dividend to $0.50 per share, which indicates an annual dividend of $2.00 per share in fiscal 2013. In fiscal 2012, we paid quarterly dividends of $0.43 per share.
We are not a party to any off-balance sheet arrangements that have, or are . . .