This discussion and analysis below for Darden Restaurants,
Inc. (Darden, the Company, we, us or our) should be read in conjunction with our consolidated financial statements and related notes found elsewhere in this report.

     For financial reporting, we operate on a 52/53 week fiscal year ending on the last Sunday in May. Our 2006 fiscal year, which ended on May 28, 2006, and our 2005 fiscal year, which ended on May 29, 2005, each had 52 weeks. Our 2004 fiscal year, which ended on May 30, 2004, had 53 weeks. We have included in this discussion certain financial information for fiscal 2004 on a 52-week basis to assist investors in making comparisons to our 2006 and 2005 fiscal years.

Overview of Operations
Our business operates in the casual dining segment of the restaurant industry, primarily in the United States. At May 28, 2006, we operated 1,427 Red Lobster, Olive Garden, Bahama Breeze, Smokey Bones Barbeque & Grill and Seasons 52 restaurants in the United States and Canada and licensed 42 Red Lobster restaurants in Japan. We own and operate all of our restaurants in the United States and Canada, with no franchising.

     Our sales were $5.72 billion in fiscal 2006 and $5.28 billion in fiscal 2005, an 8.4 percent increase. Net earnings for fiscal 2006 were $338 million ($2.16 per diluted share) compared with net earnings for fiscal 2005 of $291 million ($1.78 per diluted share). Net earnings for fiscal 2006 increased 16.4 percent and diluted net earnings per share increased 21.3 percent compared with fiscal 2005. The primary drivers of our
increases in net earnings were Olive Garden’s same- restaurant sales increases in each quarter of fiscal 2006, bringing its string of consecutive quarters with same-restaurant sales growth to 47, and Red Lobster’s significantly improved business fundamentals which have resulted in lower operating costs and seven consecutive quarters with same-restaurant sales growth. Both Red Lobster and Olive Garden also produced record annual sales, operating profit and return on sales in fiscal 2006. Bahama Breeze made significant progress in fiscal 2006, as evidenced by same-restaurant sales growth in fiscal 2006, as compared to declining same-restaurant sales in prior years, by implementing a number of changes to become a more relevant brand for its guests, evolving its menu to make it more approachable yet still distinctive and improving the guest experience. Smokey Bones had a difficult year and its same-restaurant sales declined in fiscal 2006.

     In fiscal 2007, we expect a net increase of approximately 39-45 restaurants. We expect combined U.S. same-restaurant sales growth in fiscal 2007 of between 2 to 4 percent at Olive Garden and Red Lobster. We also expect further earnings improvement at Bahama Breeze in fiscal 2007 as we continue to focus on strengthening their restaurant level returns by removing costs and complexity that do not add value for their guests. At Smokey Bones, we have identified a new direction that eliminates the barbeque-centric parts of the brand that we believe are a barrier to greater breadth of occasion and increased frequency. Therefore, we will limit Smokey Bones’ new restaurant growth to the five locations under construction at the end of fiscal 2006 and will test the new direction in several remodeled restaurants starting in the second quarter of fiscal 2007. Depending on test results, we may invest further in a
significant repositioning of the Smokey Bones brand, which may include a change of the concept’s name.

     We will adopt the provisions of Statement of Financial Accounting Standards (SFAS) No. 123 (Revised) “Share-Based Payment” (SFAS No. 123R) as of our first fiscal quarter in fiscal 2007. SFAS No. 123R requires us to begin recognizing the fair value of stock-based compensation expense in our onsolidated statements of earnings. We will adopt the provisions of SFAS No. 123R according to the modified prospective method and therefore, will not restate our consolidated financial statements for periods prior to adoption. We estimate the adoption of SFAS No. 123R will impact diluted net earnings per share growth by approximately 4 percentage points in fiscal 2007. On a consolidated basis, we anticipate diluted net earnings per share growth in fiscal 2007 of approximately 9 percent to 10 percent, including the impact of adopting the provisions of SFAS No. 123R in fiscal 2007.

     Our mission is to be the best in casual dining, now and for generations. We believe we can achieve this goal by continuing to build on our historical strength as a multi-brand casual dining company, which is grounded in:

• A strong culture that inspires and engages our people, with firmly held values, a clear mission and a core purpose to nourish and delight everyone we serve;
• Competitively superior leadership;
• Brand management excellence;
• Restaurant operating excellence; and
• Restaurant support excellence.