DARDEN RESTAURANTS INC (DRI) FY 2023 MD&A

Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 financial statement notes included in Part II of this report under the caption “Item 8 - Financial Statements and Supplementary Data.” We operate on a 52/53-week fiscal year, which ends on the last Sunday in May. Fiscal 2023, which ended May 28, 2023, and fiscal 2022, which ended May 29, 2022, each consisted of 52 weeks.

OVERVIEW OF OPERATIONS

Our business operates in the full-service dining segment of the restaurant industry. At May 28, 2023, we operated 1,914 restaurants through subsidiaries in the United States and Canada under the Olive Garden®, LongHorn Steakhouse®, Cheddar’s Scratch Kitchen®, Yard House®, The Capital Grille®, Seasons 52®, Bahama Breeze®, Eddie V’s Prime Seafood®, and The Capital Burger®    trademarks. We own and operate all of our restaurants in the United States and Canada, except for 2 joint venture restaurants managed by us and 34 franchised restaurants. We also have 35 franchised restaurants in operation located in Latin America, Asia, the Middle East and the Caribbean. All intercompany balances and transactions have been eliminated in consolidation.

COVID-19 Pandemic and Other Impacts to our Operating Environment

During fiscal 2022, increases in the number of cases of COVID-19 throughout the United States including the Omicron variant which significantly impacted our restaurants in the third quarter, subjected some of our restaurants to COVID-19-related restrictions such as mask and/or vaccine requirements for team members, guests or both. Along with COVID-19, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and other cost of goods sold; these events further impacted the availability of team members needed to staff our restaurants and caused additional disruptions in our product supply chain.

The ongoing efforts to recover from the effects of the COVID-19 pandemic and its variants, along with other geopolitical and macroeconomic events, could impact our restaurants through wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operations.

Fiscal 2023 Financial Highlights

•Total sales increased 8.9 percent to $10.49 billion in fiscal 2023 from $9.63 billion in fiscal 2022 driven by a blended same-restaurant sales increase of 6.8 percent and sales from 47 net new restaurants.

•Reported diluted net earnings per share from continuing operations increased to $8.00 in fiscal 2023 from $7.40 in fiscal 2022, a 8.1 percent increase.

•Net earnings from continuing operations increased to $983.5 million in fiscal 2023 from $954.7 million in fiscal 2022, a 3.0 percent increase.

•Net loss from discontinued operations decreased to $1.6 million ($0.01 per diluted share) in fiscal 2023, from $1.9 million ($0.01 per diluted share) in fiscal 2022. When combined with results from continuing operations, our diluted net earnings per share was $7.99 for fiscal 2023 and $7.39 for fiscal 2022.

Outlook

On June 14, 2023, we completed our acquisition of Ruth’s, a Delaware corporation, for $21.50 per share in cash. Ruth’s is the owner, operator and franchisor of Ruth’s Chris Steak House restaurants.

We expect fiscal 2024 sales from continuing operations to increase between 9.5 percent and 10.5 percent, driven by the addition of the Ruth’s Chris Steak House restaurants to our portfolio, Darden same-restaurant sales growth of 2.5 percent to 3.5 percent, and sales from approximately 50 new restaurant openings. In fiscal 2024, we expect our annual effective tax rate to be 12 percent to 12.5 percent and we expect capital expenditures incurred to build new restaurants, remodel and maintain existing restaurants and technology initiatives to be between $550 million and $600 million.

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RESULTS OF OPERATIONS FOR FISCAL 2023 AND 2022

To facilitate review of our results of operations, the following table sets forth our financial results for the periods indicated. All information is derived from the consolidated statements of earnings for the fiscal years ended May 28, 2023 and May 29, 2022:

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The following table details the number of company-owned restaurants currently reported in continuing operations, compared with the number open at the end of fiscal 2022:

SALES

The following table presents our company-owned restaurant sales, U.S. same-restaurant sales (SRS) and average annual sales per restaurant by segment for the periods indicated:

(1)Same-restaurant sales is a year-over-year comparison of each period’s sales volumes for a 52-week year and is limited to restaurants that have been open, and operated by Darden, for at least 16 months.

