leaving 32 restaurants in operation at the end of the fiscal year. Average annual sales per restaurant, excluding the closed restau- rants, were $5.2 million in fiscal 2004 (on a 52-week basis). 

• Smokey Bones’ total sales were $174 million, an 87 percent increase from last year, as the company nearly doubled in size this year by adding 30 new restaurants to its base of 39. Smokey Bones continued to drive strong consumer acceptance through its unique combination of slow-smoked barbeque and a variety of other grilled favorites, served in a lively yet comfortable mountain- lodge atmosphere, where guests can watch their favorite sports. Annual sales averaged $3.2 million per restaurant (on a 52-week basis) and expansion will continue in fiscal 2005 as it seeks to take advantage of a compelling opportunity. 

• Seasons 52, the casually sophisticated fresh grill and wine bar we’re testing in Orlando, continued to post impressive results. Plans are in place to open two to three more test restaurants in fiscal 2005 to further explore the concept’s viability. Seasons 52 offers seasonally inspired menus with fresh ingredients, to create great tasting, nutritionally balanced meals that are lower in cal- ories than comparable restaurant meals. 

• With our strong cash flow and balance sheet, we continued to aggressively buy back shares of our common stock. We repur- chased 10.7 million shares in fiscal 2004, which represented more than $235 million in share repurchases. Since we began our repurchase program in 1996, we have repurchased more than 109 million shares, or more than $1.5 billion of our common stock. 

While we are proud of our achievements in fiscal 2004, we know we must strengthen several important aspects of our business. That’s the key to returning to the high level of performance that will create strong long-term value for our shareholders. We approach our improvement opportunities with a solid foundation, one that features an excellent balance of proven and emerging brands. We also have a clearly defined core purpose that motivates us every day – to nourish and delight everyone we serve . And we have a shared goal throughout the Company – we want to be the best in casual dining, now and for generations. We recognize that to achieve our goal, we must build on this strong foundation with even greater attention to two things: operating excellence and effective brand building across the Company. 

We have a clearly defined core purpose that motivates us every day – to nourish and delight everyone we serve. 

## CASUAL DINING IS A GROWTH INDUSTRY 

Our industry, casual dining, is large and continues to grow. In calendar 2003, casual dining industry sales grew 2.6 percent. This compares favorably to the quick-service and mid-scale segments of the restaurant industry, which reported a 1.4 percent increase in sales and a 1.9 percent decline in sales, respectively. However, casual dining’s 2003 results are well below the industry’s 10-year average growth rate of 7.4 percent. 

Despite the slowdown in calendar 2003, industry experts continue to forecast that annualized casual dining sales growth will be between 5 percent and 7 percent over the next decade. The driving factors have not changed and are as important as ever – growth in total employment, growth in real disposable income, an increasing number of women in the workforce, and the aging demographics of the U.S. population. 

These drivers, combined with changing lifestyles that place a premium on the time-saving and social reconnection benefits of dining out, give us great confidence that we are in the right indus- try at the right time. Our confidence is buttressed by the fact that supply and demand within the casual dining industry continue to remain in balance, as they have for the past several years. Although total casual dining visits were down 0.3 percent in calendar 2003, there was an even steeper decline in the number of casual dining units, which fell 2.2 percent. Against that backdrop, it’s important to note that casual dining chains experienced a 1.0 percent increase in units. This continues a trend we’ve seen in recent years and is a strong indicator that well-managed casual dining chains continue to grow and take market share from independent restaurant operators. 

## OUR SOLID FOUNDATION 

As I’ve said, our business is built on a strong foundation, starting with our compelling core purpose, to nourish and delight everyone we serve . Darden also has seven core values that have been forged over our 65-year heritage, which started with the early businesses of our late founder, Bill Darden. We value: 

• Integrity and fairness 

• Respect and caring 

• Diversity 

• Always learning / always teaching 

• Being “of service” 

• Teamwork 

• Excellence 

