
                                                                      Exhibit 13
                                                                       ---------


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

This discussion and analysis should be read in conjunction with our consolidated
financial statements and related notes found elsewhere in this report.

As of May 25, 2003, Darden Restaurants,  Inc. operated 1,271 Red Lobster,  Olive
Garden,  Bahama  Breeze,  Smokey  Bones BBQ, and Seasons 52  restaurants  in the
United  States and Canada  and  licensed  33  restaurants  in Japan.  We own and
operate all of our restaurants in the U.S. and Canada, with no franchising.  Our
fiscal year ends on the last Sunday in May.  Fiscal  2003,  2002,  and 2001 each
consisted of 52 weeks of operation.

On March 21, 2002, our Board of Directors declared a three-for-two  split of our
common  stock.  The stock  split was  accomplished  through a 50  percent  stock
dividend,  which was  distributed on May 1, 2002 to stockholders of record as of
the close of business  on April 10,  2002.  All  applicable  references  in this
discussion  and  analysis  to number of shares  and per share  amounts of common
stock have been adjusted to reflect the stock split.

RESULTS OF OPERATIONS FOR FISCAL 2003, 2002, AND 2001

The following table sets forth selected  operating data as a percentage of sales
for the periods  indicated.  All  information  is derived from the  consolidated
statements of earnings for the periods indicated.
<TABLE>
<CAPTION>

                                                                                            Fiscal Years
-------------------------------------------------------------------------------------------------------------------
                                                                     2003             2002             2001
-------------------------------------------------------------------------------------------------------------------

<S>                                                                  <C>              <C>              <C>
Sales.........................................................       100.0%           100.0%           100.0%
Costs and expenses:
   Cost of sales:
     Food and beverage........................................        31.1             31.7             32.6
     Restaurant labor.........................................        31.9             31.5             31.6
     Restaurant expenses......................................        15.1             14.3             14.0
                                                                    ------             ----             ----
       Total cost of sales, excluding restaurant depreciation
          and amortization of 3.8%, 3.6%, and 3.5%,
          respectively........................................        78.1%            77.5%            78.2%
   Selling, general, and administrative.......................         9.4              9.6              9.8
   Depreciation and amortization..............................         4.1              3.8              3.7
   Interest, net..............................................         0.9              0.9              0.8
   Restructuring credit.......................................          --             (0.1)              --
                                                                  --------          --------        --------
             Total costs and expenses.........................        92.5%            91.7%            92.5%
                                                                    ------            ------          ------

Earnings before income taxes..................................         7.5              8.3              7.5
Income taxes..................................................         2.5              2.9              2.6
                                                                   -------           ------           ------

Net earnings..................................................         5.0%             5.4%             4.9%
                                                                     =====            ======          ======

-------------------------------------------------------------------------------------------------------------------
</TABLE>

SALES

Sales were $4.65 billion in fiscal 2003, $4.37 billion in fiscal 2002, and $3.99
billion in fiscal 2001.

The 6.6  percent  increase  in  sales  for  fiscal  2003  was  primarily  due to
same-restaurant   sales  increases  in  the  U.S.  and  a  net  increase  of  60
company-owned  restaurants since fiscal 2002. Total sales,  although higher than
the previous year,  were less than  anticipated due to lower than expected guest
counts for fiscal  2003.  Guest count  growth was  restrained  by a  competitive
environment that was more challenging than expected,  less effective advertising
than in fiscal 2002, and a more severe winter than normal.  Red Lobster sales of
$2.43 billion were 4.1 percent above last year. U.S.  same-restaurant  sales for
Red Lobster increased 2.7 percent due to a 3.1 percent increase in average check
and a 0.4 percent decrease in guest counts.  Average annual sales per restaurant
for Red Lobster were $3.7  million in fiscal  2003.  Olive Garden sales of $1.99
billion were 6.8 percent above last year. U.S.  same-restaurant  sales for Olive
Garden  increased 2.2 percent due to a 3.7 percent increase in average check and
a 1.5 percent decrease in guest counts.  Average annual sales per restaurant for
Olive Garden were $3.9 million in fiscal 2003. Red Lobster and Olive Garden have
enjoyed 22 and 35 consecutive quarters of U.S.  same-restaurant sales increases,
respectively.  Bahama  Breeze  generated  sales that  exceeded  $137 million and
opened five new  restaurants  during fiscal 2003. We continue to make changes to
Bahama Breeze that we anticipate will improve its sales,  financial performance,
and overall long-term potential. These changes include testing lunch operations,
creating a new dinner  menu,  and slowing new  restaurant  development  while we
reduce the size of these restaurants and our related capital

                                       1

<PAGE>

investment. Smokey Bones opened 20 new restaurants during fiscal 2003, more than
doubling the total number of Smokey Bones  restaurants open at the end of fiscal
2002. Sales for Smokey Bones in fiscal 2003 were $93 million.

The 9.4  percent  increase  in sales for fiscal  2002  versus the prior year was
primarily due to same-restaurant  sales increases in the U.S. and a net increase
of 43  company-owned  restaurants  since fiscal 2001. Red Lobster sales of $2.34
billion were 7.1 percent above fiscal 2001. U.S.  same-restaurant  sales for Red
Lobster increased 6.2 percent due to a 2.8 percent increase in average check and
a 3.4 percent increase in guest counts.  Average annual sales per restaurant for
Red  Lobster  were $3.5  million in fiscal  2002.  Olive  Garden  sales of $1.86
billion were 9.5 percent above fiscal 2001. U.S. same-restaurant sales for Olive
Garden  increased 6.3 percent due to a 3.1 percent increase in average check and
a 3.2 percent increase in guest counts.  Average annual sales per restaurant for
Olive Garden were $3.9 million in fiscal 2002.  Bahama  Breeze  opened eight new
restaurants during fiscal 2002 and generated sales of over $125 million.  Smokey
Bones opened ten new restaurants  during fiscal 2002 and generated sales of over
$42 million.

COSTS AND EXPENSES

Total costs and expenses  were $4.31  billion in fiscal 2003,  $4.00  billion in
fiscal  2002,  and $3.69  billion in fiscal  2001.  Total costs and  expenses in
fiscal 2003 were 92.5 percent of sales,  an increase  from 91.7 percent of sales
in fiscal 2002.  The  following  analysis of the  components  of total costs and
expenses is presented as a percent of sales.

Food and  beverage  costs as a percent  of sales  decreased  in fiscal  2003 and
fiscal 2002 primarily as a result of lower product cost,  pricing  changes,  and
changes in the mix of sales among our various restaurant  companies.  Restaurant
labor  increased in fiscal 2003  primarily  as a result of a modest  increase in
wage rates,  higher promotional  staffing levels and increased sales volatility,
which made it more difficult to predict staffing needs.  These factors were only
partially  offset by the impact of higher sales.  Restaurant  labor decreased in
fiscal 2002 primarily due to efficiencies resulting from higher sales.

Restaurant  expenses (which include lease,  property tax, credit card,  utility,
workers'  compensation,   insurance,  new  restaurant  pre-opening,   and  other
operating expenses) as a percent of sales increased in fiscal 2003 primarily due
to increased insurance,  new restaurant  pre-opening,  workers' compensation and
utility costs.  These cost increases were only partially offset by higher sales.
Restaurant expenses in fiscal 2002 were higher than fiscal 2001 primarily due to
increased workers'  compensation,  new restaurant  pre-opening,  credit card and
other  operating  expenses,  which were only  partially  offset by lower utility
expenses and higher sales volumes.

Selling, general, and administrative expenses as a percent of sales decreased in
fiscal 2003 primarily due to decreased  bonus costs and the favorable  impact of
higher sales.  These amounts were only partially  offset by increased  marketing
expense  incurred  in  response  to the  challenging  economic  and  competitive
environment.  Selling,  general, and administrative expenses in fiscal 2002 were
less than fiscal 2001  primarily  as a result of decreased  national  television
marketing  expenses  and the  favorable  impact of higher  sales in fiscal 2002.
These  amounts  were  partially  offset  by  our  fiscal  2002  donation  to the
restaurant  industry's  Dine Out for  America  benefit  and higher  fiscal  2002
donations to the Darden Restaurants, Inc. Foundation.

Depreciation  and  amortization  expense  increased  in  fiscal  2003  and  2002
primarily as a result of new  restaurant and remodel  activity,  which were only
partially offset by the favorable impact of higher sales.

Net  interest  expense in fiscal 2003 was  comparable  to fiscal 2002  primarily
because increased interest expense associated with higher average debt levels in
fiscal 2003 was offset by the favorable  impact of higher fiscal 2003 sales. Net
interest  expense  increased in fiscal 2002 primarily due to increased  interest
expense  associated  with higher  average debt levels,  which was only partially
offset by the impact of higher fiscal 2002 sales.

Pre-tax  restructuring credits of $0.4 million and $2.6 million were recorded in
fiscal  2003 and 2002,  respectively.  The  credits  resulted  from  lower  than
projected  costs of lease  terminations  in  connection  with  our  fiscal  1997
restructuring.  No restructuring  credit was recognized  during fiscal 2001. All
fiscal 1997 restructuring actions have been completed as of May 25, 2003.

INCOME TAXES

The  effective  income  tax  rates for  fiscal  2003,  2002,  and 2001 were 33.2
percent,  34.6  percent,  and 34.6 percent,  respectively.  The rate decrease in
fiscal 2003 was  primarily a result of ongoing tax  liability  adjustments  that
were made as a result of  information  that became  available in fiscal 2003 and
lower fiscal 2003 pre-tax  earnings.  The  comparability of fiscal 2002 and 2001
effective rates was primarily a result of increased tax expense  associated with
higher fiscal 2002 pre-tax  earnings which was offset by fiscal 2002  deductions
that were not available in fiscal 2001.

                                       2

<PAGE>


NET EARNINGS AND NET EARNINGS PER SHARE

Net  earnings  for  fiscal  2003 were $232  million  ($1.31 per  diluted  share)
compared  with net earnings  for fiscal 2002 of $238 million  ($1.30 per diluted
share) and net  earnings  for fiscal  2001 of $197  million  ($1.06 per  diluted
share).

Net earnings for fiscal 2003  decreased 2.3 percent and diluted net earnings per
share  increased  0.8  percent,  compared to fiscal  2002.  The  decrease in net
earnings  was  primarily  due  to  increases  in  restaurant  labor,  restaurant
expenses, and depreciation and amortization expenses,  which were only partially
offset by the impact of higher  sales.  The increase in diluted net earnings per
share is due to a  reduction  in the average  diluted  shares  outstanding  from
fiscal 2002 to fiscal 2003 because of our  continuing  repurchase  of our common
stock.

Net earnings and diluted net earnings per share for fiscal 2002  increased  20.7
percent and 22.6 percent, respectively, compared to fiscal 2001. The increase in
both net  earnings  and  diluted net  earnings  per share was  primarily  due to
increases  in sales at both Red Lobster and Olive  Garden and  decreases in food
and  beverage  costs and  restaurant  labor as a percent of sales.  Diluted  net
earnings  per share also  reflected a reduction  in the average  diluted  shares
outstanding due to our share repurchase activities.

SEASONALITY

Our sales volumes fluctuate seasonally.  During fiscal 2003, 2002, and 2001, our
sales were  highest in the spring,  lowest in the fall,  and  comparable  during
winter and summer. Holidays,  severe weather, storms, 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.

IMPACT OF INFLATION

We do not believe  inflation had a significant  overall effect on our operations
during fiscal 2003, 2002, and 2001. We believe we have historically been able to
pass on  increased  operating  costs  through  menu  price  increases  and other
strategies.

CRITICAL ACCOUNTING POLICIES

We prepare our consolidated  financial  statements in conformity with accounting
principles  generally accepted in the United States of America.  The preparation
of these financial statements requires us to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported  amounts of revenues and expenses during the reporting  period (see
Note 1 to our consolidated  financial  statements).  Actual results could differ
from those estimates.

Critical accounting policies are those we believe are both most important to the
portrayal of our financial condition and operating results, and require our most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make  estimates  about the  effect of  matters  that are  inherently  uncertain.
Judgments and  uncertainties  affecting the  application  of those  policies may
result in materially different amounts being reported under different conditions
or using different  assumptions.  We consider the following  policies to be most
critical in  understanding  the  judgments  that are involved in  preparing  our
consolidated financial statements.

Land, Buildings, and Equipment

Land,   buildings,   and  equipment  are  recorded  at  cost  less   accumulated
depreciation.  Building  components are depreciated  over estimated useful lives
ranging  from  seven to 40  years  using  the  straight-line  method.  Leasehold
improvements,  which are a component of buildings, are amortized over the lesser
of the lease term or the estimated  useful lives of the related assets using the
straight-line  method.  Equipment is  depreciated  over  estimated  useful lives
ranging from three to ten years also using the straight-line method. Accelerated
depreciation methods are generally used for income tax purposes.

Our accounting  policies  regarding land,  buildings,  and equipment,  including
leasehold  improvements,  include our judgments  regarding the estimated  useful
lives of these assets,  the residual  values to which the assets are depreciated
or amortized,  and the determination as to what constitutes  enhancing the value
of or increasing the life of existing assets.  These judgments and estimates may
produce materially  different amounts of reported  depreciation and amortization
expense if different  assumptions were used. As discussed  further below,  these
judgments  may also impact our need to  recognize  an  impairment  charge on the
carrying amount of these assets as the cash flows associated with the assets are
realized.

                                       3

<PAGE>

Impairment of Long-Lived Assets

Land, buildings,  and equipment and certain other assets,  including capitalized
software costs and liquor licenses,  are reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison  of the carrying  amount of the assets to the future net cash flows
expected to be generated by the assets.  If these  assets are  determined  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds their fair value.  Fair value is generally
determined based on appraisals or sales prices of comparable assets.  Restaurant
sites and certain  other  assets to be disposed of are  reported at the lower of
their carrying amount or fair value,  less estimated  costs to sell.  Restaurant
sites and certain other assets to be disposed of are included in assets held for
disposal when certain  criteria are met. These criteria  include the requirement
that the  likelihood  of disposing of these assets  within one year is probable.
Those  assets  whose  disposal is not  probable  within one year remain in land,
buildings, and equipment until their disposal is probable within one year.

