Income Taxes (Tables)

12 Months Ended

Aug. 31, 2016

Schedule of Income before Income Tax, Domestic and Foreign

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

	2016		2015		2014
U.S.	$	2,577	$	2,725	$	3,386
Non – U.S.		2,567		2,586		171
Total	$	5,144	$	5,311	$	3,557

Provisions for Income Taxes

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

	2016			2015			2014
Current provision
Federal	$	999		$	846		$	1,207
State		56			121			109
Non – U.S.		371			128			35
		1,426			1,095			1,351
Deferred provision
Federal		(183	)		(23	)		183
State		6			(16	)		(3	)
Non – U.S. – Tax Law Change		(182	)		-			-
Non – U.S. – Excluding Tax Law Change		(70	)		-			(5	)
		(429	)		(39	)		175
Income tax provision	$	997		$	1,056		$	1,526

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:

	2016			2015			2014
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal benefit		0.8			1.3			1.9
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		(7.8	)		(6.2	)		(3.1	)
Non-taxable income		(4.4	)		(2.6	)		-
Non-deductible expenses		1.1			2.3			0.3
Tax Law changes		(3.5	)		-			-
Tax Credits		(1.5	)		-			-
Other		(0.3	)		-			0.3
Effective income tax rate		19.4	%		19.9	%		42.9	%

⁽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. 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.

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):

	2016		2015
Deferred tax assets
Postretirement benefits	$	190	$	130
Compensation and benefits		205		224
Insurance		75		68
Accrued rent		169		167
Outside basis difference		134		73
Bad debts		65		67
Tax attributes		373		341
Stock compensation		97		119
Deferred income		150		-
Other		195		93
		1,653		1,282
Less: Valuation allowance		305		125
Total deferred tax assets		1,348		1,157
Deferred tax liabilities
Accelerated depreciation		1,205		1,234
Inventory		388		420
Intangible assets		1,418		1,822
Equity method investment		978		333
Deferred income		-		889
		3,989		4,698
Net deferred tax liabilities	$	2,641	$	3,541

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):

	2016			2015			2014
Balance at beginning of year	$	261		$	193		$	208
Gross increases related to business combination		-			84			-
Gross increases related to tax positions in a prior period		21			45			55
Gross decreases related to tax positions in a prior period		(47	)		(75	)		(82	)
Gross increases related to tax positions in the current period		68			63			46
Settlements with taxing authorities		(17	)		(45	)		(22	)
Currency		(11	)		-			-
Lapse of statute of limitations		(6	)		(4	)		(12	)
Balance at end of year	$	269		$	261		$	193