5. Leases

Initial terms for leased premises in the U.S. are typically 15 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. Non-U.S. leases are typically for shorter terms and may include cancellation clauses or renewal options. The commencement date of all lease terms is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company has the right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

The Company continuously evaluates its real estate portfolio in conjunction with its capital needs. The Company has entered into several sale-leaseback transactions. In fiscal 2015, 2014 and 2013, the Company recorded proceeds from sale-leaseback transactions of $867 million, $67 million and $115 million, respectively. In other transactions, the Company negotiated fixed rate renewal options which constitute a form of continuing involvement, resulting in the assets remaining on the balance sheet and a corresponding finance lease obligation.

Annual minimum rental commitments under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in millions):

	Financing Obligation		Capital Lease		Operating Lease
2016	$	18	$	69	$	3,141
2017		18		65		3,008
2018		18		62		2,944
2019		18		60		2,734
2020		18		61		2,518
Later		1,234		881		23,625
Total Minimum Lease Payments	$	1,324	$	1,198	$	37,970

The capital and finance lease amounts include $1.6 billion of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $214 million on leases due in the future under non-cancelable subleases.

The Company provides for future costs related to closed locations. The liability is based on the present value of future rent obligations and other related costs (net of estimated sublease rent) to the first lease option date. In fiscal 2015, 2014 and 2013, the Company recorded charges of $252 million, $177 million and $43 million, respectively, for facilities that were closed or relocated under long-term leases, including stores closed through the Company’s store optimization plan and Cost Transformation Program. These charges are reported in selling, general and administrative expenses in the Consolidated Statements of Earnings.

The changes in reserve for facility closings and related lease termination charges include the following (in millions):

	Year Ended August 31,
	2015			2014
Balance – beginning of period	$	257		$	123
Provision for present value of non-cancellable lease payments on closed facilities		231			171
Assumptions about future sublease income, terminations and changes in interest rates		(6	)		(8	)
Interest accretion		27			14
Liability assumed through acquisition of Alliance Boots		13			-
Cash payments, net of sublease income		(76	)		(43	)
Balance – end of period	$	446		$	257

The Company remains secondarily liable on 71 leases. The maximum potential undiscounted future payments are $351 million at August 31, 2015. Lease option dates vary, with some extending to 2039.

Rental expense, which includes common area maintenance, insurance and taxes, where appropriate, was as follows (in millions):

	2015			2014			2013
Minimum rentals	$	3,176		$	2,687		$	2,644
Contingent rentals		38			5			6
Less: Sublease rental income		(46	)		(22	)		(22	)
	$	3,168		$	2,670		$	2,628