(2)Average annual sales are calculated as sales divided by total restaurant operating weeks multiplied by 52 weeks; excludes franchise locations.

Olive Garden’s sales increase for fiscal 2023 was primarily driven by a U.S. same-restaurant sales increase combined with revenue from new restaurants. The increase in U.S. same-restaurant sales in fiscal 2023 resulted from an 8.4 percent increase in average check, partially offset by a 1.6 percent decrease in same-restaurant guest counts.

LongHorn Steakhouse’s sales increase for fiscal 2023 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2023 resulted from a 1.2 percent increase in same-restaurant guest counts combined with a 6.1 percent increase in average check.

Fine Dining’s sales increase for fiscal 2023 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2023 resulted from a 0.5 percent increase in same-restaurant guest counts combined with a 5.1 percent increase in average check.

Other Business’s sales increase for fiscal 2023 was driven by a same-restaurant sales increase combined with revenue from new restaurants. The increase in same-restaurant sales in fiscal 2023 resulted from a 0.6 percent increase in same-restaurant guest counts combined with a 6.4 percent increase in average check.

COSTS AND EXPENSES

The following table sets forth selected operating data as a percent of sales from continuing operations for the periods indicated. This information is derived from the consolidated statements of earnings for the fiscal years ended May 28, 2023 and May 29, 2022.

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Total operating costs and expenses from continuing operations were $9.29 billion in fiscal 2023 and $8.47 billion in fiscal 2022.

Fiscal 2023 Compared to Fiscal 2022:

•Food and beverage costs increased as a percent of sales primarily due to a 3.0% impact from inflation and a 0.8% impact from menu mix, partially offset by a 2.3% impact from pricing and other changes.

•Restaurant labor costs decreased as a percent of sales primarily due to a 1.5% impact from sales leverage and a 1.2% impact from increased productivity, partially offset by a 2.3% impact from inflation.

•Restaurant expenses decreased as a percent of sales primarily due to a 1.0% impact from pricing leverage, partially offset by a 0.3% impact from utility cost inflation, 0.2% impact from repairs and maintenance inflation, and 0.3% of inflation on other restaurant expenses.

•Marketing expenses increased as a percent of sales primarily due to increased marketing and media.

•General and administrative expenses decreased as a percent of sales primarily due to a 0.3% impact from sales leverage.

•Depreciation and amortization expenses decreased as a percent of sales primarily due to sales leverage.

•Impairments and disposal of assets, net decreased as a percent of sales primarily due to gains recognized on the sale of five properties.

INCOME TAXES

The effective income tax rates for fiscal 2023 and 2022 for continuing operations were 12.2 percent and 12.7 percent, respectively. During fiscal 2023, we had income tax expense of $137.0 million on earnings before income tax of $1.12 billion compared to income tax expense of $138.8 million on earnings before income taxes of $1.09 billion in fiscal 2022. This change was primarily driven by the impact of federal tax credits.

The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1 percent excise tax on share repurchases that occur after December 31, 2022 and introduces a 15 percent corporate alternative minimum tax (CAMT) on adjusted financial statement income. The IRA excise tax and the CAMT are immaterial to our financial statements.

NET EARNINGS AND NET EARNINGS PER SHARE FROM CONTINUING OPERATIONS

Net earnings from continuing operations for fiscal 2023 were $983.5 million ($8.00 per diluted share) compared with net earnings from continuing operations for fiscal 2022 of $954.7 million ($7.40 per diluted share).

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Net earnings from continuing operations for fiscal 2023 increased 3.0 percent and diluted net earnings per share from continuing operations increased 8.1 percent compared with fiscal 2022.

LOSS FROM DISCONTINUED OPERATIONS

On an after-tax basis, results from discontinued operations for fiscal 2023 were a net loss of $1.6 million ($0.01 per diluted share) compared with a net loss for fiscal 2022 of $1.9 million ($0.01 per diluted share).

SEGMENT RESULTS

We manage our restaurant brands, Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, Eddie V’s and The Capital Burger in the U.S. and Canada as operating segments. We aggregate our operating segments into reportable segments based on a combination of the size, economic characteristics and sub-segment of full-service dining within which each brand operates. Our four reportable segments are: (1) Olive Garden, (2) LongHorn Steakhouse, (3) Fine Dining and (4) Other Business. See Note 5 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for further details.