The judgments we make related to the expected useful lives of long-lived  assets
and our  ability to realize  undiscounted  cash flows in excess of the  carrying
amounts of these assets are affected by factors such as the ongoing  maintenance
and improvements of the assets,  changes in economic conditions,  and changes in
usage or operating performance. As we assess the ongoing expected cash flows and
carrying amounts of our long-lived assets,  significant adverse changes in these
factors could cause us to realize a material impairment charge.

Self-Insurance Reserves

We  self-insure  a  significant  portion of expected  losses  under our workers'
compensation,   employee  medical,  and  general  liability  programs.   Accrued
liabilities  have been recorded  based on our estimates of the ultimate costs to
settle incurred claims, both reported and not yet reported.

Our accounting policies regarding  self-insurance programs include our judgments
and  independent  actuarial  assumptions  regarding  economic  conditions,   the
frequency  or  severity  of claims  and claim  development  patterns,  and claim
reserve,  management,  and settlement practices.  Unanticipated changes in these
factors may produce materially different amounts of reported expense under these
programs.

Income Taxes

We  estimate  certain  components  of our  provision  for  income  taxes.  These
estimates include, among other items, effective rates for state and local income
taxes,  allowable  tax  credits  for items  such as taxes paid on  reported  tip
income, estimates related to depreciation and amortization expense allowable for
tax purposes, and the tax deductibility of certain other items.

Our estimates are based on the best  available  information  at the time that we
prepare the provision.  We generally file our annual income tax returns  several
months  after our fiscal  year-end.  Income tax  returns are subject to audit by
federal,  state,  and local  governments,  generally years after the returns are
filed.  These  returns  could be subject to material  adjustments  or  differing
interpretations of the tax laws.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows  generated  from operating  activities  provide us with a significant
source of  liquidity.  Since  substantially  all 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 manage our business and our financial  ratios to maintain an investment grade
bond rating,  which allows access to financing at reasonable  costs.  Currently,
our publicly issued long-term debt carries "Baa1" (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 only  accurate as of the date of this annual
report 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
may be changed, superseded, or withdrawn at any time.

Our  commercial  paper  program  serves  as our  primary  source  of  short-term
financing.  As of May 25, 2003, there were no borrowings  outstanding  under the
program.  To support our  commercial  paper program,  we have a credit  facility
under a Credit  Agreement dated October 29, 1999, as amended,  with a consortium
of banks, including

                                       4

<PAGE>

Wachovia Bank, N.A., as  administrative  agent,  under which we can borrow up to
$300 million. The credit facility allows us to borrow at interest rates based on
the prime  rate,  LIBOR,  or a  competitively  bid rate among the members of the
lender consortium,  at our option, and on our credit rating. The credit facility
expires on  October  29,  2004,  and  contains  various  restrictive  covenants,
including a leverage test that  requires us to maintain a ratio of  consolidated
total debt to consolidated total  capitalization of less than 0.55 to 1.00 and a
limitation of $25 million on priority debt, subject to certain  exceptions.  The
credit  facility does not,  however,  contain a prohibition  on borrowing in the
event  of a  ratings  downgrade  or a  material  adverse  change.  None of these
covenants are expected to impact our liquidity or capital  resources.  As of May
25,  2003,  we were  in  compliance  with  all  covenants  and no  amounts  were
outstanding under the credit facility.

At May 25, 2003, our long-term debt consisted  principally  of: (1) $150 million
of unsecured  8.375 percent senior notes due in September 2005, (2) $150 million
of  unsecured  6.375  percent  notes due in February  2006,  (3) $150 million of
unsecured 5.75 percent  medium-term  notes due in March 2007, (4) $75 million of
unsecured 7.45 percent  medium-term notes due in April 2011, (5) $100 million of
unsecured  7.125 percent  debentures due in February 2016, and (6) an unsecured,
variable  rate,  $34  million  commercial  bank loan due in  December  2018 that
supports two loans from us to the Employee  Stock  Ownership Plan portion of the
Darden Savings Plan.  Through a shelf  registration  on file with the Securities
and Exchange  Commission (SEC), we may issue up to an additional $125 million of
unsecured  debt  securities  from  time to time.  The debt  securities  may bear
interest at either fixed or floating rates,  and may have maturity dates of nine
months or more after issuance.

A summary of our contractual  obligations  and commercial  commitments as of May
25, 2003, is as follows (in thousands):
<TABLE>
<CAPTION>

-------------------------- -------------------------------------------------------------------------------------------
                                                             Payments Due by Period
-------------------------- -------------------------------------------------------------------------------------------
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
<S>                          <C>               <C>                <C>               <C>                 <C>
       Contractual                             Less than            2-3                4-5               After 5
       Obligations             Total            1 Year             Years              Years               Years
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Long-term debt (1)             $659,430        $     --           $300,000          $150,000            $209,430
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Operating leases                327,921          55,938             97,192            72,170             102,621
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
Total contractual cash
      obligations              $987,351         $55,938           $397,192          $222,170            $312,051
-------------------------- --------------- ------------------ ----------------- ------------------- ------------------
</TABLE>

<TABLE>
<CAPTION>

-------------------------- -------------------------------------------------------------------------------------------
                                                   Amount of Commitment Expiration per Period
-------------------------- -------------------------------------------------------------------------------------------
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
<S>                       <C>                 <C>                <C>               <C>                <C>
                           Total Amounts
    Other Commercial         Committed         Less than             2-3               4-5               Over 5
       Commitments                              1 Year              Years             Years              Years
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Trade letters of credit        $  8,301        $  8,301          $      --          $      --         $      --
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Standby letters of
     credit (2)                  48,945          48,945                 --                 --                --
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Guarantees (3)                    4,254             687              1,163              1,150             1,254
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Other                             2,250           1,000              1,250                 --                --
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
Total commercial
     commitments                $63,750         $58,933             $2,413             $1,150            $1,254
-------------------------- --------------- ------------------ ------------------ ----------------- -------------------
<FN>

1)   Excludes issuance discount of $1,344.
2)   Includes letters of credit for $41,442 of workers' compensation and general
     liabilities accrued in our consolidated financial statements; also includes
     letters of credit  for $6,091 of lease  payments  included  in  contractual
     operating  lease  obligation  payments noted above.
3)   Consists solely of guarantees associated with sub-leased properties. We are
     not aware of any  non-performance  under these sub-lease  arrangements that
     would  result in us having to perform in  accordance  with the terms of the
     guarantees.
</FN>
</TABLE>

Our  fixed-charge  coverage ratio,  which measures the number of times each year
that we earn  enough to cover our fixed  charges,  amounted to 6.0 times and 6.8
times at May 25, 2003,  and May 26,  2002,  respectively.  Our adjusted  debt to
adjusted  total  capital  ratio  (which  includes  6.25  times the total  annual
restaurant  minimum rent ($48.1  million and $43.1  million for the fiscal years
ended May 25,  2003,  and May 26, 2002,  respectively)  and 3.00 times the total
annual restaurant  equipment minimum rent ($5.7 million and $8.4 million for the
fiscal years ended May 25, 2003 and May 26, 2002, respectively) as components of
adjusted debt and adjusted  total  capital) was 45 percent and 46 percent at May
25, 2003, and May 26, 2002,  respectively.  We use the lease-debt  equivalent in
our adjusted  debt to adjusted  total  capital ratio as we believe its inclusion
better represents the optimal

                                       5

<PAGE>


capital  structure that we target from period to period.  Based on these ratios,
we believe our financial  condition is strong.  The  composition  of our capital
structure is shown in the following table.
<TABLE>
<CAPTION>

(In millions, except ratios)                                                May 25, 2003          May 26, 2002
--------------------------------------------------------------------------------------------------------------------
CAPITAL STRUCTURE
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                    <C>
Long-term debt                                                               $   658                $  662
Stockholders' equity                                                           1,196                 1,129
--------------------------------------------------------------------------------------------------------------------
Total capital                                                                 $1,854                $1,791
====================================================================================================================
ADJUSTMENTS TO CAPITAL
--------------------------------------------------------------------------------------------------------------------
Long-term debt                                                               $   658                $  662
Lease-debt equivalent                                                            318                   295
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Adjusted debt                                                                $   976                $  957
Stockholders' equity                                                           1,196                 1,129
--------------------------------------------------------------------------------------------------------------------
Adjusted total capital                                                        $2,172                $2,086
====================================================================================================================
====================================================================================================================
CAPITAL STRUCTURE RATIOS
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Debt to total capital ratio                                                       36%                   37%
Adjusted debt to adjusted total capital ratio                                     45%                   46%
====================================================================================================================
</TABLE>


Our Board of Directors  has  authorized  us to  repurchase  up to 115.4  million
shares of our common stock. Net cash flows used in financing activities included
our  repurchase  of 10.7 million  shares of our common stock for $213 million in
fiscal 2003  compared to 9.0 million  shares for $209 million in fiscal 2002 and
12.7 million shares for $177 million in fiscal 2001. As of May 25, 2003, a total
of 98.5  million  shares  have been  repurchased  under the  authorization.  The
repurchased  common stock is reflected as a reduction of  stockholders'  equity.
Net cash flows used in financing  activities  also  included  dividends  paid to
stockholders of $14 million,  $9 million,  and $9 million in fiscal 2003,  2002,
and 2001, respectively.

Net cash  flows  used in  investing  activities  included  capital  expenditures
incurred  principally for building new  restaurants,  replacing  equipment,  and
remodeling  existing  restaurants.  Capital  expenditures  were $423  million in
fiscal 2003, compared to $318 million in fiscal 2002, and $355 million in fiscal
2001.  The  increased  expenditures  in  fiscal  2003  resulted  primarily  from
increased  spending  associated with building more new restaurants and replacing
equipment.  The reduced  expenditures  in fiscal 2002 resulted  primarily from a
reduction in spending associated with building new restaurants. We estimate that
our fiscal 2004 capital expenditures will approximate $400 million.

Net cash flows provided by operating  activities for fiscal 2003 also included a
$20 million contribution to our defined benefit pension plans, which enabled the
plans to  maintain a fully  funded  status as of the plans'  February  28,  2003
annual  valuation  date. Our defined benefit and other  post-retirement  benefit
costs and liabilities  are calculated  using various  actuarial  assumptions and
methodologies prescribed under the Financial Accounting Standards Board's (FASB)
Statement  of  Financial   Accounting   Standards  (SFAS)  No.  87,  "Employers'
Accounting for Pensions" and No. 106, "Employers'  Accounting for Postretirement
Benefits Other Than Pensions".  We use certain  assumptions  including,  but not
limited to, the selection of a discount rate,  expected long-term rate of return
on plan assets,  and expected  health care cost trend rates. We set the discount
rate  assumption  annually  for each plan at its  valuation  date to reflect the
yield of high quality fixed-income debt instruments, with lives that approximate
the maturity of the plan  benefits.  As of May 25, 2003,  our discount  rate was
6.25 percent.  The expected  long-term  rate of return on plan assets and health
care cost trend rates are based upon several  factors,  including our historical
assumptions  compared  with  actual  results,  an  analysis  of  current  market
conditions,  asset allocations,  and the views of leading financial advisers and
economists.  Based on our recent analysis, we lowered our defined benefit plans'
expected  long-term  rate of return on plan  assets  for  fiscal  2004 from 10.4
percent  to 9.0  percent.  The change in our  defined  benefit  plans'  expected
long-term  rate of return on plan assets will  decrease  earnings  before income
taxes by  approximately  $2  million in fiscal  2004.  As of May 25,  2003,  our
expected  health care costs trend rates ranged from 12.0 percent to 13.0 percent
for fiscal 2004, depending on the medical service category.  The rates gradually
decrease to 5.0 percent through fiscal 2011 and remain at that level thereafter.

The  expected  long-term  rate of return  on plan  assets  component  of our net
periodic  benefit cost is calculated based on the  market-related  value of plan
assets.  Our target asset  allocation  is 35 percent U.S.  equities,  30 percent
high-quality,  long-duration  fixed-income securities,  15 percent international
equities,  10 percent private  equities,  and 10 percent real assets. We monitor
our actual asset allocation to ensure that it approximates our target allocation
and believe that our long-term asset allocation will continue to approximate our
target  allocation.  Our  historical  ten-year  rate of return  on plan  assets,
calculated using the geometric method average of returns,  is approximately  9.4
percent.

We have an  unrecognized  net actuarial  loss for the defined  benefit plans and
post-retirement  benefit plan as of May 25, 2003, of $80 million and $6 million,
respectively.  The  unrecognized  net actuarial loss  represents  changes in the

                                       6

<PAGE>

amount of the  projected  benefit  obligation  and plan  assets  resulting  from
differences in the assumptions used and actual  experience.  The amortization of
the  unrecognized  net actuarial  loss component of our fiscal 2004 net periodic
benefit cost for the defined benefit plans and  post-retirement  benefit plan is
expected to be approximately $4 million and $0.3 million, respectively.

We believe our defined benefit and post-retirement  benefit plan assumptions are
appropriate based upon the factors discussed above.  However,  other assumptions
could also be reasonably  applied that could differ from the assumptions used. A
quarter  percentage point change in the defined benefit plans' discount rate and
the expected  long-term rate of return on plan assets would increase or decrease
earnings before income taxes by $0.6 million and $0.4 million,  respectively.  A
quarter  percentage  point change in our  post-retirement  benefit plan discount
rate would increase or decrease  earnings  before income taxes by less than $0.1
million.  If the health care cost trend rates were to be  increased or decreased
by one percentage  point each future year, the aggregate of the service cost and
interest  cost  components  of net periodic  post-retirement  benefit cost would
change by $0.3 million.  These changes in  assumptions  would not  significantly
impact our funding requirements.

We are not aware of any  trends or  events  that  would  materially  affect  our
capital requirements or liquidity. We believe that our internal  cash-generating
capabilities and borrowings available under our shelf registration for unsecured
debt securities and short-term  commercial paper program should be sufficient to
finance our capital expenditures,  stock repurchase program, and other operating
activities through fiscal 2004.

FINANCIAL CONDITION

Our current assets of $326 million at May 25, 2003,  decreased from $443 million
at May 26, 2002. The decrease resulted primarily from decreases in cash and cash
equivalents  of $104  million and  short-term  investments  of $10 million  that
resulted  principally from the short-term  investment of proceeds  received from
the March 2002 medium-term debt issuance.

Other assets of $182 million at May 25, 2003, increased from $159 million at May
26,  2002,  primarily  as a result of the $20  million  funding  of our  defined
benefit pension plans during fiscal 2003.

