Three Months Ended                           Six Months Ended
                                           November 25, 2012      November 27, 2011     November 25, 2012     November 27, 2011
Sales                                            100.0  %                100.0  %              100.0  %              100.0  %
Costs and expenses:
Cost of sales:
Food and beverage                                 31.0                    31.3                  30.7                  30.9
Restaurant labor                                  32.4                    32.4                  31.6                  32.0
Restaurant expenses                               16.6                    16.0                  15.8                  15.7
Total cost of sales, excluding restaurant
depreciation and amortization of 4.8%,
4.4%, 4.5% and 4.2%                               80.0  %                 79.7  %               78.1  %               78.6  %
Selling, general and administrative               11.0                    10.2                  10.9                   9.9
Depreciation and amortization                      5.1                     4.7                   4.8                   4.5
Interest, net                                      1.7                     1.4                   1.5                   1.2
Total costs and expenses                          97.8  %                 96.0  %               95.3  %               94.2  %
Earnings before income taxes                       2.2                     4.0                   4.7                   5.8
Income taxes                                      (0.5 )                  (1.0 )                (1.1 )                (1.5 )
Earnings from continuing operations                1.7                     3.0                   3.6                   4.3
Losses from discontinued operations                  -                    (0.1 )                   -                  (0.1 )
Net earnings                                       1.7  %                  2.9  %                3.6  %                4.2  %

OVERVIEW OF OPERATIONS
On August 29, 2012, we completed the acquisition of Yard House USA, Inc. (Yard House) for $585.0 million in cash. The acquired operations of Yard House included 40 restaurants, and the results of operations from these restaurants, which are not material, are included in our consolidated financial statements from the date of acquisition.
Our sales from continuing operations were $1.96 billion and $3.99 billion for the second quarter and first six months of fiscal 2013, respectively, compared to $1.83 billion and $3.77 billion for the second quarter and first six months of fiscal 2012, respectively. The increases of 7.0 percent and 5.9 percent in sales for the second quarter and first six months of fiscal 2013, respectively, were driven primarily by the operation of 99 net new company-owned restaurants plus the addition of 40 Yard House acquired restaurants since the second quarter of fiscal 2012, partially offset by blended U.S. same-restaurant sales decreases for Olive Garden, Red Lobster and LongHorn Steakhouse of 2.7 percent and 1.4 percent for the second quarter and first six months of fiscal 2013, respectively. For the second quarter of fiscal 2013, our net earnings from continuing operations were $33.7 million compared to $54.1 million for the second quarter of fiscal 2012, a 37.7 percent decrease, and our diluted net earnings per share from continuing operations were $0.26 for the second quarter of fiscal 2013 compared to $0.41 for the second quarter of fiscal 2012, a 36.6 percent decrease. For the first six months of fiscal 2013, our net earnings from continuing operations were $144.8 million compared to $160.8 million for the first six months of fiscal 2012, a 10.0 percent decrease, and our diluted net earnings per share from continuing operations were $1.10 for the first six months of fiscal 2013 compared to $1.19 for the first six months of fiscal 2012, a 7.6 percent decrease. The decreases in net earnings from continuing operations and diluted net earnings per share from continuing operations for the second quarter and the first six months of fiscal 2013 compared to the second quarter and the first six months of fiscal 2012 were primarily due to higher restaurant expenses, selling, general and administrative expenses, depreciation and amortization expenses and net interest expense as a percent of sales, partially offset by increased sales, lower food and beverage costs as a percent of sales, and a lower effective income tax rate. Costs associated with the Yard House acquisition adversely affected diluted net earnings per share from continuing operations by approximately $0.05 and $0.06 for the second quarter and first six months of fiscal 2013, respectively.