Our management uses segment profit as the measure for assessing performance of our segments. The following table presents segment profit margin for the periods indicated:

The decrease in the Olive Garden segment profit margin for fiscal 2023 was driven primarily by higher food and beverage and marketing costs, offset by lower restaurant expenses, restaurant labor, and positive same-restaurant sales. The decrease in the LongHorn Steakhouse segment profit margin for fiscal 2023 was driven primarily by higher food and beverage costs, partially offset by lower restaurant labor and positive same-restaurant sales. The decrease in the Fine Dining segment profit margin for fiscal 2023 was driven primarily by higher food and beverage costs, restaurant labor, and restaurant expenses, partially offset by positive same-restaurant sales. The decrease in the Other Business segment profit margin for fiscal 2023 was driven primarily by higher food and beverage costs and restaurant labor, partially offset by positive same-restaurant sales.

RESULTS OF OPERATIONS FOR FISCAL 2022 COMPARED TO FISCAL 2021

For a comparison of our results of operations for the fiscal years ended May 29, 2022 and May 30, 2021, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended May 29, 2022, filed with the SEC on July 22, 2022.

SEASONALITY

Our sales volumes have historically fluctuated seasonally. Typically, our average sales per restaurant are highest in the winter and spring, followed by the summer, and lowest in the fall. Holidays, changes in the economy, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of the historical seasonality of our business and these other factors, results for any fiscal quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

IMPACT OF INFLATION

We attempt to minimize the annual effects of inflation through appropriate planning, operating practices and menu price increases. We are currently operating in a period of higher than usual inflation, led by food and beverage cost and labor inflation. Food and beverage inflation is principally due to increased costs incurred by our vendors related to higher labor, transportation, packaging, and raw materials costs. Some of the impacts of the inflation have been offset by menu price increases and other adjustments made during the year. Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.

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CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles. 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 sales and expenses during the reporting period. Actual results could differ from those estimates.

Our significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report). 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 estimates to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

Leases

We evaluate our leases at their inception to estimate their expected term, which commences on the date when we have the right to control the use of the leased property and includes the non-cancelable base term plus all option periods we are reasonably certain to exercise. Our judgment in determining the appropriate expected term and discount rate for each lease affects our evaluation of:

•The classification and accounting for leases as operating versus finance;

•The rent holidays and escalation in payments that are included in the calculation of the lease liability and related right-of-use asset; and

•The term over which leasehold improvements for each restaurant facility are amortized.

These judgments may produce materially different amounts of lease liabilities and right-of-use assets recognized on our consolidated balance sheets, as well as depreciation, amortization, interest and rent expense recognized in our consolidated statements of earnings if different discount rates and expected lease terms were used.

Valuation of Long-Lived Assets

Land, buildings and equipment, operating lease right-of-use assets and certain other assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; changes in expected useful life; unanticipated competition; slower growth rates, ongoing maintenance and improvements of the assets, or changes in the usage or operating performance. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. Based on a review of operating results for each of our restaurants, given the current operating environment, the amount of net book value associated with lower performing restaurants that would be deemed at risk for impairment is not material to our consolidated financial statements.

Valuation and Recoverability of Goodwill and Trademarks

We have nine reporting units, six of which have goodwill and seven of which have trademarks. Goodwill and trademarks are not subject to amortization and goodwill has been assigned to reporting units for purposes of impairment testing. The reporting units are our restaurant brands. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements. We review our goodwill and trademarks for impairment annually, as of the first day of our fourth fiscal quarter, or more frequently if indicators of impairment exist.

We estimate the fair value of each reporting unit using the best information available, including market information (also referred to as the market approach) and discounted cash flow projections (also referred to as the income approach). A market approach estimates fair value by applying sales or cash flow multiples to the reporting unit’s operating performance. The multiples are derived from observable market data of comparable publicly traded companies with similar operating and investment characteristics of the reporting units. The income approach uses a reporting unit’s projection of estimated operating cash flows which are based on a combination of historical and current trends, organic growth expectations, and residual growth rate assumptions. These cash flows are discounted using a weighted-average cost of capital (WACC) that reflects current market conditions. We recognize a goodwill impairment loss when the fair value of the reporting unit is less than its carrying value.

