

16.	Income Taxes

Income Tax Provision

Income tax expense was $19.8 million on loss from continuing operations before income taxes of $7.9 million for the three months ended June 28, 2013 and $24.4 million on income from continuing operations before income taxes of $59.5 million for the three months ended June 29, 2012. Income tax expense was $55.9 million and $73.8 million on income from continuing operations before income taxes of $82.5 million and $187.8 million for the nine months ended June 28, 2013 and June 29, 2012, respectively. This resulted in effective tax rates of a negative 250.6% and 41.0% for the three months ended June 28, 2013 and June 29, 2012, respectively, and effective tax rates of 67.8% and 39.3% for the nine months ended June 28, 2013 and June 29, 2012, respectively. Our effective tax rate for the three and nine months ended June 28, 2013 was impacted by the inability to deduct a substantial portion of our separation costs due to the tax-free status of the Separation.

Impacts of the Separation

As a result of the Separation, and pursuant to the Separation and Distribution Agreement and other agreements entered into by Covidien and Mallinckrodt, certain assets and liabilities that were formerly associated with the Pharmaceuticals business of Covidien were retained by Covidien and, conversely, certain non-operating assets and liabilities were transferred to the Company. These transfers had an impact on the tax accounts of the Company, which is described below.

At September 28, 2012, the Company's unrecognized tax benefits, excluding interest, totaled $165.5 million, $13.4 million of which was recorded as liabilities within the unaudited condensed combined balance sheet, with the remainder in parent company investment. The amounts recorded within parent company investment were retained by Covidien in connection with the Separation. The amounts recorded as liabilities within the unaudited condensed consolidated balance sheet increased to $97.6 million at June 28, 2013, due to $84.2 million being transferred to the Company from Covidien in connection with the Separation. Included within the $97.6 million of total unrecognized tax benefits at June 28, 2013, there are $93.8 million of unrecognized tax benefits, which if favorably settled would benefit the effective tax rate.

Accrued interest related to these unrecognized tax benefits was $33.9 million at September 28, 2012, with $7.9 million recorded as liabilities within the unaudited condensed combined balance sheet and the remainder in parent company investment. The amounts recorded within parent company investment were retained by Covidien in connection with the Separation. The amounts recorded as liabilities within the unaudited condensed consolidated balance sheet increased to $59.7 million at June 28, 2013, primarily due to $51.8 million being transferred to the Company from Covidien in connection with the Separation.

Amounts related to unrecognized tax benefits, including interest, along with items unrelated to unrecognized tax benefits, included within current income tax payable are $29.8 million as of June 28, 2013.

The Company's net current deferred tax asset increased from $119.9 million at September 28, 2012 to $140.6 million at June 28, 2013 due to $15.8 million being transferred to the Company from Covidien in connection with the Separation. Additionally, the Company's net noncurrent deferred tax liability increased from $73.7 million at September 28, 2012 to $241.1 million at June 28, 2013 due to $126.8 million being transferred to the Company from Covidien in connection with the Separation and $27.1 million related to the acquisition of CNS Therapeutics.