Current liabilities of $640 million at May 25, 2003, increased from $601 million
at May 26, 2002,  primarily as a result of increases in accounts  payable of $16
million and unearned  revenues of $16 million.  The increase in accounts payable
is primarily due to the timing of our  inventory  purchases at the end of fiscal
2003. The increase in unearned  revenues is primarily due to an increase in gift
card sales during fiscal 2003.

Net non-current deferred income tax liabilities of $151 million at May 25, 2003,
increased  from $118 million at May 26,  2002,  primarily as a result of current
income tax deductions for certain capitalized  software costs,  smallwares,  and
equipment.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to a variety of market risks,  including fluctuations in interest
rates,  foreign currency  exchange rates, and commodity  prices.  To manage this
exposure,  we periodically  enter into interest rate, foreign currency exchange,
and commodity  instruments for other than trading purposes (see Notes 1 and 7 of
the Notes to Consolidated Financial Statements).

We use the  variance/covariance  method  to  measure  value at risk,  over  time
horizons ranging from one week to one year, at the 95 percent  confidence level.
As of May 25, 2003, our potential  losses in future net earnings  resulting from
changes in foreign currency  exchange rate instruments,  commodity  instruments,
and floating rate debt interest rate  exposures  were  approximately  $1 million
over a period of one year.  The value at risk from an increase in the fair value
of all of our  long-term  fixed  rate  debt,  over a  period  of one  year,  was
approximately  $24  million.  The fair  value of our  long-term  fixed rate debt
during fiscal 2003 averaged $681 million,  with a high of $706 million and a low
of $645  million.  Our interest rate risk  management  objective is to limit the
impact of interest  rate  changes on  earnings  and cash flows by  targeting  an
appropriate mix of variable and fixed rate debt.

FUTURE APPLICATION OF ACCOUNTING STANDARDS

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations".  SFAS No. 143 establishes accounting standards for the recognition
and  measurement of an asset  retirement  obligation  and our  associated  asset
retirement  cost. It also  provides  accounting  guidance for legal  obligations
associated with the retirement of tangible  long-lived  assets.  SFAS No. 143 is
effective for financial  statements issued for fiscal years

                                       7

<PAGE>

beginning  after June 15, 2002.  We adopted SFAS No. 143 in the first quarter of
fiscal 2004. Adoption of SFAS No. 143 did not materially impact our consolidated
financial statements.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  to  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies the financial  accounting  and reporting for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities under SFAS No. 133,  "Accounting for Derivative  Instruments
and Hedging Activities".  This statement is effective for hedging  relationships
designated and contracts  entered into or modified  after June 30, 2003,  except
for the provisions that relate to SFAS No. 133 implementation issues, which will
continue to be applied in accordance with their  respective  dates.  Adoption of
SFAS No. 149 did not materially impact our consolidated financial statements.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
establishes  accounting  standards for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.  It  requires  certain   financial   instruments  that  were  previously
classified as equity to be classified as assets or liabilities.  SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003.  Adoption  of SFAS No. 150 is not  expected  to
materially impact our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Certain  statements  included in this report and other  materials filed or to be
filed by us with the SEC (as well as  information  included  in oral or  written
statements  made  or  to  be  made  by  us)  may  contain  statements  that  are
forward-looking within the meaning of Section 27A of the Securities Act of 1933,
as amended,  and Section 21E of the Securities Exchange Act of 1934, as amended.
Words  or  phrases  such  as  "believe",  "plan",  "will",  "expect",  "intend",
"estimate",  and  "project",  and similar  expressions  are intended to identify
forward-looking statements. All of these statements, and any other statements in
this report that are not  historical  facts,  are  forward-looking.  Examples of
forward-looking   statements  include,  but  are  not  limited  to,  projections
regarding  expected casual dining sales growth; the ability of the casual dining
segment to weather economic downturns;  demographic trends; our expansion plans,
capital  expenditures,  and business development  activities;  and our long-term
goals of increasing market share,  expanding  margins on incremental  sales, and
earnings  growth.  These  forward-looking  statements  are based on  assumptions
concerning important factors,  risks, and uncertainties that could significantly
affect  anticipated  results in the future  and,  accordingly,  could  cause the
actual results to differ materially from those expressed in the  forward-looking
statements. These factors, risks, and uncertainties include, but are not limited
to:

o    the  highly  competitive  nature  of the  restaurant  industry,  especially
     pricing, service, location, personnel, and type and quality of food;
o    economic,  market,  and other conditions,  including a protracted  economic
     slowdown or worsening economy,  industry-wide cost pressures, weak consumer
     demand,  changes  in  consumer  preferences,  demographic  trends,  weather
     conditions,  construction  costs, and the cost and availability of borrowed
     funds;
o    the price and availability of food, labor, utilities,  insurance and media,
     and other costs,  including  seafood  costs,  employee  benefits,  workers'
     compensation insurance, and the general impact of inflation;
o    unfavorable publicity relating to food safety or other concerns,  including
     litigation  alleging poor food  quality,  food-borne  illness,  or personal
     injury;
o    the availability of desirable restaurant locations;
o    government  regulations,  including  those  relating  to zoning,  land use,
     environmental matters, and liquor licenses; and
o    growth  plans,   including  real  estate   development   and   construction
     activities, the issuance and renewal of licenses and permits for restaurant
     development, and the availability of funds to finance growth.

                                       8

<PAGE>



REPORT OF MANAGEMENT RESPONSIBILITIES

The management of Darden  Restaurants,  Inc. is responsible for the fairness and
accuracy of the consolidated  financial statements.  The consolidated  financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America,  using management's best estimates and
judgments where appropriate. The financial information throughout this report is
consistent with our consolidated financial statements.

Management  has  established  a  system  of  internal   controls  that  provides
reasonable  assurance that assets are adequately  safeguarded,  and transactions
are  recorded  accurately,   in  all  material  respects,   in  accordance  with
management's   authorization.   We  maintain  a  strong   audit   program   that
independently evaluates the adequacy and effectiveness of internal controls. Our
internal   controls   provide   for   appropriate   separation   of  duties  and
responsibilities, and there are documented policies regarding utilization of our
assets and proper  financial  reporting.  These  formally  stated and  regularly
communicated policies set high standards of ethical conduct for all employees.

The  Audit  Committee  of the Board of  Directors  meets at least  quarterly  to
determine that  management,  internal  auditors,  and  independent  auditors are
properly  discharging  their duties  regarding  internal  control and  financial
reporting. The independent auditors,  internal auditors, and employees have full
and free access to the Audit Committee at any time.

KPMG LLP,  independent  certified public accountants,  are retained to audit our
consolidated financial statements. Their report follows.

/s/ Joe R. Lee
----------------------
Joe R. Lee
Chairman of the Board and Chief Executive Officer


                                       9

<PAGE>




INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Darden Restaurants, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Darden
Restaurants, Inc. and subsidiaries as of May 25, 2003, and May 26, 2002, and the
related consolidated statements of earnings, changes in stockholders' equity and
accumulated other comprehensive  income, and cash flows for each of the years in
the  three-year  period  ended  May  25,  2003.  These  consolidated   financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Darden Restaurants,
Inc. and  subsidiaries  as of May 25, 2003, and May 26, 2002, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended May 25, 2003, in conformity  with accounting  principles  generally
accepted in the United States of America.

/s/ KPMG LLP
-------------------------
Orlando, Florida
June 17, 2003

                                       10

<PAGE>


<TABLE>
<CAPTION>


CONSOLIDATED STATEMENTS OF EARNINGS

                                                                                Fiscal Year Ended
--------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)                            May 25, 2003     May 26, 2002      May 27, 2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>              <C>
Sales                                                              $4,654,971        $4,366,911       $3,992,419
Costs and expenses:
   Cost of sales:
         Food and beverage                                          1,449,162         1,384,481        1,302,926
         Restaurant labor                                           1,485,046         1,373,416        1,261,837
         Restaurant expenses                                          700,182           625,710          559,670
--------------------------------------------------------------------------------------------------------------------
             Total cost of sales, excluding restaurant
               depreciation and amortization of $177,127,
               $155,837, and $138,229, respectively                $3,634,390        $3,383,607       $3,124,433
    Selling, general, and administrative                              439,376           420,149          389,240
    Depreciation and amortization                                     191,218           165,829          146,864
    Interest, net                                                      42,597            36,585           30,664
    Restructuring credit                                                 (358)           (2,568)              --
--------------------------------------------------------------------------------------------------------------------
                     Total costs and expenses                      $4,307,223        $4,003,602       $3,691,201
--------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                          347,748           363,309          301,218
Income taxes                                                          115,488           125,521          104,218
--------------------------------------------------------------------------------------------------------------------
Net earnings                                                       $  232,260        $  237,788       $   197,000
====================================================================================================================
Net earnings per share:
   Basic                                                           $     1.36        $     1.36       $     1.10
   Diluted                                                         $     1.31        $     1.30       $     1.06
====================================================================================================================
Average number of common shares outstanding:
   Basic                                                              170,300           174,700          179,600
   Diluted                                                            177,400           183,500          185,600
====================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       11

<PAGE>


<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------------------------------------------------
(In thousands)                                                       May 25, 2003              May 26, 2002
--------------------------------------------------------------------------------------------------------------------
                            ASSETS
<S>                                                                  <C>                      <C>
Current assets:
   Cash and cash equivalents                                         $     48,630              $    152,875
   Short-term investments                                                      --                     9,904
   Receivables                                                             29,023                    29,089
   Inventories                                                            173,644                   172,413
   Assets held for disposal                                                    --                     3,868
   Prepaid expenses and other current assets                               25,126                    23,076
   Deferred income taxes                                                   49,206                    52,127
--------------------------------------------------------------------------------------------------------------------
     Total current assets                                             $   325,629               $   443,352
Land, buildings, and equipment                                          2,157,132                 1,926,947
Other assets                                                              181,872                   159,437
--------------------------------------------------------------------------------------------------------------------
            Total assets                                               $2,664,633                $2,529,736
====================================================================================================================
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                   $   175,991               $   160,064
   Accrued payroll                                                         85,975                    87,936
   Accrued income taxes                                                    67,975                    68,504
   Other accrued taxes                                                     35,069                    30,474
   Unearned revenues                                                       72,698                    56,632
   Other current liabilities                                              202,201                   197,404
--------------------------------------------------------------------------------------------------------------------
     Total current liabilities                                        $   639,909               $   601,014
Long-term debt                                                            658,086                   662,506
Deferred income taxes                                                     150,537                   117,709
Other liabilities                                                          19,910                    19,630
--------------------------------------------------------------------------------------------------------------------
            Total liabilities                                          $1,468,442                $1,400,859
--------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
   Common stock and surplus, no par value.  Authorized
     500,000 shares; issued 261,463 and 258,426 shares,
     respectively; outstanding 164,950 and 172,135 shares,
     respectively                                                      $1,525,957                $1,474,054
   Preferred stock, no par value.  Authorized 25,000 shares;
     none issued and outstanding                                               --                        --
   Retained earnings                                                      979,443                   760,684
   Treasury stock, 96,513 and 86,291 shares,
     at cost, respectively                                             (1,254,293)               (1,044,915)
   Accumulated other comprehensive income                                 (10,489)                  (12,841)
   Unearned compensation                                                  (42,848)                  (46,108)
   Officer notes receivable                                                (1,579)                   (1,997)
--------------------------------------------------------------------------------------------------------------------
            Total stockholders' equity                                 $1,196,191                $1,128,877
--------------------------------------------------------------------------------------------------------------------
         Total liabilities and stockholders' equity                    $2,664,633                $2,529,736
====================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       12

<PAGE>


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------
                                      Common                           Accumulated
                                       Stock                              Other                   Officer      Total
                                        and     Retained    Treasury  Comprehensive  Unearned      Notes    Stockholders'
(In thousands, except per share       Surplus   Earnings     Stock       Income    Compensation  Receivable    Equity
data)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>        <C>          <C>         <C>             <C>      <C>
Balance at May 28, 2000            $1,351,707    $344,579    $ (666,837) $(12,457)   $(56,522)       $(1,868)   $958,602
-------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                            --     197,000            --        --          --             --     197,000
   Other comprehensive income, foreign
      currency adjustment                  --         --             --      (645)         --             --        (645)
                                                                                                               ----------
         Total comprehensive income                                                                              196,355
Cash dividends declared ($0.053 per
   share)                                  --      (9,458)           --        --          --             --      (9,458)
Stock option exercises (4,670
   shares)                             33,158         --             --        --          --             --      33,158
Issuance of restricted stock (443
   shares), net of forfeiture
   adjustments                          3,986         --          1,035        --      (5,109)            --         (88)
Earned compensation                        --         --             --        --       4,164             --       4,164
ESOP note receivable repayments            --         --             --        --       8,145             --       8,145
Income tax benefits credited to
   equity                              15,287         --             --        --          --             --      15,287
Purchases of common stock for
   treasury (12,660 shares)                --         --       (176,511)       --          --             --    (176,511)
Issuance of treasury stock under
   Employee Stock Purchase Plan and
   other plans (336 shares)             1,661         --          2,059        --          --             --       3,720
Issuance of officer notes, net             --         --             --        --          --            (56)        (56)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Balance at May 27, 2001            $1,405,799    $532,121    $ (840,254) $(13,102)   $(49,322)       $(1,924) $1,033,318
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                            --     237,788            --        --          --             --     237,788
   Other comprehensive income:
       Foreign currency adjustment         --         --             --       169          --             --         169
       Change in fair value of
       derivatives, net of tax of $234     --         --             --       380          --             --         380
       Minimum pension liability
       adjustment, net of tax benefit
       of $177                             --         --             --      (288)         --             --        (288)
                                                                                                              -----------
        Total comprehensive income                                                                               238,049
Cash dividends declared ($0.053 per
   share)                                  --      (9,225)           --        --          --             --      (9,225)
Stock option exercises (4,310 shares)  34,742         --          1,364        --          --             --      36,106
Issuance of restricted stock (374
   shares), net of forfeiture
   adjustments                          5,666         --            815        --      (6,493)            --         (12)
Earned compensation                        --         --             --        --       4,392             --       4,392
ESOP note receivable repayments            --         --             --        --       5,315             --       5,315
Income tax benefits credited to
   equity                              24,989         --             --        --          --             --      24,989
Purchases of common stock for
   treasury (8,972 shares)                 --         --       (208,578)       --          --             --    (208,578)
Issuance of treasury stock under
   Employee Stock Purchase Plan
   and other plans (290 shares)         2,858         --          1,738        --          --             --       4,596
Issuance of officer notes, net             --         --             --        --          --            (73)        (73)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Balance at May 26, 2002            $1,474,054    $760,684   $(1,044,915) $(12,841)   $(46,108)       $(1,997) $1,128,877
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
   Net earnings                            --     232,260           --         --          --             --     232,260
   Other comprehensive income:
       Foreign currency adjustment         --         --            --      2,579          --             --       2,579
       Change in fair value of
        derivatives, net of tax of $0      --         --            --          2          --             --           2
       Minimum pension liability
        adjustment, net of tax benefit
        of $141                            --         --            --       (229)         --             --        (229)
                                                                                                              -----------
       Total comprehensive income                                                                                234,612
Cash dividends declared ($0.080 per
   share)                                  --     (13,501)          --         --          --             --     (13,501)
Stock option exercises (3,133 shares)  27,261         --          1,652        --          --             --      28,913
Issuance of restricted stock (177
   shares), net of forfeiture
   adjustments                          4,429         --            600        --      (5,029)            --          --
Earned compensation                        --         --            --         --       3,579             --       3,579
ESOP note receivable repayments            --         --            --         --       4,710             --       4,710
Income tax benefits credited to
   equity                              16,385         --            --         --          --             --      16,385
Purchases of common stock for
   treasury (10,746 shares)                --         --       (213,311)       --          --             --    (213,311)
Issuance of treasury stock under
   Employee Stock Purchase Plan and
   other plans (280 shares)             3,828         --          1,681        --          --             --       5,509
Issuance of officer notes, net             --         --            --         --          --            418         418
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Balance at May 25, 2003            $1,525,957    $979,443   $(1,254,293) $(10,489)   $(42,848)       $(1,579) $1,196,191
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       13

