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.

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.