

8.	Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA” or "U.S. Tax Reform"). The TCJA makes broad and complex changes to the U.S. tax code, the effects of which have been incorporated into the Company’s fiscal 2017 provision for income taxes, as applicable. The TCJA provisions effective within 2017, include, but are not limited to (1) requiring a one-time transition tax on certain undistributed earnings of the Company’s foreign subsidiaries of U.S. entities, (2) bonus depreciation that will allow for full expensing of qualified property, and (3) reducing the U.S. federal corporate statutory tax rate from 35% to 21%. The TCJA also establishes new tax laws that will affect fiscal 2018, including, but not limited to (1) elimination of the corporate alternative minimum tax, (2) creation of the base erosion anti-abuse tax, a new minimum tax, (3) a general elimination of U.S. federal income taxes on dividends from non-U.S. subsidiaries, (4) a new provision designed to tax global intangible low-taxed income, which allows for the possibility of using foreign tax credits and a deduction of up to 50% to offset the income tax liability, (5) tightening the limitation on deductible interest expense, (6) limitations on net operating losses generated after December 31, 2017 to 80% of taxable income, and (7) reductions to the amount of the orphan drug research credit generated after December 31, 2017.

Accounting Standards Codification ("ASC") Topic 740, Income Taxes ("ASC 740"), requires companies to recognize the effects of tax law changes in the period of enactment, which for Mallinckrodt is the fourth quarter of 2017, even though the effective date of most provisions of TCJA is January 1, 2018. The SEC staff issued Staff Accounting Bulletin ("SAB") 118, which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting is complete. To the extent that a company’s accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the TCJA.

In connection with the Company's initial analysis of the impact of the TCJA, a discrete net tax benefit of $456.9 million was recognized in fiscal 2017, primarily for the adjustment of the Company’s U.S. net deferred income tax liabilities for the reduction of the U.S. federal corporate statutory tax rate to 21%. For various reasons that are discussed more fully below, the Company has not yet completed its accounting for the income tax effects of certain elements of the TCJA and therefore a reasonable estimate of such impact has been provided.

The TCJA reduces the U.S. federal corporate tax rate to 21%, effective January 1, 2018. For the Company's U.S. net deferred income tax liabilities a provisional decrease of $444.8 million was recognized resulting in a corresponding deferred income tax benefit in fiscal 2017. While the Company is able to make a reasonable estimate of the impact of the reduction in the U.S. federal corporate statutory tax rate, it may be affected by other analyses related to the TCJA, including, but not limited to, having a U.S. tax return year that straddles the effective date of the statutory rate change and that is different than the Company's financial statement year, the calculation of deemed repatriation of deferred foreign income, and the state tax effect of adjustments made to federal temporary differences.

The one-time transition tax under the TCJA on certain of the Company’s subsidiaries is a tax on previously untaxed cumulative undistributed earnings. To determine the amount of such tax, the Company must determine, in addition to other factors, the amount of post-1986 cumulative undistributed earnings of the relevant subsidiaries, the amount of non-U.S. income taxes paid on such earnings, and the application of the law and interpretative guidance to the Company's global legal entity structure. While the Company currently estimates this item will not result in any current or future tax, additional information will continue to be gathered to finalize this conclusion.

Because of the complexity and uncertainties of the new global intangible low-taxed income rules, the Company continues to evaluate this portion of the TCJA and the application of ASC 740. Under GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes. The Company's selection of an accounting policy with respect to these new tax rules will depend on whether it expects to have future U.S. inclusions in taxable income related to global intangible low-taxed income and, if so, what the tax impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income depends on not only the Company's current structure and estimated future results of global operations but also its intent and ability to modify its structure and/or business. While the Company estimates these rules will not have a material tax impact, it is not yet able to finalize the effect of this portion of the TCJA. Therefore, the Company has not made any adjustments related to this item in its consolidated financial statements and has not made a policy decision regarding whether to record deferred taxes on global intangible low-taxed income.