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                Fiscal Year Ended
--------------------------------------------------------------------------------------------------------------------
(In thousands)                                                   May 25, 2003     May 26, 2002      May 27, 2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>              <C>
Cash flows - operating activities
   Net earnings                                                    $ 232,260         $ 237,788        $ 197,000
   Adjustments to reconcile net earnings to cash flows:
     Depreciation and amortization                                   191,218           165,829          146,864
     Asset impairment charge                                           4,876                --               --
     Amortization of unearned compensation and loan costs              6,901             7,578            7,031
     Change in current assets and liabilities                         36,046            49,604           41,740
     Change in other liabilities                                         280              (619)            (642)
     Contribution to defined benefit pension plans                   (20,000)               --               --
     Loss on disposal of land, buildings, and equipment                2,456             1,803            1,559
     Change in cash surrender value of trust-owned life
          insurance                                                    2,441               743               --
     Deferred income taxes                                            35,749            22,800           11,750
     Income tax benefits credited to equity                           16,385            24,989           15,287
     Non-cash restructuring credit                                      (358)           (2,568)              --
     Non-cash compensation expense                                       758                --               --
     Other, net                                                          280               195              (19)
--------------------------------------------------------------------------------------------------------------------
         Net cash provided by operating activities                 $ 509,292         $ 508,142        $ 420,570
--------------------------------------------------------------------------------------------------------------------
Cash flows - investing activities
   Purchases of land, buildings, and equipment                      (423,273)         (318,392)        (355,139)
   Increase in other assets                                           (8,163)          (24,741)         (10,730)
   Purchase of trust-owned life insurance                             (6,000)          (31,500)              --
   Proceeds from disposal of land, buildings, and equipment
     (including assets held for disposal)                              7,047            10,741           13,492
   Proceeds from maturities of (purchases of) short-term
     investments                                                      10,000            (9,904)              --
--------------------------------------------------------------------------------------------------------------------
         Net cash used in investing activities                     $(420,389)        $(373,796)       $(352,377)
--------------------------------------------------------------------------------------------------------------------
Cash flows - financing activities
   Proceeds from issuance of common stock                             33,664            40,520           36,701
   Dividends paid                                                    (13,501)           (9,225)          (9,458)
   Purchases of treasury stock                                      (213,311)         (208,578)        (176,511)
   ESOP note receivable repayments                                     4,710             5,315            8,145
   Decrease in short-term debt                                            --           (12,000)        (103,000)
   Proceeds from issuance of long-term debt                               --           149,655          224,454
   Repayment of long-term debt                                        (4,710)           (7,962)         (10,658)
   Payment of loan costs                                                  --            (1,010)          (2,154)
--------------------------------------------------------------------------------------------------------------------
         Net cash used in financing activities                     $(193,148)        $ (43,285)       $ (32,481)
--------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents                    (104,245)           91,061           35,712
Cash and cash equivalents - beginning of year                        152,875            61,814           26,102
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year                           $   48,630         $ 152,875        $  61,814
====================================================================================================================
Cash flows from changes in current assets and liabilities
   Receivables                                                            66             3,781           (4,908)
   Inventories                                                        (1,231)          (23,984)          (6,242)
   Prepaid expenses and other current assets                          (8,523)            1,987             (289)
   Accounts payable                                                   15,927             3,205           16,372
   Accrued payroll                                                    (1,961)            5,348            4,783
   Accrued income taxes                                                 (529)           20,806           14,442
   Other accrued taxes                                                 4,595             3,045            1,905
   Unearned revenues                                                  16,066            18,487           24,008
   Other current liabilities                                          11,636            16,929           (8,331)
--------------------------------------------------------------------------------------------------------------------
              Change in current assets and liabilities            $   36,046         $  49,604        $  41,740
====================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       14
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Operations and Principles of Consolidation
The  consolidated   financial   statements  include  the  operations  of  Darden
Restaurants,  Inc. and its wholly owned subsidiaries. We own and operate various
restaurant   concepts  located  in  the  United  States  and  Canada,   with  no
franchising.   We  also  license  33  restaurants  in  Japan.   All  significant
intercompany balances and transactions have been eliminated in consolidation.

Fiscal Year
Our fiscal year ends on the last Sunday in May. Fiscal 2003, 2002, and 2001 each
consisted of 52 weeks of operation.

Cash Equivalents
Cash equivalents  include highly liquid investments such as U.S. treasury bills,
taxable  municipal  bonds,  and money market  funds that have  maturity of three
months  or  less.  Amounts  receivable  from  credit  card  companies  are  also
considered cash  equivalents  because they are both short-term and highly liquid
in nature and are  typically  converted  to cash within  three days of the sales
transaction.

Short-Term Investments
Short-term  investments  included a U.S.  treasury bill that was classified as a
held-to-maturity security because we had the positive intent and ability to hold
the security to maturity.  The  security  was valued at  amortized  cost,  which
approximated fair value, and matured in September 2002.

Inventories
Inventories are valued at the lower of weighted-average cost or market.

Land, Buildings, and Equipment
Land,   buildings,   and  equipment  are  recorded  at  cost  less   accumulated
depreciation.  Building  components are depreciated  over estimated useful lives
ranging  from  seven to 40  years  using  the  straight-line  method.  Leasehold
improvements,  which are a component of buildings, are amortized over the lesser
of the lease term or the estimated  useful lives of the related assets using the
straight-line  method.  Equipment is  depreciated  over  estimated  useful lives
ranging from three to ten years also using the straight-line method. Accelerated
depreciation  methods are generally  used for income tax purposes.  Depreciation
and amortization expense associated with land, buildings, and equipment amounted
to  $184,963,   $162,784  and  $145,058,   in  fiscal  2003,   2002,  and  2001,
respectively. In fiscal 2003, 2002, and 2001, we had losses on disposal of land,
buildings, and equipment of $2,456, $1,803, and $1,559, respectively, which were
included in selling, general, and administrative expenses.

Capitalized Software Costs
Capitalized software,  which is a component of other assets, is recorded at cost
less  accumulated  amortization.  Capitalized  software is  amortized  using the
straight-line  method over  estimated  useful  lives  ranging  from three to ten
years.  The cost of  capitalized  software at May 25,  2003,  and May 26,  2002,
amounted to $44,018 and $38,621,  respectively.  Accumulated  amortization as of
May 25,  2003,  and May 26, 2002,  amounted to $9,963 and $5,006,  respectively.
Amortization  expense  associated with capitalized  software amounted to $6,255,
$3,045 and $1,806, in fiscal 2003, 2002, and 2001, respectively.

Trust-Owned Life Insurance
In August 2001, we caused a trust that we previously had established to purchase
life insurance policies covering certain of our officers and other key employees
(trust-owned  life  insurance  or  TOLI).  The  trust  is  the  owner  and  sole
beneficiary  of the TOLI  policies.  The  policies  were  purchased  to offset a
portion of our obligations under our non-qualified  deferred  compensation plan.
The cash  surrender  value of the  policies is included  in other  assets  while
changes  in  cash  surrender  value  are  included  in  selling,   general,  and
administrative expenses.

Liquor Licenses
The costs of obtaining non-transferable liquor licenses that are directly issued
by local  government  agencies for nominal  fees are  expensed as incurred.  The
costs of  purchasing  transferable  liquor  licenses  through  open  markets  in
jurisdictions   with  a  limited  number  of  authorized   liquor  licenses  are
capitalized. Annual liquor license renewal fees are expensed.

                                       15

<PAGE>


Impairment of Long-Lived Assets
Land, buildings,  and equipment and certain other assets,  including capitalized
software costs and liquor licenses,  are reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison  of the carrying  amount of the assets to the future net cash flows
expected to be  generated  by the assets.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds their fair value.  Fair value is generally
determined  based on  appraisals or sales prices of  comparable  assets.  During
fiscal 2003,  we recorded an asset  impairment  charge of $4,876  related to the
decision  to relocate  and rebuild  certain  restaurants.  Restaurant  sites and
certain  other  assets  to be  disposed  of are  reported  at the lower of their
carrying amount or fair value,  less estimated costs to sell.  Restaurant  sites
and  certain  other  assets to be  disposed  of are  included in assets held for
disposal when certain  criteria are met. These criteria  include the requirement
that the  likelihood  of disposing of these assets  within one year is probable.
Those  assets  whose  disposal is not  probable  within one year remain in land,
buildings,  and  equipment  until their  disposal  is probable  within one year.
During  fiscal 2003, we recorded an asset  impairment  credit of $594 related to
assets sold that were previously  impaired.  All impairment amounts are included
in selling, general, and administrative expenses.

Self-Insurance Reserves
We  self-insure  a  significant  portion of expected  losses  under our workers'
compensation,   employee  medical,  and  general  liability  programs.   Accrued
liabilities  have been recorded  based on our estimates of the ultimate costs to
settle incurred claims, both reported and unreported.

Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage  products are
sold.  Unearned revenues represent our liability for gift cards and certificates
that have been sold but not yet  redeemed  and are  recorded  at their  expected
redemption  value.  When  the gift  cards  and  certificates  are  redeemed,  we
recognize restaurant sales and reduce the deferred liability.

Income Taxes
We provide for federal and state income taxes  currently  payable as well as for
those deferred  because of temporary  differences  between  reporting income and
expenses for financial  statement  purposes versus tax purposes.  Federal income
tax credits are recorded as a reduction of income taxes. Deferred tax assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

Income tax benefits  credited to equity relate to tax benefits  associated  with
amounts  that are  deductible  for  income  tax  purposes  but do not affect net
earnings.  These benefits are principally  generated from employee  exercises of
non-qualified stock options and vesting of employee restricted stock awards.

Derivative Instruments and Hedging Activities
We account  for  derivative  financial  instruments  and hedging  activities  in
accordance with the Financial  Accounting  Standards Board's (FASB) Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities"  and SFAS No. 138,  "Accounting for Certain
Derivative  Instruments  and Certain  Hedging  Activities - an Amendment of FASB
Statement  No. 133." SFAS No. 133 and SFAS No. 138 require  that all  derivative
instruments be recorded on the balance sheet at fair value. We use financial and
commodities  derivatives to manage interest rate and  commodities  pricing risks
inherent  in our  business  operations.  Our use of  derivative  instruments  is
currently  limited to interest rate hedges and  commodities  futures  contracts.
These  instruments  are structured as hedges of forecasted  transactions  or the
variability  of cash flow to be paid related to a recognized  asset or liability
(cash flow hedges).  No derivative  instruments  are entered into for trading or
speculative  purposes.  All  derivatives  are recognized on the balance sheet at
fair value. On the date the derivative contract is entered into, we document all
relationships  between  hedging  instruments  and hedged  items,  as well as our
risk-management  objective  and  strategy  for  undertaking  the  various  hedge
transactions.  This process includes linking all derivatives  designated as cash
flow hedges to specific assets and liabilities on the consolidated balance sheet
or to specific  forecasted  transactions.  We also formally assess,  both at the
hedge's  inception  and on an ongoing  basis,  whether the  derivatives  used in
hedging transactions are highly effective in offsetting changes in cash flows of
hedged items.

Changes in the fair value of derivatives  that are highly effective and that are
designated  and qualify as cash flow hedges are recorded in other  comprehensive
income  until  earnings  are  affected by the  variability  in cash flows of the

                                       16

<PAGE>

designated  hedged item.  Where  applicable,  we  discontinue  hedge  accounting
prospectively  when it is determined that the derivative is no longer  effective
in offsetting  changes in the cash flows of the hedged item or the derivative is
terminated. Any changes in the fair value of a derivative where hedge accounting
has been discontinued or is ineffective are recognized  immediately in earnings.
Cash flows related to derivatives are included in operating activities.

Pre-Opening Expenses
Non-capital expenditures associated with opening new restaurants are expensed as
incurred.

Advertising
Production costs of commercials and programming are charged to operations in the
fiscal year the  advertising  is first  aired.  The costs of other  advertising,
promotion, and marketing programs are charged to operations in the fiscal period
incurred.  Advertising expense amounted to $203,393,  $187,154, and $177,998, in
fiscal 2003, 2002 and 2001, respectively.

Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages the use of a
fair-value  method of  accounting  for  stock-based  awards under which the fair
value of stock  options is determined on the date of grant and expensed over the
vesting  period.  As allowed by SFAS No. 123, we have elected to account for our
stock-based  compensation  plans under an intrinsic  value method that  requires
compensation  expense to be recorded only if, on the date of grant,  the current
market price of our common stock  exceeds the exercise  price the employee  must
pay for the stock. Our policy is to grant stock options at the fair market value
of our  underlying  stock at the date of  grant.  Accordingly,  no  compensation
expense has been  recognized  for stock  options  granted under any of our stock
plans because the exercise price of all options granted was equal to the current
market  value of our stock on the grant  date.  Had we  determined  compensation
expense  for our stock  options  based on the fair  value at the  grant  date as
prescribed under SFAS No. 123, our net earnings and net earnings per share would
have  been  reduced  to the pro  forma  amounts  indicated  below:

<TABLE>
<CAPTION>

                                                                   Fiscal  Year
--------------------------------------------------------------------------------------------------------------------
                                                                   2003                  2002                 2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                     <C>               <C>
Net  earnings,  as  reported                                    $  232,260              $ 237,788         $ 197,000
  Add:  Stock-based compensation  expense  included in
        reported  net  earnings,  net of related tax effects         2,642                  2,695             2,565
  Deduct:  Total  stock-based  compensation  expense
        determined  under fair value  based  method for all
        awards,  net of related tax effects                        (19,801)               (18,386)          (15,023)
                                                               -----------------------------------------------------
  Pro forma                                                       $215,101              $ 222,097         $ 184,542
                                                               =====================================================
Basic net earnings per share
  As reported                                                   $     1.36              $    1.36          $   1.10
  Pro  forma                                                    $     1.26              $    1.27          $   1.03
  Diluted  net earnings  per share
  As  reported                                                  $     1.31              $    1.30          $   1.06
  Pro forma                                                     $     1.22              $    1.21          $   0.99
====================================================================================================================
</TABLE>

To determine  pro forma net  earnings,  reported net earnings have been adjusted
for compensation expense associated with stock options granted that are expected
to eventually vest.

Restricted  stock and  restricted  stock unit (RSU)  awards  are  recognized  as
unearned  compensation,  a component of stockholders'  equity, based on the fair
market value of our common stock on the award date.  These amounts are amortized
to compensation expense, using the straight-line method, over the vesting period
using  assumed  forfeiture  rates for  different  types of awards.  Compensation
expense is adjusted in future  periods if actual  forfeiture  rates  differ from
initial estimates.

Net Earnings Per Share
Basic net  earnings  per share are  computed  by  dividing  net  earnings by the
weighted-average  number of common shares  outstanding for the reporting period.
Diluted net earnings per share reflect the  potential  dilution that could occur
if  securities  or other  contracts  to issue  common  stock were  exercised  or
converted  into common stock.  Outstanding  stock options issued by us represent
the  only  dilutive  effect   reflected  in  diluted   weighted-average   shares
outstanding. Options do not impact the numerator of the diluted net earnings per
share computation.

Options to purchase  3,952,618 shares,  161,220 shares,  and 3,618,900 shares of
common  stock were  excluded  from the  calculation  of diluted net earnings per
share for fiscal 2003,  2002,  and 2001,  respectively,  because their  exercise
prices exceeded the average market price of common shares for the period.

                                       17

<PAGE>


Comprehensive Income
Comprehensive  income includes net earnings and other comprehensive income items
that are  excluded  from net  earnings  under  accounting  principles  generally
accepted  in the United  States of America.  Other  comprehensive  income  items
include  foreign  currency  translation  adjustments,  the effective  unrealized
portion of changes in the fair value of cash flow hedges, and amounts associated
with minimum pension liability adjustments.

Foreign Currency
The Canadian  dollar is the  functional  currency  for our  Canadian  restaurant
operations.   Assets  and  liabilities   denominated  in  Canadian  dollars  are
translated  into U.S.  dollars using the exchange rates in effect at the balance
sheet date.  Results of operations  are  translated  using the average  exchange
rates  prevailing  throughout  the  period.  Translation  gains and  losses  are
reported as a separate  component of accumulated other  comprehensive  income in
stockholders' equity. Gains (losses) from foreign currency  transactions,  which
amounted to ($105), $33, and $1, are included in the consolidated  statements of
earnings for fiscal 2003, 2002, and 2001 respectively.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.

Segment Reporting
As of May 25, 2003, we operated 1,271 Red Lobster,  Olive Garden, Bahama Breeze,
Smokey Bones BBQ and Seasons 52 restaurants in North America as part of a single
operating segment.  The restaurants  operate  principally in the U.S. within the
casual dining industry,  providing  similar products to similar  customers.  The
restaurants  also  possess  similar  pricing  structures,  resulting  in similar
long-term expected financial performance characteristics. Revenues from external
customers are derived  principally  from food and beverage sales. We do not rely
on any major  customers as a source of revenue.  We believe we meet the criteria
for aggregating our operations into a single reporting segment.

Reclassifications
Certain  reclassifications,  including the reclassification of unearned revenues
from other current liabilities,  have been made to prior year amounts to conform
to current year presentation.

Adoption of New Accounting Standards
In August 2001,  FASB issued SFAS No. 144,  "Accounting  for the  Impairment  or
Disposal  of  Long-Lived   Assets."  SFAS  No.  144  supersedes  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and resolves significant implementation issues that had evolved
since the  issuance  of SFAS No.  121.  SFAS No. 144 also  establishes  a single
accounting  model for long-lived  assets to be disposed of by sale. SFAS No. 144
is effective for financial  statements  issued for fiscal years  beginning after
December 15, 2001, and its provisions are generally to be applied prospectively.
We adopted SFAS No. 144 in the first  quarter of fiscal  2003.  Adoption of SFAS
No. 144 did not materially impact our consolidated financial statements.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with  Exit or  Disposal  Activities."  SFAS No.  146  provides  guidance  on the
recognition  and  measurement of liabilities  for costs  associated with exit or
disposal  activities.  SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. We adopted SFAS No. 146 in the third
quarter of fiscal 2003.  Adoption of SFAS No. 146 did not materially  impact our
consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure  of Indirect  Guarantees  of  Indebtedness  of Others," and provides
guidance on the  recognition  and  disclosures  to be made by a guarantor in its
interim and annual  financial  statements  about its  obligations  under certain
guarantees. The initial recognition and measurement provisions of Interpretation
No. 45 are effective for guarantees  issued or modified after December 31, 2002,
and are to be applied prospectively.  The disclosure  requirements are effective
for financial statements for interim or annual periods ending after December 15,
2002.  We adopted  Interpretation  No. 45 in the third  quarter of fiscal  2003.
Adoption of  Interpretation  No. 45 did not materially  impact our  consolidated
financial statements.

In November 2002, the FASB's Emerging  Issues Task Force (EITF)  discussed Issue
No.  02-16,  "Accounting  by a Reseller for Cash  Consideration  Received from a
Vendor."  Issue  No.  02-16  provides   guidance  on  the  recognition  of  cash
consideration received by a customer from a vendor. The consensus reached by the
EITF in November 2002 is

                                       18

<PAGE>

effective  for  fiscal  periods   beginning  after  December  15,  2002.  Income
statements for prior periods are required to be  reclassified to comply with the
consensus.  We adopted the  consensus  reached in Issue No.  02-16 in the fourth
quarter of fiscal 2003 and its provisions did not have a material  impact on our
consolidated financial statements.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition  and  Disclosure."  SFAS No.  148 amends  SFAS No.  123,
"Accounting for Stock-Based  Compensation," and provides  alternative methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require more prominent and frequent  disclosures
in  financial  statements  about the effects of  stock-based  compensation.  The
transition  guidance  and  annual  disclosure  provisions  of  SFAS  No.148  are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure  provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. We adopted SFAS No. 148 in the fourth quarter of fiscal 2003.  Adoption of
the  disclosure  requirements  of SFAS No.  148 did not  materially  impact  our
consolidated financial statements.

Future Application of Accounting Standards
In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations".  SFAS No. 143 establishes accounting standards for the recognition
and  measurement of an asset  retirement  obligation  and its  associated  asset
retirement  cost. It also  provides  accounting  guidance for legal  obligations
associated with the retirement of tangible  long-lived  assets.  SFAS No. 143 is
effective for financial  statements issued for fiscal years beginning after June
15, 2002. We adopted SFAS No. 143 in the first quarter of fiscal 2004.  Adoption
of SFAS No. 143 did not materially impact our consolidated financial statements.

In April 2003,  the FASB issued SFAS No. 149,  "Amendment  to  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies the financial  accounting  and reporting for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging  activities under SFAS No. 133,  "Accounting for Derivative  Instruments
and Hedging Activities".  This statement is effective for hedging  relationships
designated and contracts  entered into or modified  after June 30, 2003,  except
for the provisions that relate to SFAS No. 133 Implementation Issues, which will
continue to be applied in accordance with their  respective  dates.  Adoption of
SFAS No. 149 did not materially impact our consolidated financial statements.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
establishes  accounting  standards for the  classification  and  measurement  of
certain  financial  instruments  with  characteristics  of both  liabilities and
equity.  It  requires  certain   financial   instruments  that  were  previously
classified as equity to be classified as assets or liabilities.  SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003.  Adoption  of SFAS No. 150 is not  expected  to
materially impact our consolidated financial statements.

NOTE 2 - ACCOUNTS RECEIVABLE

Our accounts  receivable  is primarily  comprised of  receivables  from national
storage and  distribution  companies with which we contract to provide  services
that are billed to us on a per-case  basis.  In connection  with these services,
certain of our inventory  items are conveyed to these  storage and  distribution
companies  to  transfer  ownership  and risk of loss  prior to  delivery  of the
inventory to our  restaurants.  We reacquire  these items when the  inventory is
subsequently delivered to our restaurants.  These transactions do not impact the
consolidated  statements  of earnings.  Receivables  from  national  storage and
distribution  companies amounted to $19,628 and $21,083 at May 25, 2003, and May
26, 2002, respectively.  The allowance for doubtful accounts associated with our
receivables amounted to $330 at both May 25, 2003, and May 26, 2002.

NOTE 3 - RESTRUCTURING ACTIVITIES

In connection  with the closing of certain  restaurant  properties,  we recorded
restructuring  expenses of $70,900 in fiscal 1997. The restructuring  liability,
which is a component of other current liabilities, was established to accrue for
estimated carrying costs of buildings and equipment prior to disposal,  employee
severance costs, lease buy-out  provisions,  and other costs associated with the
restructuring  action.  All restaurant  closings and other activities under this
restructuring action were completed as of May 25, 2003.

During  fiscal 2003 and 2002, we  recognized  restructuring  credits of $358 and
$2,568,  respectively.  The fiscal  2003 and 2002  credits  resulted  from lease
terminations completed on more favorable terms than previously  anticipated.  No
restructuring  expense or credit was charged to operating  results during fiscal
2001.

                                       19

<PAGE>


As of May 25, 2003, $45,438 of carrying,  employee severance,  and lease buy-out
costs  associated with the 1997  restructuring  action had been paid and charged
against  the  restructuring  liability.  A summary  of  restructuring  liability
activity for fiscal 2003 and 2002 is as follows:
<TABLE>
<CAPTION>

                                                                                        Fiscal Year
---------------------------------------------------------------------------- ------------------ --------------------
                                                                                     2003               2002
---------------------------------------------------------------------------- ------------------ --------------------
<S>                                                                                <C>                <C>
Beginning balance                                                                  $ 1,946            $ 5,798
Non-cash adjustments:
     Restructuring credits                                                            (358)            (2,568)
Cash payments:
     Carrying costs and employee severance payments                                   (203)              (860)
     Lease payments including lease buy-outs, net                                   (1,385)              (424)
---------------------------------------------------------------------------- ------------------ --------------------
Ending balance                                                                  $       --            $ 1,946
============================================================================ ================== ====================
</TABLE>

NOTE 4 - LAND, BUILDINGS, AND EQUIPMENT

The components of land, buildings, and equipment are as follows:
<TABLE>
<CAPTION>

                                                                            May 25, 2003          May 26, 2002
--------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                   <C>
Land                                                                         $   505,444           $   471,072
Buildings                                                                      1,898,716             1,719,778
Equipment                                                                        922,592               830,404
Construction in progress                                                         195,078               123,987
--------------------------------------------------------------------------------------------------------------------
Total land, buildings, and equipment                                           3,521,830             3,145,241
Less accumulated depreciation                                                 (1,364,698)           (1,218,294)
--------------------------------------------------------------------------------------------------------------------
Net land, buildings, and equipment                                            $2,157,132            $1,926,947
====================================================================================================================
</TABLE>

NOTE 5 - OTHER ASSETS

The components of other assets are as follows:
<TABLE>
<CAPTION>

                                                                            May 25, 2003          May 26, 2002
--------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                   <C>
Prepaid pension costs                                                          $  68,873             $  48,262
Capitalized software costs, net                                                   34,055                33,615
Trust-owned life insurance                                                        34,316                30,757
Liquor licenses                                                                   21,219                19,405
Prepaid interest and loan costs                                                   14,863                17,895
Miscellaneous                                                                      8,546                 9,503
--------------------------------------------------------------------------------------------------------------------
Total other assets                                                              $181,872              $159,437
====================================================================================================================
</TABLE>

NOTE 6 - LONG-TERM DEBT

The components of long-term debt are as follows:
<TABLE>
<CAPTION>

                                                                            May 25, 2003          May 26, 2002
--------------------------------------------------------------------------------------------------------------------
<C>                                                                           <C>                   <C>
8.375% senior notes due September 2005                                        $  150,000            $  150,000
6.375% notes due February 2006                                                   150,000               150,000
5.75% medium-term notes due March 2007                                           150,000               150,000
7.45% medium-term notes due April 2011                                            75,000                75,000
7.125% debentures due February 2016                                              100,000               100,000
ESOP loan with variable rate of interest (1.64% at May 25,
   2003) due December 2018                                                        34,430                39,140
--------------------------------------------------------------------------------------------------------------------
Total long-term debt                                                             659,430               664,140
Less issuance discount                                                            (1,344)               (1,634)
--------------------------------------------------------------------------------------------------------------------
Total long-term debt less issuance discount                                      658,086               662,506
Less current portion                                                                  --                    --
--------------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current portion                                      $ 658,086             $ 662,506
====================================================================================================================
</TABLE>

                                       20

<PAGE>


In July 2000, we registered  $500,000 of debt securities with the Securities and
Exchange  Commission  (SEC)  using  a shelf  registration  process.  Under  this
process, we may offer, from time to time, up to $500,000 of debt securities.  In
September  2000, we issued  $150,000 of unsecured 8.375 percent senior notes due
in September 2005. The senior notes rank equally with all of our other unsecured
and unsubordinated  debt and are senior in right of payment to all of our future
subordinated debt.

