7. Leases

Leasing Arrangements as a Lessor

The Company’s leasing operations consist principally of leasing certain land, buildings and signs as well as subleasing certain buildings to franchise operators. The land and building portions of these leases are classified as operating leases with lease terms expiring through September 2030. These leases include provisions for contingent rentals that may be received on the basis of a percentage of sales in excess of stipulated amounts. Income is not recognized on contingent rentals until sales exceed the stipulated amounts. Some leases contain escalation clauses over the lives of the leases. Most of the leases contain one to four renewal options at the end of the initial term for periods of five years. The sign portions of these leases are classified principally as direct financing leases and expire through March 2021. Additional direct financing leases, entered into as a result of the franchisee-exercised option discussed in note 6 – Other Operating Income and Expenses, include land and buildings expiring in December 2014 and assignment of capital leases expiring through March 2018.

The Company has one significant master lease agreement with a franchisee as a result of previously refranchised drive-ins. The lease consists of leasing land, buildings and signs for a period of 15 years and is classified as an operating lease. There are four renewal options at the end of the primary term for periods of five years for property that is owned by the Company. For property owned by third parties, the lease term runs concurrently with the term of the third-party lease arrangement. The lease includes a provision for contingent rentals that may be received on the basis of a percentage of sales in excess of stipulated amounts. The lease contains an escalation clause based on sales over the life of the lease.

Components of net investment in direct financing leases are as follows at August 31:



	2013		2012
Minimum lease payments receivable	$	1,701	$	1,041
Less unearned income		(170)		(228)
Net investment in direct financing leases		1,531		813
Less amount due within one year		(344)		(233)
Amount due after one year	$	1,187	$	580

Initial direct costs incurred in the negotiations and consummations of direct financing lease transactions have not been material. Accordingly, no portion of unearned income has been recognized to offset those costs.

Future minimum rental payments receivable as of August 31, 2013, are as follows:



	Operating		Direct Financing
Years ended August 31:
2014	$	6,173	$	407
2015		6,371		896
2016		6,280		174
2017		6,304		133
2018		6,283		65
Thereafter		47,334		26
	$	78,745		1,701
Less unearned income				(170)
			$	1,531

Leasing Arrangements as a Lessee

Certain Company Drive-Ins lease land and buildings from third parties. These leases, with lease terms expiring through August 2030, include provisions for contingent rents that may be paid on the basis of a percentage of sales in excess of stipulated amounts. For the majority of leases, the land portions are classified as operating leases, and the building portions are classified as capital leases.

Maturities under capital leases and future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of August 31, 2013, are as follows:



	Operating		Capital
Years ended August 31:
2014	$	11,195	$	6,090
2015		11,153		5,246
2016		10,601		4,756
2017		9,899		4,515
2018		9,564		4,191
Thereafter		89,586		9,589
Total minimum lease payments	$	141,998		34,387
Less amount representing interest averaging 6.3%				(7,523)
Present value of net minimum lease payments				26,864
Less amount due within one year				(4,406)
Amount due after one year			$	22,458

Total rent expense for all operating leases and capital leases consist of the following for the years ended August 31:



	2013		2012		2011
Operating leases:
Minimum rentals	$	13,154	$	14,555	$	14,185
Contingent rentals		93		103		138
Sublease rentals		(1,747)		(2,851)		(2,847)
Capital leases:
Contingent rentals		823		799		745
Total rent expense	$	12,323	$	12,606	$	12,221

The aggregate future minimum rentals receivable under noncancelable operating and capital subleases as of August 31, 2013, were $14.4 million and $1.9 million, respectively.