Fiscal 2002 Mid-Year Shareholder Report

TO OUR  Shareholders

Given the extraordinarily challenging conditions that existed during the first half of the year, we are pleased to report strong first half results. This was driven by same-restaurant sales growth at both Red Lobster and Olive Garden that continued to outpace that of the casual dining industry as measured by Knapp-Track, as well as positive performance at each of our newer concepts, Bahama Breeze and Smokey Bones BBQ Sports Bar. We have solid core businesses, promising new concepts and an absolute commitment to strengthening each of our strategic building blocks - day-to-day operating excellence in our restaurants, continuous leadership development throughout the Company, service and hospitality that redefines casual dining, and ever-improving culinary expertise. With these as strategic strengths, we believe Darden will capitalize on the long-term growth of the casual dining industry, growth that will be propelled by favorable consumer lifestyle changes and long-term demographic trends.

For the first half of fiscal year 2002, sales of $2.09 billion were 7.4% above last year. Net earnings were $98.6 million, up from $86.5 million the first half of last year, a 14.1% increase. Earnings per diluted share increased to 81 cents from 70 cents per diluted share the first half of last year, a 15.7% increase. These results include an unusual item that added $1.4 million to earnings after tax. The item is a restructuring credit that resulted from reversal of a portion of the Company's fiscal 1997 restructuring reserve due primarily to favorable lease terminations. Excluding the unusual credit, earnings after tax in the first half of the year were $97.2 million, or 80 cents per diluted share, a 14.3% increase.

These results came during a period which included the September 11 terrorist attacks on America that shocked and saddened all of us, and further depressed an already weakening economy. I am proud of Darden’s contributions to the September 11 relief efforts. Our Olive Garden restaurant at Times Square closed for a week to be transformed into a Red Cross Rescue Relief Center, and throughout the country, our restaurants and employees donated blood, money and food to local charities. Darden also contributed $1.5 million to the Red Cross Disaster Relief Fund through the Dine Out for America benefit the restaurant industry held on October 11. I am also proud of how ably our teams responded to the difficult economic environment. Our teams’ success in placing even greater emphasis on providing every guest in every restaurant with service and value that exceeded their expectations is what drove Darden’s impressive financial performance for the first half of the fiscal year.

Olive Garden’s first half sales of $904.7 million were 7.3% above the prior year. On a same-restaurant basis, sales were up 5.0%, compared to the 8.0% increase in the first half of last year. Olive Garden’s sales improvement continued to be driven primarily by same-restaurant guest count increases, improved wine sales and operational excellence. This performance, combined with lower labor and marketing expenses as a percent of sales, generated a double-digit operating profit increase.

Olive Garden’s impressive record of growth included a 4.2% same-restaurant sales increase in the first quarter and a 5.9% increase in the second quarter, which was the 29th consecutive quarter of same-restaurant sales increases. This is particularly strong coming on top of a 7.2% same-restaurant sales increase in the second quarter last year. The continued sales improvement reflects terrific acceptance of the new menu, a higher check average, an increase in wine sales, and good response to new advertising highlighting Olive Garden’s Culinary Institute of Tuscany in Italy. At the end of the second quarter, Olive Garden operated 484 restaurants, compared to 468 units at the same point last year. During the first half of fiscal 2002, eight new restaurants were opened and one was closed.

Red Lobster’s first half sales of $1.11 billion were 5.0% higher than last year. On a same-restaurant basis, sales were up 4.6%, following an impressive 7.2% increase in the first half of last year. Operating profit for the first half increased at a double-digit rate as a result of the strong sales growth and favorable restaurant-level operating costs as a percent of sales. Red Lobster’s same-restaurant sales increased 3.2% in the first quarter and 6.1% in the second quarter, which was on top of an already strong 8.4% second quarter increase last year. This was the 16th consecutive quarter of same-restaurant sales increases. This year's sales improvement resulted from same-restaurant guest count growth as guests responded favorably to exciting new menu items and the successful “30-Shrimp for $9.99” promotional offering.

At the end of the second quarter, Red Lobster operated 661 restaurants, compared to 652 restaurants at the same point last year. During the first half of fiscal 2002, five new restaurants were opened, two restaurants were relocated, one restaurant was rebuilt, and five restaurants were closed.

Bahama Breeze continued to enjoy very enthusiastic guest response and critical acclaim during the quarter. Bahama Breeze also continued to generate strong average sales per restaurant, offering solid evidence the company is successfully building a brand that is attractive to a broad range of consumers. Four locations opened during the first half of the year, bringing the total number of restaurants in operation to 25. At least four additional restaurants are expected to open in the second half of fiscal 2002.

Smokey Bones BBQ Sports Bar emerged from its initial test phase when it was approved for national expansion in June 2001. During the first half of this fiscal year, three restaurants were opened, bringing the total number of restaurants in operation to 12. With the restaurants’ strong results, Smokey Bones BBQ plans to open five additional restaurants prior to the end of fiscal 2002.

We continued our buyback of common stock in the open market, purchasing 2.2 million shares in the first half of the year. Cumulatively, since initial authorization of the repurchase program in December 1995, Darden has repurchased 54.7 million shares from a total authorization of 64.6 million shares.

We are extremely proud of the Company’s financial results and are delighted to share them with you. We believe we have strong fundamentals and solid strategic plans in place to become the best in casual dining, an industry that is expected to have exceptional growth prospects.

We thank you for being a valued owner of Darden Restaurants. We encourage you to bring the attached gift certificate in to any of our restaurants and let us show you what’s going on at Darden!

Joe R. Lee
Chairman and Chief Executive Officer 

January 11, 2002

Condensed Statements of Earnings
(Amounts in thousands, except per share data – unaudited) 

Condensed Consolidated Balance Sheets
(Dollar Amounts in thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Short Term Debt..............................	$  107,000		$    89,300		$     12,000
Other Current Liabilities...................	484,991		463,946		542,258
Total Current Liabilities................	$  591,991		$   553,246		$   554,258
Long-Term Debt................................	514,278		447,739		517,927
Other Liabilities..................................	113,587		100,639		111,031
Total Liabilities.............................	$1,219,856		$1,101,624		$1,183,216
Stockholders’ Equity..........................	$1,101,772