Commitments, License Rights and Contingencies

12 Months Ended

May 31, 2012

Commitments, License Rights and Contingencies

8. Commitments, License Rights and Contingencies

Lease Commitments – The Company leases real estate under various noncancellable operating leases with an initial term greater than one year that contain multiple renewal options, exercisable at the Company’s option. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty. Percentage rentals are based on the revenues at the specific rented property. Rent expense charged to operations under these leases was as follows:

	Year Ended
	May 31, 2012		May 26, 2011		May 27, 2010
	(in thousands)
Fixed minimum rentals	$	7,843	$	7,955	$	7,488
Amortization of favorable lease right		334		334		334
Percentage rentals		70		39		73
	$	8,247	$	8,328	$	7,895

Aggregate minimum rental commitments under long-term operating leases, assuming the exercise of certain lease options, are as follows at May 31, 2012:

Fiscal Year	(in thousands)
2013	$	7,284
2014		7,236
2015		7,343
2016		7,238
2017		7,134
Thereafter		98,391
	$	134,626

Commitments – The Company has commitments for the completion of construction at various properties totaling approximately $4,341,000 at May 31, 2012.

License Rights – The Company has license rights to operate three hotels using the Hilton trademark, one hotel using the Four Points by Sheraton trademark and one hotel using the InterContinental trademark. Under the terms of the licenses, the Company is obligated to pay fees based on defined gross sales.

Contingencies – The Company guarantees the debt of a joint venture totaling $1,183,000 at May 31, 2012. The debt of the joint venture is collateralized by the real estate, building and improvements and all equipment. The Company does not anticipate this guarantee to be payable within the next fiscal year.

On July 7, 2005, the Company amended its office lease in order to exit leased office space for the Company’s former limited-service lodging division. To induce the landlord to amend the lease, the Company guaranteed the lease obligations of the new tenant of the relinquished space through November 2013. The maximum amount of future payments the Company could be required to pay if the new tenant defaults on its lease obligations was approximately $686,000 as of May 31, 2012. The Company does not anticipate the guarantee to be payable within the next fiscal year.

During fiscal 2011, an adverse legal judgment was rendered against the Company related to architectural services rendered during the construction of the condominium units at its Platinum Hotel & Spa in Las Vegas, Nevada and the Company recorded a $1,145,000 liability related to this matter. In fiscal 2012, this matter was successfully mediated and settled for $955,000. On June 28, 2012, the Company successfully mediated and settled for $295,000 a lawsuit related to the condominium units at the Platinum Hotel & Spa.

Subsidiaries of the Company are defendants in additional legal proceedings related to the development of the condominium units at the Platinum Hotel & Spa. The Company believes the remaining lawsuits are without merit and plans to vigorously defend against them. Since these matters are in the preliminary stages, the Company is unable to estimate the associated expenses or possible losses as of May 31, 2012.