SALES
Sales from continuing operations were $1.96 billion and $1.83 billion for the quarters ended November 25, 2012 and November 27, 2011, respectively. The 7.0 percent increase in sales for the second quarter of fiscal 2013 was driven by the operation of 99 net new company-owned restaurants plus the addition of 40 Yard House acquired restaurants since the second quarter of fiscal 2012 partially offset by a 2.7 percent blended U.S. same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse. Olive Garden's sales of $848.6 million for the second quarter of fiscal 2013 were 1.5 percent above last year's second fiscal quarter, driven by revenue from 46 net new restaurants partially offset by a U.S. same-restaurant sales decrease of 3.2 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 3.7 percent increase in average check. Red Lobster's sales of $589.5 million for the second quarter of fiscal 2013 were 2.1 percent below last fiscal year's second quarter, driven by a 2.7 percent decrease in U.S. same-restaurant sales, partially offset by revenue from five net new restaurants. The decrease in U.S. same-restaurant sales resulted from a 2.2 percent decrease in same-restaurant guest counts, combined with a 0.5 percent decrease in average check. LongHorn Steakhouse's sales of $274.9 million for the second quarter of fiscal 2013 were 7.8 percent above last fiscal year's second quarter, driven by revenue from 32 net new restaurants, partially offset by a 0.8 percent decrease in same-restaurant sales. The decrease in same-restaurant sales resulted from a 0.4 percent decrease in same-restaurant guest counts combined with a 0.4 percent decrease in average check. In total, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's and Yard House generated sales of $241.3 million for the second quarter of fiscal 2013, which were 76.4 percent above last fiscal year's second quarter, primarily driven by the Yard House acquisition and incremental sales from the 11 Eddie V's restaurants acquired on November 14, 2011. Additionally, Bahama Breeze added five new restaurants, Seasons 52 added four new restaurants, The Capital Grille added three new restaurants and Yard House added one new restaurant. Sales growth also reflected same-restaurant sales increases of 0.8 percent at The Capital Grille and 1.9 percent at Bahama Breeze a 1.0 percent decrease at Seasons 52 and a 2.5 percent decrease at Eddie V's.
Sales from continuing operations were $3.99 billion and $3.77 billion for the six months ended November 25, 2012 and November 27, 2011, respectively. The 5.9 percent increase in sales for the first six months of fiscal 2013 was driven by the operation of 99 net new company-owned restaurants plus the addition of 40 Yard House acquired restaurants since the second quarter of fiscal 2012, partially offset by a 1.4 percent blended U.S. same-restaurant sales decrease for Olive Garden, Red Lobster and LongHorn Steakhouse. Olive Garden's sales of $1.77 billion for the first six months of fiscal 2013 were 3.0 percent above the same period last fiscal year, driven by revenue from 46 net new restaurants, partially offset by a U.S. same-restaurant sales decrease of 1.4 percent. The decrease in U.S. same-restaurant sales resulted from a 4.8 percent decrease in same-restaurant guest counts, partially offset by a 3.4 percent increase in average check. Red Lobster's sales of $1.25 billion for the first six months of fiscal 2013 were 2.1 percent below the same period last fiscal year, driven by a 2.6 percent decrease in U.S. same-restaurant sales, partially offset by revenue from five net new restaurants. The decrease in U.S. same-restaurant sales resulted from a 3.5 percent decrease in same-restaurant guest counts, partially offset by a 0.9 percent increase in average check. LongHorn Steakhouse's sales of $559.9 million for the first six months of fiscal 2013 were 10.2 percent above the same period last fiscal year, driven by revenue from 32 net new restaurants and a 1.5 percent increase in same-restaurant sales. The increase in same-restaurant sales resulted from a 1.5 percent increase in same-restaurant guest counts. In total, The Capital Grille, Bahama Breeze, Seasons 52, Eddie V's and Yard House generated sales of $404.3 million for the first six months of fiscal 2013, which were 52.1 percent above the same period last fiscal year, primarily driven by the Yard House acquisition and incremental sales from the 11 Eddie V's restaurants acquired on November 14, 2011. Additionally, Bahama Breeze added five new restaurants, Seasons 52 added four new restaurants, The Capital Grille added three new restaurants and Yard House added one new restaurant. Sales growth also reflected same-restaurant sales increases of 2.3 percent at The Capital Grille, 1.5 percent at Bahama Breeze and 0.7 percent at Seasons 52, and a 1.7 percent same-restaurant sales decrease at Eddie V's.
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
Quarter Ended November 25, 2012 Compared to Quarter Ended November 27, 2011 Total costs and expenses were $1.92 billion and $1.76 billion for the quarters ended November 25, 2012 and November 27, 2011, respectively. As a percent of sales, total costs and expenses increased from 96.0 percent in the second quarter of fiscal 2012 to 97.8 percent in the second quarter of fiscal 2013. Food and beverage costs were $607.5 million in the second quarter of fiscal 2013, an increase of $34.2 million, or 6.0 percent, from food and beverage costs of $573.3 million in the second quarter of fiscal 2012. As a percent of sales, food and beverage costs decreased for the second quarter of fiscal 2013 compared to the second 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 $635.7 million in the second quarter of fiscal 2013, an increase of $41.5 million, or 7.0 percent, from

