Operating leases

3 Months Ended

Nov. 30, 2017

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. Historically, the Company has entered into several sale-leaseback transactions. For the three months ended November 30, 2017, the Company did not record any proceeds from sale-leaseback transactions. For the three months ended November 30, 2016, the Company recorded proceeds from sale-leaseback transactions of $436 million.

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. During the three months ended November 30, 2017, the Company recorded charges of $39 million for facilities that were closed or relocated under long-term leases. This compares to $17 million for the three months ended November 30, 2016. These charges are reported in selling, general and administrative expenses in the Consolidated Condensed Statements of Earnings.

The changes in reserve for facility closings and related lease termination charges primarily in other non-current liabilities, include the following (in millions):



	For the three months ended November 30, 2017			For the twelve months ended August 31, 2017
Balance at beginning of period	$	718		$	466
Provision for present value of non-cancellable lease payments on closed facilities	29			344
Assumptions about future sublease income, terminations and changes in interest rates	1			13
Interest accretion	9			37
Cash payments, net of sublease income	(61		)	(142		)
Balance at end of period	$	696		$	718

As of November 30, 2017, the Company remains secondarily liable on 71 leases. The maximum potential undiscounted future payments are $318 million as of November 30, 2017.