We estimate the fair value of trademarks using the relief-from-royalty method, which requires assumptions related to projected sales from the reporting unit’s projection of estimated operating cash flows; assumed royalty rates that could be payable

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if we did not own the trademarks; and a discount rate based on an adjusted estimated WACC for each business unit. We recognize an impairment loss when the estimated fair value of the trademark is less than its carrying value.

We performed our annual impairment test of our goodwill and trademarks as of February 27, 2023 which was the first day of our fiscal 2023 fourth quarter. As of February 27, 2023, no impairment of goodwill or trademarks was indicated based on our testing.

If our assessment resulted in an impairment of our assets, including goodwill or trademarks, our financial position and results of operations would be adversely affected and our leverage ratio for purposes of our revolving credit agreement (Revolving Credit Agreement) would increase. A leverage ratio exceeding the maximum permitted under our Revolving Credit Agreement would be a default under our Revolving Credit Agreement. At May 28, 2023, additional write-downs of goodwill, other indefinite-lived intangible assets, or any other assets in excess of approximately $1.01 billion would have been required to cause our leverage ratio to exceed the permitted maximum. As our leverage ratio is determined on a quarterly basis, and due to the seasonal nature of our business, a lesser amount of impairment in future quarters could cause our leverage ratio to exceed the permitted maximum.

Unearned Revenues

Unearned revenues primarily represent our liability for gift cards that have been sold but not yet redeemed. The estimated value of gift cards expected to remain unused is recognized over the expected period of redemption as the remaining gift card values are redeemed, generally over a period of 12 years. Utilizing this method, we estimate both the amount of breakage and the time period of redemption. If actual redemption patterns vary from our estimates, actual gift card breakage income may differ from the amounts recorded. We update our estimates of our redemption period and our breakage rate periodically and apply that rate to gift card redemptions on a prospective basis. Changing our breakage-rate estimates by 50 basis points would have resulted in an adjustment in our breakage income of approximately $3.3 million for fiscal 2023.

Income Taxes

We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as taxes paid on reported employee tip income, effective rates for state and local income taxes and the tax deductibility of certain other items. We adjust our annual effective income tax rate as additional information on outcomes or events becomes available.

Assessment of uncertain tax positions requires judgments relating to the amounts, timing and likelihood of resolution. As described in Note 12 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report), the $23.0 million balance of unrecognized tax benefits at May 28, 2023, includes $7.8 million related to tax positions for which it is reasonably possible that the total amounts could change during the next 12 months based on the outcome of examinations. Of the $7.8 million, $5.7 million relates to items that would impact our effective income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures for new restaurants and to remodel and maintain existing restaurants, to pay dividends to our shareholders and to repurchase shares of our common stock. Since substantially all of our sales are for cash and cash equivalents, and accounts payable are generally paid in 5 to 90 days, we are typically able to carry current liabilities in excess of current assets.

We currently manage our business and financial ratios to target an investment-grade bond rating, which has historically allowed flexible access to financing at reasonable costs. Our publicly issued long-term debt currently carries the following ratings:

•Moody’s Investors Service “Baa2”;

•Standard & Poor’s “BBB”; and

•Fitch “BBB”.

Our commercial paper has ratings of:

•Moody’s Investors Service “P-2”;

•Standard & Poor’s “A-2”; and

•Fitch “F-2”.

These ratings are as of the date of the filing of this 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 are not a recommendation to buy, sell or hold our securities, may be changed, superseded or withdrawn at any time and should be evaluated independently of any other rating.

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On September 10, 2021, we entered into a $1 billion Revolving Credit Agreement (Revolving Credit Agreement) with Bank of America, N.A. (BOA), as administrative agent, and the lenders and other agents party thereto. The Revolving Credit Agreement is a senior unsecured credit commitment to the Company and contains customary representations and affirmative and negative covenants (including limitations on liens and subsidiary debt and a maximum consolidated lease adjusted total debt to total capitalization ratio of 0.75 to 1.00) and events of default usual for credit facilities of this type. The Revolving Credit Agreement replaced our prior $750.0 million revolving credit agreement, dated as of October 27, 2017 and amended as of March 25, 2020. As of May 28, 2023, we had no outstanding balances and we were in compliance with all covenants under the Revolving Credit Agreement.