restaurant labor costs of $594.2 million in the second quarter of fiscal 2012. Restaurant labor costs as a percent of sales were flat as lower manager incentive compensation, increased employee productivity and lower employee insurance claims costs were 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 $325.5 million in the second quarter of fiscal 2013, an increase of $32.4 million, or 11.1 percent, from restaurant expenses of $293.1 million in the second quarter of fiscal 2012. As a percent of sales, restaurant expenses increased in the second quarter of fiscal 2013 primarily as a result of Yard House's higher restaurant expenses as a percentage of sales compared to our consolidated average prior to the acquisition and lost sales leverage partially offset by lower repairs and maintenance expenses. Selling, general and administrative expenses were $216.1 million in the second quarter of fiscal 2013, an increase of $28.7 million, or 15.3 percent, from selling, general and administrative expenses of $187.4 million in the second quarter of fiscal 2012. As a percent of sales, selling, general and administrative expenses increased for the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012 primarily due to acquisition and integration costs associated with the Yard House acquisition and higher media costs partially offset by sales leverage.
Depreciation and amortization expense was $99.2 million in the second quarter of fiscal 2013, an increase of $13.4 million, or 15.6 percent, from depreciation and amortization expense of $85.8 million in the second quarter of fiscal 2012. As a percent of sales, depreciation and amortization expense increased for the second quarter of fiscal 2013 compared to the second quarter of fiscal 2012, primarily due to an increase in depreciable assets related to new restaurants and remodel activities.
Net interest expense was $32.9 million in the second quarter of fiscal 2013, an increase of $7.7 million, or 30.6 percent, from net interest expense of $25.2 million in the second quarter of fiscal 2012. As a percent of sales, net interest expense for the second quarter of fiscal 2013 increased compared to the second quarter of fiscal 2012 primarily due to higher average long-term debt balances.
Six Months Ended November 25, 2012 Compared to Six Months Ended November 27, 2011
Total costs and expenses were $3.81 billion and $3.55 billion for the six months ended November 25, 2012 and November 27, 2011, respectively. As a percent of sales, total costs and expenses increased from 94.2 percent for the first six months of fiscal 2012 to 95.3 percent for the first six months of fiscal 2013. Food and beverage costs were $1.23 billion for the first six months of fiscal 2013, an increase of $59.6 million, or 5.1 percent, from food and beverage costs of $1.17 billion for the first six months of fiscal 2012. As a percent of sales, food and beverage costs decreased for the first six months of fiscal 2013 compared to the first six months 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 $1.26 billion for the first six months of fiscal 2013, an increase of $55.2 million, or 4.6 percent, from restaurant labor costs of $1.21 billion for the first six months of fiscal 2012. Restaurant labor costs as a percent of sales decreased primarily as a result of lower manager incentive compensation, sales leveraging, increased employee productivity and lower employee insurance claims costs, 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 $629.7 million for the first six months of fiscal 2013, an increase of $36.7 million, or 6.2 percent, from restaurant expenses of $593.0 million for the first six months of fiscal 2012. As a percent of sales, restaurant expenses increased for the first six months of fiscal 2013 compared to the first six months of fiscal 2012, primarily as a result of Yard House's higher restaurant expenses as a percentage of sales compared to our consolidated average prior to the acquisition and lost sales leverage partially offset by lower credit card fees.
Selling, general and administrative expenses were $434.2 million for the first six months of fiscal 2013, an increase of $64.0 million, or 17.3 percent, from selling, general and administrative expenses of $370.2 million for the first six months of fiscal 2012. As a percent of sales, selling, general and administrative expenses increased for the first six months of fiscal 2013 compared to the first six months of fiscal 2012 primarily due to higher media costs, acquisition and integration costs associated with the Yard House acquisition and unfavorable market-driven changes in fair value related to our non-qualified deferred compensation plans partially offset by sales leverage. Depreciation and amortization expense was $191.8 million for the first six months of fiscal 2013, an increase of $22.0 million, or 13.0 percent, from depreciation and amortization expense of $169.8 million for the first six months of fiscal 2012. As a percent of sales, depreciation and amortization expense increased for the first six months of fiscal 2013 compared to the first six months of fiscal 2012 primarily due to an increase in depreciable assets related to new restaurants and remodel activities.
Net interest expense was $60.8 million for the first six months of fiscal 2013, an increase of $13.9 million, or 29.6 percent, from net interest expense of $46.9 million for the first six months of fiscal 2012. As a percent of sales, net interest