In November 2000, we filed a prospectus  supplement  with the SEC to offer up to
$350,000  of  medium-term  notes  from  time  to  time  as  part  of  the  shelf
registration  process  referred to above.  In April 2001,  we issued  $75,000 of
unsecured  7.45 percent  medium-term  notes due in April 2011. In March 2002, we
issued $150,000 of unsecured 5.75 percent  medium-term  notes due in March 2007.
As of May 25,  2003,  our shelf  registration  provides  for the  issuance of an
additional $125,000 of unsecured debt securities.

In January  1996,  we issued  $150,000 of unsecured  6.375  percent notes due in
February 2006 and $100,000 of unsecured 7.125 percent debentures due in February
2016.  Concurrent with the issuance of the notes and debentures,  we terminated,
and  settled for cash,  interest-rate  swap  agreements  with  notional  amounts
totaling  $200,000,  which  hedged the  movement of interest  rates prior to the
issuance  of the  notes  and  debentures.  The  cash  paid  in  terminating  the
interest-rate  swap agreements is being  amortized to interest  expense over the
life of the notes and  debentures.  The effective  annual  interest rate is 7.57
percent for the notes and 7.82 percent for the debentures,  after  consideration
of loan costs, issuance discounts, and interest-rate swap termination costs.

We also  maintain  a credit  facility  that  expires  in  October  2004,  with a
consortium  of banks  under  which we can  borrow  up to  $300,000.  The  credit
facility  allows us to borrow at  interest  rates  that vary  based on the prime
rate,  LIBOR,  or a  competitively  bid rate  among the  members  of the  lender
consortium,  at our option.  The credit facility  supports our commercial  paper
borrowing program.  We are required to pay a facility fee of 15 basis points per
annum on the average daily amount of loan  commitments  by the  consortium.  The
amount of interest  and the annual  facility  fee are subject to change based on
our  maintenance of certain debt ratings and financial  ratios,  such as maximum
debt to capital ratios. Advances under the credit facility are unsecured. At May
25, 2003,  and May 26, 2002, no borrowings  were  outstanding  under this credit
facility.

The  aggregate  maturities  of long-term  debt for each of the five fiscal years
subsequent to May 25, 2003, and thereafter are $0 in 2004 through 2005, $300,000
in 2006, $150,000 in 2007, $0 in 2008, and $209,430 thereafter.

NOTE 7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We use interest rate related  derivative  instruments  to manage our exposure on
debt instruments,  as well as commodities  derivatives to manage our exposure to
commodity price fluctuations.  By using these instruments,  we expose ourselves,
from time to time, to credit risk and market risk. Credit risk is the failure of
the counterparty to perform under the terms of the derivative contract. When the
fair value of a derivative contract is positive, the counterparty owes us, which
creates  credit  risk for us. We minimize  this  credit  risk by  entering  into
transactions with high quality counterparties. Market risk is the adverse effect
on the value of a financial  instrument  that  results from a change in interest
rates or commodity  prices.  We minimize  this market risk by  establishing  and
monitoring parameters that limit the types and degree of market risk that may be
undertaken.

Futures Contracts and Commodity Swaps
During  fiscal 2003 and 2002,  we entered into futures  contracts  and commodity
swaps to reduce the risk of natural gas and coffee  price  fluctuations.  To the
extent these  derivatives  are effective in offsetting  the  variability  of the
hedged cash flows,  changes in the  derivatives'  fair value are not included in
current earnings but are reported as other comprehensive  income.  These changes
in fair value are subsequently  reclassified  into earnings when the natural gas
and coffee are purchased and used by us in our operations. Net gains (losses) of
$941 and ($276) related to these  derivatives were recognized in earnings during
fiscal  2003 and  2002,  respectively.  It is  expected  that  $495 of net gains
related  to  these  contracts  at  May  25,  2003,  will  be  reclassified  from
accumulated  other  comprehensive   income  into  food  and  beverage  costs  or
restaurant  expenses during the next 12 months.  To the extent these derivatives
are not  effective,  changes in their fair value are  immediately  recognized in
current earnings.  Outstanding  derivatives are included in other current assets
or other current liabilities.

As of May 25,  2003,  the  maximum  length of time over which we are hedging our
exposure to the variability in future natural gas cash flows is 12 months. As of
May 25,  2003,  we are not hedging our  exposure  to the  variability  in future
coffee cash flows.  No gains or losses were  reclassified  into earnings  during
fiscal 2003 or 2002 as a result of the  discontinuance of natural gas and coffee
cash flow hedges.

                                       21

<PAGE>


Interest Rate Lock Agreement
During  fiscal 2002,  we entered into a treasury  interest  rate lock  agreement
(treasury  lock) to  hedge  the risk  that  the  cost of a  future  issuance  of
fixed-rate  debt may be adversely  affected by interest rate  fluctuations.  The
treasury lock,  which had a $75,000  notional  principal amount of indebtedness,
was used to hedge a portion of the interest payments associated with $150,000 of
debt  subsequently  issued in March 2002.  The treasury  lock was settled at the
time of the related debt  issuance  with a net gain of $267 being  recognized in
other comprehensive income. The net gain on the treasury lock is being amortized
into earnings as an adjustment to interest expense over the same period in which
the related  interest  costs on the new debt  issuance are being  recognized  in
earnings.  Amortization  of  $53  and  $14  was  recognized  in  earnings  as an
adjustment to interest expense during fiscal 2003 and 2002, respectively.  It is
expected  that $53 of this gain will be  recognized in earnings as an adjustment
to interest expense during the next 12 months.

Interest Rate Swaps
We had interest rate swaps with a notional amount of $200,000,  which we used to
convert  variable rates on our long-term  debt to fixed rates  effective May 30,
1995.  We  received  the  one-month  commercial  paper  interest  rate  and paid
fixed-rate interest ranging from 7.51 percent to 7.89 percent. The interest rate
swaps were settled during January 1996 at a cost to us of $27,670.  This cost is
being  recognized  as an  adjustment  to interest  expense  over the term of our
10-year, 6.375 percent notes and 20-year, 7.125 percent debentures (see Note 6).

NOTE 8 - FINANCIAL INSTRUMENTS

The fair values of cash equivalents,  accounts receivable,  and accounts payable
approximate  their  carrying  amounts  due to their short  duration.  Short-term
investments are carried at amortized cost, which approximates fair value.

The  carrying  value  and fair  value of  long-term  debt at May 25,  2003,  was
$658,086  and  $740,130,  respectively.  The  carrying  value and fair  value of
long-term  debt at May 26, 2002,  was $662,506 and $680,115,  respectively.  The
fair value of long-term debt is determined  based on market prices or, if market
prices  are not  available,  the  present  value of the  underlying  cash  flows
discounted at our incremental borrowing rates.

NOTE 9 - STOCKHOLDERS' EQUITY

Treasury Stock
Our Board of Directors  has  authorized  us to  repurchase  up to 115.4  million
shares of our  common  stock.  In fiscal  2003,  2002,  and 2001,  we  purchased
treasury stock totaling $213,311,  $208,578, and $176,511,  respectively.  As of
May 25,  2003, a total of 98.5 million  shares have been  repurchased  under the
authorization.  The  repurchased  common  stock is  reflected  as a reduction of
stockholders' equity.

Stock Purchase/Loan Program
We have share ownership  guidelines for our officers.  To assist them in meeting
these  guidelines,  we  implemented  the 1998 Stock  Purchase/Option  Award Loan
Program  (Loan  Program)  in  conjunction  with our Stock  Option and  Long-Term
Incentive  Plan of 1995.  The Loan  Program  provided  loans to our officers and
awarded two options for every new share  purchased,  up to a maximum total share
value equal to a designated percentage of the officer's base compensation. Loans
are full recourse and interest  bearing,  with a maximum  principal amount of 75
percent  of the value of the stock  purchased.  The stock  purchased  is held on
deposit with us until the loan is repaid.  The interest rate for loans under the
Loan Program is fixed and is equal to the  applicable  federal rate for mid-term
loans with  semi-annual  compounding for the month in which the loan originates.
Interest is payable on a weekly basis. Loan principal is payable in installments
with 25 percent, 25 percent,  and 50 percent of the total loan due at the end of
the fifth, sixth, and seventh years of the loan. Effective July 30, 2002, and in
compliance with the  Sarbanes-Oxley Act of 2002, we no longer issue new loans to
our executive-level  officers under the Loan Program. We account for outstanding
officer notes receivable as a reduction of stockholders' equity.

Stockholders' Rights Plan
Under  our  amended  Rights  Agreement,  each  share  of our  common  stock  has
associated with it two-thirds of a right to purchase one-hundredth of a share of
our Series A  Participating  Cumulative  Preferred  Stock at a purchase price of
$62.50,  subject to adjustment under certain  circumstances to prevent dilution.
The number of rights  associated with each share of our common stock reflects an
adjustment  resulting from our three-for-two stock split in May 2002. The rights
are  exercisable  when,  and are not  transferable  apart from our common  stock
until,  a person or group has  acquired  20 percent  or more,  or makes a tender
offer for 20 percent or more, of our common stock.  If the specified  percentage
of our common stock is then acquired,  each right will entitle the holder (other
than the acquiring company) to receive, upon exercise, common stock of either us
or the acquiring company having a value equal to two times the exercise price of
the right.  The rights are  redeemable  by our Board of Directors  under certain
circumstances and expire on May 24, 2005.

                                       22

<PAGE>


Stock Split
On March 21, 2002, our Board of Directors declared a three-for-two  split of our
common  stock.  The stock  split was  accomplished  through a 50  percent  stock
dividend,  which was  distributed on May 1, 2002 to stockholders of record as of
the close of business on April 10, 2002. In connection with the stock split, the
number of common shares  reserved for issuance or subject to issuance  under our
stock option,  stock grant, and other plans was proportionately  increased.  The
total number of common and preferred  shares  authorized  for issuance under our
Articles of Incorporation remained the same. All applicable references to number
of shares and per share  amounts of common stock in these  financial  statements
and notes have been adjusted to reflect the stock split.

Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>

                                                                          May 25, 2003        May 26, 2002
--------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                 <C>
Foreign currency translation adjustment                                         $(10,354)           $(12,933)
Unrealized gains on derivatives                                                      382                 380
Minimum pension liability adjustment                                                (517)               (288)
--------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income (loss)                             $(10,489)           $(12,841)
====================================================================================================================
</TABLE>

Reclassification  adjustments  associated  with  pre-tax net  derivative  income
(losses)  realized in net earnings for fiscal 2003,  2002,  and 2001 amounted to
$994, ($262), and $0, respectively.

NOTE 10 - LEASES

An analysis of rent expense incurred under operating leases is as follows:
<TABLE>
<CAPTION>

                                                                                   Fiscal Year
--------------------------------------------------------------------------------------------------------------------
                                                                     2003              2002              2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>              <C>
Restaurant minimum rent                                             $48,121           $43,113          $40,007
Restaurant percentage rent                                            3,682             3,550            3,163
Restaurant equipment minimum rent                                     5,719             8,386            8,388
Restaurant rent averaging expense                                      (663)             (518)            (510)
Transportation equipment                                              2,665             2,481            2,320
Office equipment                                                      1,138             1,526            1,323
Office space                                                          1,713             1,387            1,020
Warehouse space                                                         303               237              227
--------------------------------------------------------------------------------------------------------------------
Total rent expense                                                  $62,678           $60,162          $55,938
====================================================================================================================
</TABLE>

Minimum rental  obligations are accounted for on a straight-line  basis over the
term of the lease. Percentage rent expense is generally based on sales levels or
changes in the  Consumer  Price Index.  Many of our leases have renewal  periods
totaling five to 20 years,  exercisable  at our option,  and require  payment of
property  taxes,  insurance,  and  maintenance  costs  in  addition  to the rent
payments.  The annual  non-cancelable  future lease  commitments for each of the
five fiscal years  subsequent to May 25, 2003,  and thereafter  are:  $55,938 in
2004,  $51,627 in 2005,  $45,565 in 2006,  $39,637 in 2007, $32,533 in 2008, and
$102,621 thereafter, for a cumulative total of $327,921.

NOTE 11 - INTEREST, NET

The components of interest, net, are as follows:
<TABLE>
<CAPTION>

                                                                                   Fiscal Year
--------------------------------------------------------------------------------------------------------------------
                                                                     2003                2002           2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>              <C>
Interest expense                                                     $47,566           $41,493          $35,196
Capitalized interest                                                  (3,470)           (3,653)          (3,671)
Interest income                                                       (1,499)           (1,255)            (861)
--------------------------------------------------------------------------------------------------------------------
Interest, net                                                        $42,597           $36,585          $30,664
====================================================================================================================
</TABLE>

Capitalized  interest was computed  using our average  borrowing  rate.  We paid
$38,682,  $31,027 and, $24,281,  for interest (excluding amounts capitalized) in
fiscal 2003, 2002, and 2001, respectively.

                                       23

<PAGE>


NOTE 12 - INCOME TAXES

The components of earnings before income taxes and the provision for income
taxes thereon are as follows:
<TABLE>
<CAPTION>

                                                                                   Fiscal Year
--------------------------------------------------------------------------------------------------------------------
                                                                     2003             2002              2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>              <C>
Earnings before income taxes:
       U.S.                                                        $ 345,496         $ 359,947        $ 296,160
       Canada                                                          2,252             3,362            5,058
--------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                       $ 347,748         $ 363,309        $ 301,218
--------------------------------------------------------------------------------------------------------------------
Income taxes:
   Current:
       Federal                                                    $   68,178        $   88,063       $   79,285
       State and local                                                11,396            14,582           13,049
       Canada                                                             24               133              134
--------------------------------------------------------------------------------------------------------------------
     Total current                                                $   79,598         $ 102,778       $   92,468
--------------------------------------------------------------------------------------------------------------------
   Deferred (principally U.S.)                                        35,890            22,743           11,750
--------------------------------------------------------------------------------------------------------------------
Total income taxes                                                 $ 115,488         $ 125,521        $ 104,218
====================================================================================================================
</TABLE>

During fiscal 2003,  2002,  and 2001, we paid income taxes of $65,398,  $56,839,
and $63,893, respectively.