The Revolving Credit Agreement matures on September 10, 2026, and the proceeds may be used for working capital and capital expenditures, the refinancing of certain indebtedness, certain acquisitions and general corporate purposes. During fiscal 2023, loans under the Revolving Credit Agreement bore interest at a rate of LIBOR plus a margin determined by reference to a ratings-based pricing grid (Applicable Margin), or the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Eurodollar Rate plus 1.00 percent) plus the Applicable Margin. Assuming a “BBB” equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement would have been 1.000 percent for LIBOR loans and 0.000 percent for base rate loans.

Effective May 31, 2023, we entered into an amendment to the Revolving Credit Agreement (the “Amendment”.) Pursuant to the terms of the Amendment, the Company, the administrative agent and the lenders have agreed to replace the LIBOR-based interest rate applicable to borrowings under the Credit Agreement with a Term SOFR-based interest rate in advance of the cessation of LIBOR, and make certain other conforming changes. All other material terms and conditions of the Credit Agreement were unchanged. Effective May 31, 2023, loans under the Revolving Credit Agreement bear interest at a rate of (a) Term SOFR (which is defined, for the applicable interest period, as the Term SOFR Screen Rate two U.S. Government Securities Business Days prior to the commencement of such interest period with a term equivalent to such interest period) plus a Term SOFR adjustment of 0.10 percent plus the relevant margin determined by reference to a ratings-based pricing grid (Applicable Margin), or (b) the base rate (which is defined as the highest of the BOA prime rate, the Federal Funds rate plus 0.500 percent, and the Term SOFR plus 1.00 percent) plus the relevant Applicable Margin. Assuming a “BBB” equivalent credit rating level, the Applicable Margin under the Revolving Credit Agreement will be 1.00 percent for Term SOFR loans and 0.00 percent for base rate loans.

Also on May 31, 2023, the Company entered into a senior unsecured $600 million 3-year Term Loan Credit Agreement (Term Loan Agreement) with Bank of America, N.A., as administrative agent, the lenders and other agents party thereto, the material terms of which are consistent with the Credit Agreement, as amended. The Term Loan Agreement provided for a single borrowing on any business day up to 90 days after May 31, 2023, and matures on the third anniversary of the funding date thereunder, June 14, 2023.

On June 14, 2023, we completed the acquisition of Ruth’s. We borrowed $600 million under the Term Loan Agreement to fund a portion of the approximately $715 million in consideration paid in connection with our acquisition of Ruth’s.

As of May 28, 2023, our outstanding long-term debt consisted principally of:

•$500.0 million of unsecured 3.850 percent senior notes due in May 2027;

•$96.3 million of unsecured 6.000 percent senior notes due in August 2035;

•$42.8 million of unsecured 6.800 percent senior notes due in October 2037; and

•$300.0 million of unsecured 4.550 percent senior notes due in February 2048.

The interest rate on our $42.8 million 6.800 percent senior notes due October 2037 is subject to adjustment from time to time if the debt rating assigned to such series of notes is downgraded below a certain rating level (or subsequently upgraded). The maximum adjustment is 2.000 percent above the initial interest rate and the interest rate cannot be reduced below the initial interest rate. As of May 28, 2023, no such adjustments are made to this rate.

Through our shelf registration statement on file with the SEC, depending on conditions prevailing in the public capital markets, we may from time to time issue equity securities or unsecured debt securities in one or more series, which may consist of notes, debentures or other evidences of indebtedness in one or more offerings.

From time to time, we or our affiliates, may repurchase our outstanding debt in privately negotiated transactions, open-market transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

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From time to time, we enter into interest rate derivative instruments to manage interest rate risk inherent in our operations. See Note 7 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report).

A summary of our contractual obligations and commercial commitments at May 28, 2023, is as follows:

(1)Includes interest payments associated with existing long-term debt. Excludes discount and issuance costs of $8.8 million.

