4. 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 2016, 2015 and 2014, the Company recorded proceeds from sale-leaseback transactions of $60 million, $867 million and $67 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
2017	$	18	$	68	$	3,066
2018		18		62		2,972
2019		18		59		2,826
2020		18		58		2,632
2021		18		57		2,403
Later		1,267		966		20,190
Total Minimum Lease Payments	$	1,357	$	1,270	$	34,089

The capital and finance lease amounts include $1.7 billion of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of $199 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 2016, 2015 and 2014, the Company recorded charges of $127 million, $252 million and $177 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):

	2016			2015
Balance at beginning of period	$	446		$	257
Provision for present value of non-cancellable lease payments on closed facilities		134			231
Assumptions about future sublease income, terminations and changes in interest rates		(34	)		(6	)
Interest accretion		27			27
Liability assumed through acquisition of Alliance Boots		-			13
Cash payments, net of sublease income		(107	)		(76	)
Balance at end of period	$	466		$	446

The Company remains secondarily liable on 79 leases. For leases on which the Company remains secondarily liable, the maximum potential undiscounted future payments are $340 million at August 31, 2016. Lease option dates vary, with some lease terms extending up to 2039.

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

	2016			2015			2014
Minimum rentals	$	3,355		$	3,176		$	2,687
Contingent rentals		60			38			5
Less: Sublease rental income		(49	)		(46	)		(22	)
	$	3,366		$	3,168		$	2,670