

6.	Income Taxes

The Company recognized an income tax benefit of $31.2 million on income from continuing operations before income taxes of $33.1 million for the three months ended September 29, 2017, and an income tax benefit of $56.4 million on income from continuing operations before income taxes of $53.6 million for the three months ended September 30, 2016. This resulted in effective tax rates of negative 94.3% and negative 105.2% for the three months ended September 29, 2017 and September 30, 2016, respectively. The income tax benefit for the three months ended September 29, 2017 is comprised of $60.0 million of current tax benefit and $28.8 million of deferred tax expense. The net deferred tax expense of $28.8 million includes $45.5 million of deferred tax benefit which is predominantly related to acquired intangible assets offset by $74.3 million of deferred tax expense related to utilization of tax attributes. The income tax benefit for the three months ended September 30, 2016 is comprised of $37.9 million of current tax expense and $94.3 million of deferred tax benefit which is predominantly related to acquired intangible assets.

The Company recognized an income tax benefit of $110.8 million on income from continuing operations before income taxes of $53.0 million for the nine months ended September 29, 2017, and an income tax benefit of $218.3 million on income from continuing operations before income taxes of $166.9 million for the nine months ended September 30, 2016. This resulted in effective tax rates of negative 209.1% and negative 130.8% for the nine months ended September 29, 2017 and September 30, 2016, respectively. The income tax benefit for the nine months ended September 29, 2017 is comprised of $20.5 million of current tax expense and $131.3 million of deferred tax benefit. The net deferred tax benefit of $131.3 million includes $232.8 million of deferred tax benefit which is predominantly related to acquired intangible assets offset by $101.5 million of deferred tax expense related to utilization of tax attributes. The income tax benefit for the nine months ended September 30, 2016 is comprised of $85.9 million of current tax expense and $304.2 million of deferred tax benefit which is predominantly related to acquired intangible assets.

The effective tax rate for the three months ended September 29, 2017, as compared with the three months ended September 30, 2016 increased by 10.9 percentage points. Included within this net increase was a 109.4 percentage point increase related to the completion of certain aspects of the reorganization of the Company's legal entity ownership discussed further below, which occurred during the three months ended September 29, 2017. Also within this increase was a 36.7 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred during the three months ended September 30, 2016. The remaining 135.2 percentage point decrease was primarily attributable to differing levels of income from continuing operations before taxes for the three months ended September 29, 2017 as compared with the three months ended September 30, 2016.

The effective tax rate for the nine months ended September 29, 2017, as compared with the nine months ended September 30, 2016 decreased by 78.3 percentage points. Included within this net decrease was a 183.5 percentage point decrease primarily attributable to differing levels of income from continuing operations before taxes for the nine months ended September 29, 2017 as compared with the nine months ended September 30, 2016. Of the remaining 105.2 percentage point increase, a 16.5 percentage point increase is related to the tax benefit of a U.K. tax credit on a dividend between affiliates, which occurred during the nine months ended September 30, 2016, a 5.0 percentage point increase related to the divestiture of the Intrathecal Therapy Business, which occurred during the nine months ended September 29, 2017, a 15.5 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred within the nine months ended September 30, 2016, and a 68.2 percentage point increase related to the completion of certain aspects of the reorganization of the Company's legal entity ownership discussed further below, which occurred during the nine months ended September 29, 2017.

During the nine months ended September 29, 2017, the three months ended December 30, 2016 and the twelve months ended September 30, 2016, the Company’s cash paid for income taxes, net was $90.9 million, $95.6 million and $165.4 million, respectively.

During the three and nine months ended September 29, 2017, the Company recognized an income tax benefit of $0.1 million and income tax expense of $5.2 million, respectively associated with the Nuclear Imaging business divestiture, as discussed in Note 3, in discontinued operations within the unaudited condensed consolidated statement of income.

On October 6, 2017 the Company completed a reorganization of its legal entity ownership (“the Reorganization”) to align with its ongoing transformation to become an innovation-driven specialty pharmaceuticals growth company. Many factors were considered in effecting the Reorganization, including streamlining treasury functions, simplifying legal entity reporting processes, and capital allocation efficiencies. During the three months ended September 29, 2017, the Company recognized income tax expense of $36.1 million, with an offset to deferred tax liabilities commensurate with the completion of certain aspects of the Reorganization during the third quarter of 2017. See Note 20 Subsequent Events for additional information related to the future tax effects of this Reorganization.

The Company early adopted ASU 2016-16 in the first quarter of 2017 utilizing the modified retrospective basis adoption method, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period for $75.0 million with an offsetting decrease of $67.2 million to other assets and a $7.8 million decrease to prepaid expenses on its unaudited condensed consolidated balance sheets. The prior periods were not restated.

The Company adopted ASU 2016-09 in the first quarter of 2017 and recorded an adjustment to retained earnings of $2.9 million to recognize net operating loss carryforwards, net of a valuation allowance, attributable to excess tax benefits on stock compensation that had not been previously recognized in additional paid-in capital.

The Company refined its acquisition accounting estimate associated with the measurement of its acquired Stratatech net deferred tax liabilities in the first quarter of 2017, resulting in a decrease to the acquired net deferred tax liabilities from $24.3 million to $22.1 million.

The InfaCare Acquisition resulted in a net deferred tax liability increase of $11.3 million. Significant components of this include $20.3 million of net deferred tax liabilities associated with intangibles partially offset by $8.7 million of deferred tax assets associated with non U.K. net operating losses.

The divestiture of the Intrathecal Therapy Business was completed on March 17, 2017. This divestiture resulted in a net deferred tax liability increase of $38.9 million. Significant components of this increase include an increase of $56.5 million of deferred tax liability associated with future consideration, a decrease of $2.3 million of deferred tax asset associated with net operating losses, a decrease of $17.9 million of deferred tax liability associated with intangibles, an increase of $2.6 million of deferred tax asset associated with committed product development, and a decrease of $0.6 million of other net deferred tax assets.

The Company's unrecognized tax benefits, excluding interest, totaled $123.0 million at September 29, 2017 and $118.7 million at December 30, 2016. The net increase of $4.3 million primarily resulted from a net increase to current year positions of $8.7 million, net decreases from prior period tax positions of $1.7 million, and net decreases from lapse of statute of limitations of $2.7 million. If favorably settled, $121.3 million of unrecognized tax benefits at September 29, 2017 would favorably impact the effective tax rate. The total amount of accrued interest related to these obligations was $6.8 million at September 29, 2017 and $7.1 million at December 30, 2016.

It is reasonably possible that within the next twelve months, as a result of the resolution of various U.K. and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation, that the unrecognized tax benefits will decrease by up to $30.2 million and the amount of related interest and penalties will decrease by up to $4.4 million.