(2)Includes non-cancelable future operating lease and finance lease commitments.

(3)Includes commitments for food and beverage items and supplies, capital projects, information technology and other miscellaneous items.

(4)Includes expected contributions associated with our supplemental defined benefit pension plan and payments associated with our postretirement benefit plan and our non-qualified deferred compensation plan through fiscal 2033.

(5)Includes interest on unrecognized income tax benefits of $2.7 million, $1.8 million of which relates to contingencies expected to be resolved within one year.

(6)Includes letters of credit for $85.3 million of workers’ compensation and general liabilities accrued in our consolidated financial statements and letters of credit for $15.2 million of surety bonds related to other payments.

(7)Consists solely of guarantees associated with leased properties that have been assigned to third parties and are primarily related to the disposition of Red Lobster in fiscal 2015.

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Our adjusted debt to adjusted total capital ratio was 62 percent and 61 percent as of May 28, 2023 and May 29, 2022, respectively. Based on these ratios, we believe our financial condition is strong. We include the lease-debt equivalent and contractual lease guarantees in our adjusted debt to adjusted total capital ratio reported to shareholders, as we believe its inclusion better represents the optimal capital structure that we target from period to period and because it is consistent with the calculation of the covenant under our Revolving Credit Agreement. For fiscal 2023 and fiscal 2022, the lease-debt equivalent includes 6.00 times the total annual minimum rent for consolidated lease obligations of $424.3 million and $409.8 million, respectively. The composition of our capital structure is shown in the following table:

Net cash flows provided by operating activities from continuing operations were $1.55 billion and $1.26 billion in fiscal 2023 and 2022, respectively. Net cash flows provided by operating activities include net earnings from continuing operations of $983.5 million in fiscal 2023 and $954.7 million in fiscal 2022. Net cash flows provided by operating activities from continuing operations increased in fiscal 2023 primarily due to changes in working capital and higher net earnings from continuing operations.

Net cash flows used in investing activities from continuing operations were $568.4 million and $389.0 million in fiscal 2023 and 2022, respectively. Capital expenditures incurred principally for building new restaurants, remodeling existing restaurants, replacing equipment, and technology initiatives were $564.9 million in fiscal 2023, compared to $376.9 million in fiscal 2022.

Net cash flows used in financing activities from continuing operations were $1.03 billion and $1.61 billion in fiscal 2023 and 2022, respectively. Net cash flows used in financing activities in fiscal 2023 included dividend payments of $589.8 million and share repurchases of $458.7 million, partially offset by proceeds from the exercise of employee stock options. Net cash flows used in financing activities in fiscal 2022 included dividend payments of $563.0 million and share repurchases of $1.07 billion, partially offset by proceeds from the exercise of employee stock options.

Our defined benefit and other postretirement benefit costs and liabilities are determined using various actuarial assumptions and methodologies prescribed under Financial Accounting Standards Board Accounting Standards Codification Topic 715, Compensation - Retirement Benefits and Topic 712, Compensation - Nonretirement Postemployment Benefits. We expect to contribute approximately $0.4 million to our supplemental defined benefit pension plan and approximately $1.6 million to our postretirement benefit plan during fiscal 2024.

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, the potential issuance of equity or unsecured debt securities under our shelf registration statement and short-term commercial paper or drawings under our Revolving Credit Agreement should be sufficient to finance our capital expenditures, debt maturities and other operating activities through fiscal 2024.

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OFF-BALANCE SHEET ARRANGEMENTS

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity, capital expenditures or capital resources.

FINANCIAL CONDITION

Our total current assets were $997.7 million at May 28, 2023, compared with $1.18 billion at May 29, 2022. The decrease was primarily due to decreases in prepaid income taxes and cash and cash equivalents.

Our total current liabilities were $1.94 billion at May 28, 2023 and $1.85 billion at May 29, 2022. The increase was primarily due to increases in accounts payable and other current liabilities.

APPLICATION OF NEW ACCOUNTING STANDARDS

See Note 1 of the Notes to Consolidated Financial Statements (Part II, Item 8 of this report) for a discussion of recently issued accounting standards.