Income Taxes (Tables)

12 Months Ended

Aug. 31, 2015

Schedule of Income before Income Tax, Domestic and Foreign

The components of Earnings Before Income Tax Provision were (in millions):

	2015		2014		2013
U.S.	$	2,725	$	3,386	$	3,469
Non – U.S.		2,586		171		578
Total	$	5,311	$	3,557	$	4,047

Provisions for Income Taxes and the Difference Between the Statutory Federal Income Tax Rate and Effective Tax Rate

The provision for income taxes consists of the following (in millions):

	2015			2014			2013
Current provision
Federal	$	846		$	1,207		$	1,122
State		121			109			134
Non – U.S.		128			35			15
		1,095			1,351			1,271
Deferred provision
Federal		(23	)		183			228
State		(16	)		(3	)		(2	)
Non – U.S.		-			(5	)		2
		(39	)		175			228
Income tax provision	$	1,056		$	1,526		$	1,499

Difference Between the Statutory Federal Income Tax Rate and the Effective Tax Rate

The difference between the statutory federal income tax rate and the effective tax rate is as follows:

	2015			2014			2013
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		1.3			1.9			2.2
Loss on Alliance Boots call option⁽¹⁾		-			8.5			-
Deferred tax asset recognition⁽¹⁾		(4.1	)		-			-
Gain on previously held equity interest		(5.8	)		-			-
Foreign income taxed at non-U.S. rates		(6.2	)		(3.1	)		(0.3	)
Non-taxable income		(2.6	)		-			-
Non-deductible expenses		2.3			0.3			1.0
Other		-			0.3			(0.9	)
Effective income tax rate		19.9	%		42.9	%		37.0	%

⁽¹⁾

Upon the amendment and immediate exercise of the call option to acquire the remaining 55% ownership of Alliance Boots, the Company was required to compare the fair value of the amended option with the book value of the original option with a gain or loss recognized for the difference. The fair value of the amended option resulted in a financial statement loss of $866 million. The loss on the Alliance Boots call option was, in part, a capital loss and available to be carried forward and offset future capital gains through fiscal 2020. The loss was also the primary contributor to the 2014 valuation allowance amount reported in the deferred income tax table below. In 2015, the deferred tax asset related to the loss was recognized, resulting in the 4.1% effective tax rate benefit reported in the table above as well as a reduction to the valuation allowance amount reported in the deferred income tax table below.

Deferred Tax Assets and Liabilities Included in the Consolidated Balance Sheet

The deferred tax assets and liabilities included in the Consolidated Balance Sheets consist of the following (in millions):

	2015		2014
Deferred tax assets
Postretirement benefits	$	130	$	247
Compensation and benefits		224		166
Insurance		68		98
Accrued rent		167		166
Outside basis difference		73		-
Bad debts		67		65
Tax attributes		341		430
Stock compensation		119		131
Other		93		75
		1,282		1,378
Less: Valuation allowance		125		223
Total deferred tax assets		1,157		1,155
Deferred tax liabilities
Accelerated depreciation		1,234		1,244
Inventory		420		407
Intangible assets		1,822		64
Equity method investment		333		387
Deferred income		889		208
		4,698		2,310
Net deferred tax liabilities	$	3,541	$	1,155

Reconciliation of the Total Amounts of Unrecognized Tax Benefits

The following table provides a reconciliation of the total amounts of unrecognized tax benefits (in millions):

	2015			2014			2013
Balance at beginning of year	$	193		$	208		$	197
Gross increases related to business combination		84			-			-
Gross increases related to tax positions in a prior period		45			55			18
Gross decreases related to tax positions in a prior period		(75	)		(82	)		(32	)
Gross increases related to tax positions in the current period		63			46			30
Settlements with taxing authorities		(45	)		(22	)		(2	)
Lapse of statute of limitations		(4	)		(12	)		(3	)
Balance at end of year	$	261		$	193		$	208