expense increased for the first six months of fiscal 2013 compared to the first six months of fiscal 2012 primarily due to higher average long-term debt balances.
INCOME TAXES
The effective income tax rate for the quarter and six months ended November 25, 2012 was 21.8 percent and 23.6 percent, respectively, compared to an effective income tax rate of 25.4 percent and 26.7 percent for the quarter and six months ended November 27, 2011, respectively. The decrease in the effective income tax rate for the quarter and six months ended November 25, 2012 as compared to the quarter and six months ended November 27, 2011 is primarily attributable to an increase in the impact of FICA tax credits for employee reported tips due to a decrease in our earnings before income taxes 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 and the impact of non-deductible Yard House acquisition costs.
NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS For the second quarter of fiscal 2013, our net earnings from continuing operations were $33.7 million compared to $54.1 million in the second quarter of fiscal 2012, a 37.7 percent decrease, and our diluted net earnings per share from continuing operations were $0.26 compared to $0.41 in the second quarter of fiscal 2012, a 36.6 percent decrease. At Olive Garden, higher restaurant expenses and depreciation expenses as a percent of sales were partially offset by lower food and beverage costs as a percent of sales. As a result, operating profit as a percent of sales decreased in the second quarter of fiscal 2013, compared to the second quarter of fiscal 2012. At Red Lobster, higher restaurant expenses, selling, general and administrative expenses and depreciation expenses as a percent of sales were partially offset by lower food and beverage costs and restaurant labor expenses as a percent of sales. As a result, operating profit as a percent of sales decreased for Red Lobster in the second quarter of fiscal 2013, compared to the second quarter of fiscal 2012. At LongHorn Steakhouse, higher food and beverage costs, restaurant labor expenses, restaurant expenses and depreciation expenses as a percent of sales resulted in a decrease in operating profit as a percent of sales in the second quarter of fiscal 2013, compared to the second quarter of fiscal 2012.
For the first six months of fiscal 2013, our net earnings from continuing operations were $144.8 million compared to $160.8 million for the first six months of fiscal 2012, a 10.0 percent decrease, and our diluted net earnings per share from continuing operations were $1.10 compared to $1.19 for the first six months of fiscal 2012, a 7.6 percent decrease. At Olive Garden, lower food and beverage costs and restaurant labor expenses as a percent of sales were partially offset by higher 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 increased for the first six months of fiscal 2013, compared to the first six months of fiscal 2012. At Red Lobster, lower food and beverage costs and restaurant labor expenses as a percent of sales were partially offset by higher 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 increased for Red Lobster for the first six months of fiscal 2013, compared to the first six months of fiscal 2012. At LongHorn Steakhouse, higher food and beverage costs, selling, general and administrative expenses and depreciation expenses as a percent of sales were partially offset by 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 for the first six months of fiscal 2013, compared to the first six months of fiscal 2012.
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 second
quarter of fiscal 2013, compared with the number open at the end of fiscal 2012
and the end of the second quarter of fiscal 2012.

                        November 25, 2012    May 27, 2012    November 27, 2011
Red Lobster - USA                     679             677                  674
Red Lobster - Canada                   27              27                   27
Total                                 706             704                  701
Olive Garden - USA                    803             786                  757
Olive Garden - Canada                   6               6                    6
Total                                 809             792                  763
LongHorn Steakhouse                   399             386                  367
The Capital Grille                     48              46                   45
Bahama Breeze                          32              30                   27
Seasons 52                             25              23                   21
Eddie V's (1)                          11              11                   11
Yard House (1)                         41               -                    -
Other                                   4               2                    1
Total                               2,075           1,994                1,936

(1) Includes the 11 Eddie V's restaurants acquired on November 14, 2011 and the 40 Yard House restaurants acquired on August, 29, 2012.

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 November 25, 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 November 25, 2012, we had no outstanding balances under the Revolving Credit Agreement. As of November 25, 2012, $376.0 million of commercial paper was outstanding, which was backed by this facility. After consideration of commercial paper backed by the Revolving Credit Agreement, as of November 25, 2012, we had $374.0 million of credit

available under the Revolving Credit Agreement.
On October 4, 2012, we issued $450.0 million aggregate principal amount of unsecured 3.350 percent senior notes due November 2022 (the New Senior Notes) under a registration statement filed with the Securities and Exchange Commission on October 6, 2010. Discount and issuance costs, which totaled $4.6 million, are being amortized over the term of the New Senior Notes using the straight-line method, the results of which approximate the effective interest method. Interest on the New Senior Notes is payable semi-annually in arrears on May 1 and November 1 of each year, commencing May 1, 2013. We may redeem the New Senior Notes at any time in whole or from time to time in part, at the principal amount plus a make-whole premium. If we experience a change in control triggering event, unless we have previously exercised our right to redeem the New Senior Notes, we may be required to purchase the New Senior Notes from the holders at a purchase price equal to 101 percent of their principal amount plus accrued and unpaid interest. . . .