The following table is a reconciliation of the U.S. statutory income tax rate to
the effective income tax rate included in the accompanying consolidated
statements of earnings:
<TABLE>
<CAPTION>

                                                                                   Fiscal Year
--------------------------------------------------------------------------------------------------------------------
                                                                     2003             2002              2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>              <C>
U.S. statutory rate                                                  35.0%             35.0%            35.0%
State and local income taxes, net of federal tax benefits             3.0               3.1              3.1
Benefit of federal income tax credits                                (4.5)             (3.9)            (4.1)
Other, net                                                           (0.3)              0.4              0.6
--------------------------------------------------------------------------------------------------------------------
Effective income tax rate                                            33.2%             34.6%            34.6%
====================================================================================================================
</TABLE>

The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>

                                                                            May 25, 2003          May 26, 2002
--------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                   <C>
Accrued liabilities                                                          $   12,616            $   19,052
Compensation and employee benefits                                               55,935                52,804
Asset disposition and restructuring liabilities                                   2,004                 2,584
Other                                                                             2,638                 2,392
--------------------------------------------------------------------------------------------------------------------
   Gross deferred tax assets                                                 $   73,193            $   76,832
--------------------------------------------------------------------------------------------------------------------
Buildings and equipment                                                        (116,148)              (93,752)
Prepaid pension costs                                                           (25,987)              (18,096)
Prepaid interest                                                                 (1,454)               (3,478)
Deferred rent and interest income                                               (13,117)              (12,496)
Capitalized software and other assets                                           (16,115)              (12,127)
Other                                                                            (1,703)               (2,465)
--------------------------------------------------------------------------------------------------------------------
   Gross deferred tax liabilities                                             $(174,524)           $ (142,414)
--------------------------------------------------------------------------------------------------------------------
         Net deferred tax liabilities                                         $(101,331)           $  (65,582)
====================================================================================================================
</TABLE>

A valuation allowance for deferred tax assets is provided when it is more likely
than not  that  some  portion  or all of the  deferred  tax  assets  will not be
realized.  Realization is dependent upon the generation of future taxable income
or the  reversal of deferred tax  liabilities  during the periods in which those
temporary  differences become deductible.  We consider the scheduled reversal of
deferred tax  liabilities,  projected  future taxable  income,  and tax planning
strategies in making this  assessment.  As of May 25, 2003, and May 26, 2002, no
valuation  allowance  has been  recognized  for deferred  tax assets  because we
believe that  sufficient  projected  future  taxable income will be generated to
fully utilize the benefits of these deductible amounts.

                                       24

<PAGE>


NOTE 13 - RETIREMENT PLANS

Defined Benefit Plans and Post-Retirement Benefit Plan
Substantially  all of our employees are eligible to  participate in a retirement
plan. We sponsor non-contributory defined benefit pension plans for our salaried
employees, in which benefits are based on various formulas that include years of
service and compensation factors, and for a group of hourly employees,  in which
a fixed  level of  benefits  is  provided.  Pension  plan  assets are  primarily
invested in U.S., international and private equities; long duration fixed income
securities  and real  assets.  Our policy is to fund,  at a minimum,  the amount
necessary on an actuarial  basis to provide for benefits in accordance  with the
requirements of the Employee Retirement Income Security Act of 1974, as amended.
We also sponsor a contributory post-retirement benefit plan that provides health
care  benefits to our  salaried  retirees.  During  fiscal  2003,  we funded the
defined benefit pension plans in the amount of $20,000. This funding allowed the
defined  benefit  pension  plans to  maintain  a fully  funded  status as of the
February 28, 2003 annual valuation date.

The  following  provides a  reconciliation  of the  changes in the plan  benefit
obligation,  fair value of plan assets, and the funded status of the plans as of
February 28, 2003 and 2002:
<TABLE>
<CAPTION>


                                                   Defined Benefit Plans (1)            Post-Retirement Benefit Plan
---------------------------------------------- -------------- -------------- ----- ------------------- ---------------
                                                      2003           2002                 2003              2002
---------------------------------------------- -------------- -------------- ----- ------------------- ---------------
---------------------------------------------- -------------- -------------- ----- ------------------- ---------------
<S>                                                <C>           <C>                <C>                  <C>
Change in Benefit Obligation:
Benefit obligation at beginning of period          $111,155       $  97,339          $   9,356            $  6,739
  Service cost                                        3,732           3,586                388                 291
  Interest cost                                       7,088           7,145                648                 500
  Participant contributions                              --              --                112                  91
  Benefits paid                                      (4,558)         (4,412)              (252)               (214)
  Actuarial loss                                     12,219           7,497              4,557               1,949
                                                  ---------     -----------           --------           ---------
Benefit obligation at end of period                $129,636        $111,155           $ 14,809            $  9,356
                                                   ========        ========           ========            ========

Change in Plan Assets:
Fair value at beginning of period                  $109,574        $120,042        $        --         $        --
  Actual return on plan assets                       (9,117)         (6,097)                --                  --
  Employer contributions                             20,063              41                140                 123
  Participant contributions                              --              --                112                  91
  Benefits paid                                      (4,558)         (4,412)              (252)               (214)
                                                 -----------     ----------           ---------          ---------
Fair value at end of period                        $115,962        $109,574        $         --        $        --
                                                   ========        ========        ============        ============

Reconciliation of the Plan's Funded Status:
Funded status at end of period                     $(13,675)     $   (1,581)          $(14,809)           $ (9,356)
  Unrecognized prior service cost                      (936)         (1,392)                29                  47
  Unrecognized actuarial loss                        79,805          47,762              6,089               1,579
  Contributions for March to May                         19              10                 35                  44
                                                 ----------   -------------          ---------         ------------
Prepaid (accrued) benefit costs                    $ 65,213       $  44,799          $  (8,656)           $ (7,686)
                                                   ========       =========          ==========           =========

Components of the Consolidated Balance
Sheets:
Prepaid benefit costs                              $ 68,873       $  48,262        $         --       $         --
Accrued benefit costs                                (4,496)         (3,929)            (8,656)             (7,686)
Accumulated other comprehensive income                  836             466                  --                 --
                                                  ---------    ------------        ------------        -------------
Net asset (liability) recognized                   $ 65,213       $  44,799          $  (8,656)           $ (7,686)
                                                   ========       =========          ==========           =========
<FN>


(1)      For plans with accumulated benefit obligations in excess of plan
         assets, the accumulated benefit obligation and fair value of plan
         assets were $4,515 and $0, respectively, as of February 28, 2003, and
         $3,939 and $0, respectively, as of February 28, 2002.

</FN>
</TABLE>

                                       25

<PAGE>


The following table presents the weighted-average  assumptions used to determine
the actuarial present value of the defined benefit plans and the post-retirement
benefit plan obligations:
<TABLE>
<CAPTION>

                                                         Defined Benefit Plans         Post-RetirementBenefit Plan
--------------------------------------------------- -------------- -------------- ------ ----------- --------------
                                                             2003           2002               2003           2002
--------------------------------------------------- -------------- -------------- ------ ----------- --------------
--------------------------------------------------- -------------- -------------- ------ ----------- --------------
<S>                                                        <C>            <C>                 <C>            <C>
Discount rate                                               6.25%          7.00%              6.25%          7.00%
Expected long-term rate of return on plan assets           10.40%         10.40%                N/A            N/A
Rate of future compensation increases                       3.75%          3.75%                N/A            N/A
--------------------------------------------------- -------------- -------------- ------ ----------- --------------
</TABLE>

We set the  discount  rate  assumption  annually  for each of the plans at their
valuation  dates  to  reflect  the  yield  of  high-quality   fixed-income  debt
instruments,  with lives that approximate the maturity of the plan benefits. The
expected  long-term  rate of return on plan  assets and  health  care cost trend
rates are based upon  several  factors,  including  our  historical  assumptions
compared with actual results,  an analysis of current market  conditions,  asset
allocations,  and the views of leading financial advisers and economists.  Based
on our recent  analysis,  we have lowered our defined  benefit  plans'  expected
long-term rate of return on plan assets for fiscal 2004 to 9.00 percent.

The  discount  rate  and  expected  return  on plan  assets  assumptions  have a
significant  effect on amounts  reported for defined  benefit  pension  plans. A
quarter  percentage point change in the defined benefit plans' discount rate and
the expected  long-term rate of return on plan assets would increase or decrease
earnings before income taxes by $610 and $360, respectively.

The assumed health care cost trend rate increase in the  per-capita  charges for
benefits ranged from 12.0 percent to 13.0 percent for fiscal 2004,  depending on
the  medical  service  category.  The rates  gradually  decrease  to 5.0 percent
through fiscal 2011 and remain at that level thereafter.

The  assumed  health  care cost trend rate has a  significant  effect on amounts
reported for retiree health care plans. A  one-percentage-point  variance in the
assumed  health care cost trend rate would increase or decrease the total of the
service and interest  cost  components of net periodic  post-retirement  benefit
cost by $207  and  $179,  respectively,  and  would  increase  or  decrease  the
accumulated   post-retirement   benefit   obligation   by  $3,013  and   $2,377,
respectively.

Components of net periodic benefit (income) cost are as follows:
<TABLE>
<CAPTION>

                                                         Defined Benefit Plans           Post-Retirement Benefit Plan
------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- --------
                                                      2003      2002         2001          2003      2002     2001
------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- --------
------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- --------
<S>                                                 <C>       <C>         <C>           <C>        <C>       <C>
Service cost                                        $ 3,732   $  3,586    $ 3,488        $ 388      $  291    $ 246
Interest cost                                         7,088      7,145      6,255          648         500      447
Expected return on plan assets                      (12,739)   (12,416)   (11,589)          --          --       --
Amortization of unrecognized transition asset            --       (642)      (642)          --          --       --
Amortization of unrecognized prior service cost        (348)      (456)      (456)          18          18       18
Recognized net actuarial loss (gain)                  1,924      1,104        213           46          --      (18)

------------------------------------------------- ---------- ----------- ---------- --- --------- ---------- --------
Net periodic benefit (income) cost                  $  (343)  $ (1,679)   $(2,731)      $1,100      $  809    $ 693
================================================= ========== =========== ========== === ========= ========== ========
</TABLE>


Defined Contribution Plan
We have a defined contribution plan covering most employees age 21 and older. We
match  contributions for participants with at least one year of service at up to
six percent of compensation,  based on our performance.  The match ranges from a
minimum of $0.25 to $1.20 for each dollar  contributed by the  participant.  The
plan had net assets of $334,319 at May 25,  2003,  and $442,030 at May 26, 2002.
Expense  recognized  in fiscal  2003,  2002,  and 2001 was $1,732,  $1,593,  and
$3,358,  respectively.  Employees  classified as "highly  compensated" under the
Internal  Revenue  Code are  ineligible  to  participate  in this plan.  Amounts
payable to highly compensated employees under a separate, non-qualified deferred
compensation  plan  totaled  $69,653  and $66,241 as of May 25, 2003 and May 26,
2002, respectively. These amounts are included in other current liabilities.

The defined  contribution plan includes an Employee Stock Ownership Plan (ESOP).
This ESOP originally borrowed $50,000 from third parties, with guarantees by us,
and borrowed  $25,000 from us at a variable  interest  rate.  The $50,000  third
party  loan  was  refinanced  in 1997 by a  commercial  bank's  loan to us and a
corresponding  loan from us to the ESOP.  Compensation  expense is recognized as
contributions   are   accrued.   In  addition  to  matching   plan   participant
contributions,  our  contributions  to the  plan are  also  made to pay  certain
employee incentive bonuses. Fluctuations in our stock price impact the amount of
expense  to be  recognized.  Contributions  to  the  plan,  plus  the  dividends
accumulated  on allocated and  unallocated  shares held by the ESOP, are used to
pay  principal,  interest,  and expenses of the plan. As loan payments are made,
common stock is allocated to ESOP participants.  In fiscal 2003, 2002, and 2001,
the ESOP incurred interest expense of $697,  $1,258,  and $3,086,  respectively,
and used  dividends  received  of  $1,002,  $735,  and $415,  respectively,  and
contributions received from us of $4,266, $5,166, and $9,224,  respectively,  to
pay principal and interest on our debt.

                                       26

<PAGE>


The ESOP shares we own are included in average  common  shares  outstanding  for
purposes of calculating net earnings per share. At May 25, 2003, the ESOP's debt
to us had a balance of $34,430 with a variable rate of interest of 1.64 percent;
$17,530 of the  principal  balance  is due to be repaid no later  than  December
2007,  with the remaining  $16,900 due to be repaid no later than December 2014.
The number of our common  shares  within the ESOP at May 25, 2003,  approximates
12,157,000   shares,    representing   4,533,000   allocated   shares,   222,000
committed-to-be-released shares, and 7,402,000 suspense shares.

NOTE 14 - STOCK PLANS

We maintain four principal stock option and stock grant plans:  the Stock Option
and Long-Term Incentive Plan of 1995 (1995 Plan); the Restaurant  Management and
Employee  Stock Plan of 2000 (2000 Plan);  the 2002 Stock  Incentive  Plan (2002
Plan) and the Stock Plan for Directors  (Director Stock Plan).  All of the plans
are  administered by the Compensation  Committee of the Board of Directors.  The
1995  Plan  provides  for the  issuance  of up to  33,300,000  common  shares in
connection with the granting of non-qualified  stock options,  restricted stock,
or RSUs to key employees.  Up to 2,250,000  shares may be granted under the plan
as restricted  stock and RSUs.  The 2000 Plan provides for the issuance of up to
5,400,000  common shares out of our treasury in connection  with the granting of
non-qualified  stock  options  and  restricted  stock or RSUs to key  employees,
excluding  directors and executive  officers.  Restricted  stock and RSUs may be
granted under the plan for up to five percent of the shares authorized under the
plan.  The 2002 Plan provides for the issuance of up to 8,550,000  common shares
in connection with the granting of non-qualified stock options,  incentive stock
options,  stock appreciation rights, stock awards,  restricted stock, or RSUs to
key employees and non-employee  directors. Up to 1,700,000 shares may be granted
under the plan as restricted  stock and RSUs.  The Director  Stock Plan provides
for  the  issuance  of up to  375,000  common  shares  out  of our  treasury  in
connection with the granting of non-qualified stock options and restricted stock
and RSUs to non-employee  directors.  Under all of the plans,  stock options are
granted  at a price  equal to the fair value of the shares at the date of grant,
for terms not  exceeding  ten years,  and have  various  vesting  periods at the
discretion of the Compensation  Committee.  Outstanding  options  generally vest
over two to four years.  Restricted stock and RSUs granted under the 1995, 2000,
and 2002 Plans  generally vest over periods ranging from three to five years and
no sooner  than one year  from the date of  grant.  The  restricted  period  for
certain grants may be accelerated  based on performance goals established by the
Committee.

