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 Company has one significant master lease agreement with a franchisee as a result of previously refranchised drive-ins. The land and building portions of all 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. For property owned by third parties, the lease term runs concurrently with the term of the third-party lease arrangement. Most of the leases contain 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 November 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 the assignment of capital leases expiring through March 2018.

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



	2014		2013
Minimum lease payments receivable	$	717	$	1,701
Less unearned income		(82)		(170)
Net investment in direct financing leases		635		1,531
Less amount due within one year		(278)		(344)
Amount due after one year	$	357	$	1,187

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, 2014, are as follows:



	Operating		Direct Financing
Years ended August 31:
2015	$	6,976	$	319
2016		6,891		174
2017		6,919		133
2018		6,971		65
2019		6,930		14
Thereafter		34,254		12
	$	68,941		717
Less unearned income				(82)
			$	635

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.

Future minimum rental payments required under operating leases and maturities under capital leases that have initial or remaining noncancelable lease terms in excess of one year as of August 31, 2014, are as follows:



	Operating		Capital
Years ended August 31:
2015	$	11,274	$	5,149
2016		10,631		5,115
2017		9,815		4,470
2018		9,410		4,161
2019		8,232		3,402
Thereafter		75,609		12,799
Total minimum lease payments(1)	$	124,971		35,096
Less amount representing interest averaging 6.5%				(8,353)
Present value of net minimum lease payments				26,743
Less amount due within one year				(3,693)
Amount due after one year			$	23,050
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(1) Minimum payments have not been reduced by future minimum rentals receivable under noncancelable operating and capital subleases of $10.6 million and $1.6 million, respectively. They also do not include contingent rentals which may be due under certain leases. Contingent rentals for capital leases amounted to $0.8 million in fiscal years 2014, 2013 and 2012.

Total rent expense for all operating leases consists of the following for the years ended August 31:



	2014		2013		2012
Minimum rentals	$	12,449	$	13,154	$	14,555
Contingent rentals		161		93		103
Total rent expense		12,610		13,247		14,658
Less sublease rentals		(1,905)		(1,747)		(2,851)
Net rent expense	$	10,705	$	11,500	$	11,807