(3) Leases
The Company owns approximately 20% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. 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.
Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (in millions):
| | Capital Lease | | | Operating Lease | |
2014 | | $ | 19 | | | $ | 2,536 | |
2015 | | | 19 | | | | 2,514 | |
2016 | | | 18 | | | | 2,464 | |
2017 | | | 17 | | | | 2,389 | |
2018 | | | 15 | | | | 2,292 | |
Later | | | 270 | | | | 23,507 | |
Total minimum lease payments | | $ | 358 | | | $ | 35,702 | |
The capital lease amount includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 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 2013, 2012 and 2011, the Company recorded charges of $43 million, $20 million and $54 million, respectively, for facilities that were closed or relocated under long-term leases. These charges are reported in selling, general and administrative expenses on the Consolidated Statements of Comprehensive Income.
The changes in reserve for facility closings and related lease termination charges include the following (in millions):
| | Twelve Months Ended August 31 | |
| | 2013 | | | 2012 | |
Balance – beginning of period | | $ | 117 | | | $ | 145 | |
Provision for present value of non-cancellable lease payments of closed facilities | | | 34 | | | | 6 | |
Assumptions about future sublease income, terminations and changes in interest rates | | | (6 | ) | | | (11 | ) |
Interest accretion | | | 15 | | | | 25 | |
Cash payments, net of sublease income | | | (37 | ) | | | (48 | ) |
Balance – end of period | | $ | 123 | | | $ | 117 | |
The Company remains secondarily liable on 26 assigned leases. The maximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.
Rental expense, which includes common area maintenance, insurance and taxes, was as follows (in millions):
| | 2013 | | | 2012 | | | 2011 | |
Minimum rentals | | $ | 2,644 | | | $ | 2,585 | | | $ | 2,506 | |
Contingent rentals | | | 6 | | | | 6 | | | | 9 | |
Less: Sublease rental income | | | (22 | ) | | | (20 | ) | | | (15 | ) |
| | $ | 2,628 | | | $ | 2,571 | | | $ | 2,500 | |
