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 2017, 2016 and 2015, the Company recorded proceeds from sale-leaseback transactions of $444 million, $60 million and $867 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):



	Finance lease obligation		Capital lease		Operating lease¹
2018	$	18	$	62	$	3,210
2019	18		60		3,045
2020	18		59		2,844
2021	18		58		2,605
2022	18		56		2,371
Later	235		915		18,736
Total minimum lease payments	$	325	$	1,210	$	32,811

¹Includes $1,370 million of annual minimum rental commitments on closed locations for which a reserve for facility closings has been recognized

The capital and finance lease amounts include $859 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of $270 million on leases due in the future under noncancelable 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 2017, 2016 and 2015, the Company recorded charges of $394 million, $127 million and $252 million, respectively, for facilities that were closed or relocated under long-term leases, including stores closed through the Company’s 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):



	2017			2016
Balance at beginning of period	$	466		$	446
Provision for present value of non-cancellable lease payments on closed facilities	344			134
Assumptions about future sublease income, terminations and changes in interest rates	13			(34		)
Interest accretion	37			27
Cash payments, net of sublease income	(142		)	(107		)
Balance at end of period	$	718		$	466

The Company remains secondarily liable on 70 leases. For leases on which the Company remains secondarily liable, the maximum potential undiscounted future payments are $327 million at August 31, 2017. These 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):



	2017			2016			2015
Minimum rentals	$	3,259		$	3,355		$	3,176
Contingent rentals	59			60			38
Less: sublease rental income	(55		)	(49		)	(46		)
	$	3,263		$	3,366		$	3,168