We also maintain the  Compensation  Plan for Non-Employee  Directors.  This plan
provides that non-employee  directors may elect to receive their annual retainer
and  meeting  fees in any  combination  of cash,  deferred  cash,  or our common
shares,  and  authorizes  the issuance of up to 105,981 common shares out of our
treasury for this  purpose.  The common shares  issuable  under the plan have an
aggregate  fair value equal to the value of the  foregone  retainer  and meeting
fees.

The per share weighted-average fair value of stock options granted during fiscal
2003, 2002, and 2001 was $9.01,  $6.05, and $4.48,  respectively.  These amounts
were  determined  using the Black  Scholes  option-pricing  model,  which values
options  based on the stock price at the grant date,  the  expected  life of the
option, the estimated volatility of the stock,  expected dividend payments,  and
the risk-free  interest rate over the expected life of the option.  The dividend
yield was calculated by dividing the current  annualized  dividend by the option
exercise  price  for  each  grant.   The  expected   volatility  was  determined
considering stock prices for the fiscal year the grant occurred and prior fiscal
years, as well as considering  industry  volatility data. The risk-free interest
rate was the rate available on zero coupon U.S.  government  obligations  with a
term equal to the remaining term for each grant. The expected life of the option
was estimated based on the exercise history from previous grants.

The  weighted-average  assumptions  used  in the  Black  Scholes  model  were as
follows:
<TABLE>
<CAPTION>


                                                                                  Stock Options
                                                                             Granted in Fiscal Year
--------------------------------------------------------------------------------------------------------------------
                                                                      2003            2002              2001
--------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>             <C>
Risk-free interest rate                                                4.37%              4.50%           7.00%
Expected volatility of stock                                           30.0%              30.0%           30.0%
Dividend yield                                                          0.2%               0.1%            0.1%
Expected option life                                                   6.0 years         6.0 years       6.0 years
====================================================================================================================
</TABLE>

                                       27

<PAGE>


Stock option activity during the periods indicated was as follows:
<TABLE>
<CAPTION>

                                                     Weighted-Average                           Weighted-Average
                                     Options          Exercise Price           Options           Exercise Price
                                   Exercisable           Per Share           Outstanding            Per Share
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                   <C>              <C>                     <C>
Balance at May 29, 2000                10,068,389            $  7.12          26,352,761              $  8.98
--------------------------------------------------------------------------------------------------------------------
Options granted                                                                5,375,727              $ 10.99
Options exercised                                                             (4,670,100)             $  7.00
Options cancelled                                                               (926,100)             $ 10.82
--------------------------------------------------------------------------------------------------------------------
Balance at May 27, 2001                12,222,339            $  7.62          26,132,288              $  9.68
--------------------------------------------------------------------------------------------------------------------
Options granted                                                                5,776,350              $ 17.36
Options exercised                                                             (4,310,327)             $  8.36
Options cancelled                                                               (675,776)             $ 13.49
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Balance at May 26, 2002                12,152,538            $  8.31          26,922,535              $ 11.44
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Options granted                                                                4,200,086              $ 25.99
Options exercised                                                             (3,132,894)             $  9.23
Options cancelled                                                             (1,298,094)             $ 16.86
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Balance at May 25, 2003                13,481,166            $  9.59          26,691,633              $ 13.73
--------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table provides information regarding exercisable and outstanding
options as of May 25, 2003:
<TABLE>
<CAPTION>

                                                                                                     Weighted-
                                                Weighted-                           Weighted-         Average
         Range of                                Average                             Average         Remaining
         Exercise               Options          Exercise          Options          Exercise        Contractual
      Price Per Share         Exercisable    Price Per Share     Outstanding     Price Per Share    Life (Years)
--------------------------------------------------------------------------------------------------------------------
      <S>                      <C>              <C>               <C>               <C>                 <C>
      $ 4.00 - $10.00           7,089,174        $  6.99           7,090,672         $  6.99             2.5
      $10.01 - $15.00           5,904,902          12.03          10,492,834           11.96             5.8
      $15.01 - $20.00             432,208          16.85           5,133,444           17.03             8.2
        Over $20.00                54,882          25.39           3,974,683           26.16             9.1
--------------------------------------------------------------------------------------------------------------------
                               13,481,166        $  9.59          26,691,633          $13.73             5.9
====================================================================================================================
</TABLE>

We granted restricted stock and RSUs during fiscal 2003, 2002, and 2001 totaling
275,610,   428,280,   and   563,306   shares,   respectively.   The  per   share
weighted-average fair value of the awards granted in fiscal 2003, 2002, and 2001
was $26.53,  $17.10,  and $10.67,  respectively.  After giving  consideration to
assumed  forfeiture rates and subsequent  forfeiture  adjustments,  compensation
expense  recognized in net earnings for awards granted in fiscal 2003, 2002, and
2001 amounted to $3,579, $4,392, and $4,164, respectively.

NOTE 15 - EMPLOYEE STOCK PURCHASE PLAN

We maintain  the Darden  Restaurants  Employee  Stock  Purchase  Plan to provide
eligible  employees  who have  completed one year of service  (excluding  senior
officers  subject to Section  16(b) of the  Securities  Exchange Act of 1934) an
opportunity  to  purchase  shares  of  our  common  stock,  subject  to  certain
limitations. Under the plan, employees may elect to purchase shares at the lower
of 85 percent of the fair  market  value of our common  stock as of the first or
last trading days of each quarterly  participation  period.  During fiscal 2003,
2002,  and 2001,  employees  purchased  shares of  common  stock  under the plan
totaling 261,409,  284,576,  and 328,338,  respectively.  As of May 25, 2003, an
additional 778,456 shares are available for issuance.

No  compensation  expense has been  recognized for shares issued under the plan.
The impact of recognizing compensation expense for purchases made under the plan
in accordance with the fair value method  specified in SFAS No. 123 is less than
$800 and has no impact on reported basic or diluted net earnings per share.

NOTE 16 - COMMITMENTS AND CONTINGENCIES

We make trade commitments in the course of our normal operations.  As of May 25,
2003, and May 26, 2002, we were contingently liable for approximately $8,301 and
$9,786,  respectively,  under  outstanding  trade  letters  of credit  issued in
connection with purchase commitments.  These letters of credit have terms of one
month or less and are used to collateralize our obligations to third parties for
the purchase of inventories.

As collateral for performance on contracts and as credit guarantees to banks and
insurers,  we were contingently liable for guarantees of subsidiary  obligations
under standby  letters of credit.  As of May 25, 2003,  and May 26, 2002, we had
$41,442  and  $30,000,  respectively,  of standby  letters of credit  related to
workers'  compensation  and

                                       28

<PAGE>

general liabilities accrued in our consolidated financial statements.  As of May
25, 2003, and May 26, 2002, we had $7,503 and $8,608,  respectively,  of standby
letters of credit related to contractual  operating lease  obligations and other
payments.  All standby letters of credit are renewable  annually.  As of May 25,
2003,  and May 26, 2002, we had other  commercial  commitments of $2,250 and $0,
respectively.

As of May 25, 2003 and May 26, 2002, we had $4,254 and $5,463, respectively,  of
guarantees associated with third-party sublease or assignment obligations. These
amounts  represent the maximum  potential  amount of future  payments  under the
guarantees. The fair value of these potential payments discounted at our pre-tax
cost of capital at May 25, 2003 and May 26, 2002  amounted to $2,935 and $3,769,
respectively.  We did not accrue for the  guarantees,  as the  likelihood of the
third parties defaulting on the sublease or assignment  agreements was less than
probable. In the event of default by a third party, the indemnity and/or default
clauses in our sublease and assignment  agreements govern our ability to recover
from and pursue the third party for damages incurred as a result of its default.
We do not hold any third-party assets as collateral related to these sublease or
assignment  agreements,  except to the extent that the  sublease  or  assignment
allows us to repossess  the building and  personal  property.  These  guarantees
expire over their respective  lease terms,  which range from fiscal 2004 through
fiscal 2012.

We are involved in litigation arising from the normal course of business. In our
opinion,  this litigation is not expected to materially  impact our consolidated
financial statements.

NOTE 17 - QUARTERLY DATA (UNAUDITED)

The following  table  summarizes  unaudited  quarterly  data for fiscal 2003 and
2002:

<TABLE>
<CAPTION>

                                                                  Fiscal 2003 - Quarters Ended
--------------------------------------------------------------------------------------------------------------------
                                               Aug. 25       Nov. 24        Feb. 23        May 25        Total
--------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>           <C>           <C>
Sales                                         $1,174,565    $1,071,531     $1,181,383    $1,227,492    $4,654,971
Earnings before income taxes                     109,005        56,220         93,325        89,198       347,748
Net earnings                                      71,886        37,478         61,786        61,110       232,260
Net earnings per share:
   Basic                                            0.42          0.22           0.36          0.36          1.36
   Diluted                                          0.40          0.21           0.35          0.35          1.31
Dividends paid per share                              --          0.04             --          0.04          0.08
Stock price:
    High                                           27.83         26.13          22.96         20.27         27.83
    Low                                            19.17         17.96          16.46         16.70         16.46
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>


                                                                  Fiscal 2002 - Quarters Ended
--------------------------------------------------------------------------------------------------------------------
                                               Aug. 26       Nov. 25        Feb. 24        May 26        Total
--------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>           <C>            <C>           <C>
Sales                                         $1,073,410    $1,007,080    $1,124,472     $1,161,949    $4,366,911
Earnings before income taxes                      95,577        56,255       102,776        108,701       363,309
Net earnings                                      62,156        36,463        66,220         72,949       237,788
Net earnings per share:
   Basic                                            0.35          0.21          0.38           0.42          1.36
   Diluted                                          0.34          0.20          0.36           0.40          1.30
Dividends paid per share                              --        0.0265            --         0.0265         0.053
Stock price:
    High                                          21.667        21.653        28.660         29.767        29.767
    Low                                           16.400        15.400        20.007         23.733        15.400
====================================================================================================================
</TABLE>


                                       29


<PAGE>


Five-Year Financial Summary
(In thousands, except per share data)
<TABLE>
<CAPTION>

                                                                        Fiscal Year Ended
----------------------------------------------------------------------------------------------------------------------
                                                May 25,        May 26,       May 27,       May 28,        May 30,
Operating Results                                 2003           2002          2001          2000          1999
----------------------------------------------------------------------------------------------------------------------
<S>                                            <C>            <C>            <C>          <C>            <C>
Sales                                           $4,654,971     $4,366,911     $3,992,419   $3,675,461    $ 3,432,375
----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
   Cost of sales:
     Food and beverage                           1,449,162      1,384,481      1,302,926    1,199,709      1,133,705
     Restaurant labor                            1,485,046      1,373,416      1,261,837    1,181,156      1,117,401
     Restaurant expenses                           700,182        625,710        559,670      510,727        485,708

----------------------------------------------------------------------------------------------------------------------
Total cost of sales, excluding restaurant
   depreciation and amortization (1)            $3,634,390     $3,383,607     $3,124,433   $2,891,592     $2,736,814
Selling, general, and administrative               439,376        420,149        389,240      363,041        343,280
Depreciation and amortization                      191,218        165,829        146,864      130,464        125,327
Interest, net                                       42,597         36,585         30,664       22,388         19,540
Restructuring and asset impairment
   credit, net                                        (358)        (2,568)            --       (5,931)        (8,461)
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Total costs and expenses                        $4,307,223     $4,003,602     $3,691,201   $3,401,554    $ 3,216,500
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                       347,748        363,309        301,218      273,907        215,875
Income taxes                                       115,488        125,521        104,218       97,202         75,337
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Net earnings                                      $232,260    $   237,788      $ 197,000    $ 176,705      $ 140,538
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Net earnings per share:
   Basic                                        $     1.36        $  1.36        $  1.10     $   0.92       $   0.68
   Diluted                                      $     1.31        $  1.30        $  1.06     $   0.89       $   0.66

----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
Average number of common shares
 outstanding, net of shares held
 in Treasury:
     Basic                                         170,300        174,700        179,600      192,800        206,000
     Diluted                                       177,400        183,500        185,600      197,800        212,100
======================================================================================================================
======================================================================================================================
Financial Position
Total assets                                    $2,664,633     $2,529,736     $2,216,534   $1,969,555    $ 1,888,560
Land, buildings, and equipment                   2,157,132      1,926,947      1,779,515    1,578,541      1,461,535
Working capital (deficit)                         (314,280)      (157,662)      (226,116)    (316,427)      (194,478)
Long-term debt                                     658,086        662,506        520,574      306,586        316,451
Stockholders' equity                             1,196,191      1,128,877      1,033,318      958,602        962,349
Stockholders' equity per outstanding share            7.25           6.56           5.87         5.23           4.86
======================================================================================================================
======================================================================================================================
Other Statistics
Cash flow from operations                      $   509,292      $ 508,142      $ 420,570    $ 342,626    $   357,942
Capital expenditures                               426,204        318,392        355,139      268,946        123,673
Dividends paid                                      13,501          9,225          9,458       10,134         10,857
Dividends paid per share                             0.080          0.053          0.053        0.053          0.053
Advertising expense                                203,393        187,950        177,998      165,590        162,934
Stock price:
   High                                              27.83         29.767         19.660       15.375         15.583
   Low                                               16.46         15.400         10.292        8.292          9.458
   Close                                       $     18.35      $  25.030       $ 19.267    $  12.583       $ 14.208

Number of employees                                140,700        133,200        128,900      122,300        116,700
Number of restaurants                                1,271          1,211          1,168        1,139          1,139
======================================================================================================================
<FN>

(1) Total cost of sales, excluding restaurant depreciation and amortization of
    $177,127, $155,837, $138,229, $123,477, and $119,140, respectively.

</FN>
</TABLE>

                                       30