Finally, the Company must assess whether its valuation allowance analyses are affected by the various aspects of the TCJA. Since, as discussed herein, the Company has recorded provisional amounts related to certain portions of the TCJA, any corresponding determination of the need for or change in a valuation allowance is also provisional.

The U.K. and non-U.K. components of income (loss) from continuing operations before income taxes were as follows:



	Fiscal Year Ended									Three Months Ended
	December 29, 2017			September 30, 2016			September 25, 2015			December 30, 2016
U.K.	$	(165.9	)	$	(275.3	)	$	(107.5	)	$	(97.4	)
Non-U.K.	227.5			508.7			214.8			(201.1		)
Total	$	61.6		$	233.4		$	107.3		$	(298.5	)

Significant components of income taxes related to continuing operations are as follows:



	Fiscal Year Ended									Three Months Ended
	December 29, 2017			September 30, 2016			September 25, 2015			December 30, 2016
Current:
U.K.	$	0.4		$	0.3		$	0.2		$	—
Non-U.K.	37.7			120.5			67.3			82.0
Current income tax provision	38.1			120.8			67.5			82.0
Deferred:
U.K.	$	0.6		$	0.7		$	(0.8	)	$	(0.5	)
Non-U.K.	(1,748.3		)	(377.1		)	(196.0		)	(203.2		)
Deferred income tax benefit	(1,747.7		)	(376.4		)	(196.8		)	(203.7		)
	$	(1,709.6	)	$	(255.6	)	$	(129.3	)	$	(121.7	)

The fiscal 2017 U.K. current income tax provision reflects a tax benefit of $14.3 million from utilization of net operating losses. The U.K. net operating loss utilization relates to net operating losses carried forward from the three months ended December 30, 2016. The fiscal 2017 non-U.K. current income tax provision reflects a tax benefit of $57.2 million from utilization of net operating losses and $5.6 million of U.S. credits. In addition, the non-U.K. current income tax provision includes a tax benefit of $27.2 million related to carryback claims filed in fiscal 2017. The non-U.K. net operating loss utilization relates to net operating losses carried forward from the three months ended December 30, 2016. The U.S. credit utilization is comprised of credits carried forward from the three months ended December 30, 2016 and generated during fiscal 2017

The fiscal 2016 U.K. current income tax provision reflects a tax benefit of $1.0 million from utilization of net operating losses. The U.K. net operating loss utilization is comprised of net operating losses carried forward from fiscal 2015. The fiscal 2016 non-U.K. current income tax provision reflects a tax benefit of $29.2 million from utilization of net operating losses and $9.5 million of U.S. credits. The non-U.K. net operating loss utilization is comprised of $17.9 million of net operating losses acquired in conjunction with the Hemostasis Acquisition and the remainder of the utilization relates to net operating losses carried forward from fiscal 2015. The U.S. credit utilization is comprised of credits carried forward from fiscal 2015 and generated during fiscal 2016.

The fiscal 2015 non-U.K. current income tax provision reflects a tax benefit of $7.0 million from utilization of net operating losses (primarily in the U.S.) and $14.3 million of U.S. credits. The net operating loss utilization is comprised of $4.8 million of net operating losses acquired in conjunction with the Ikaria Acquisition and the remainder of the utilization relates to net operating losses carried forward from fiscal 2014. The U.S. credit utilization is comprised of $7.2 million of credits acquired in conjunction with the Ikaria Acquisition and the remainder of the utilization relating to credits carried forward or generated during fiscal 2015.

The three months ended December 30, 2016 non-U.K. current income tax provision reflects a tax benefit of $0.3 million from utilization of net operating losses and $2.0 million of U.S. credits. The non-U.K. net operating loss utilization relates to net operating losses carried forward from fiscal 2016. The U.S. credit utilization is comprised of credits carried forward from fiscal 2016 and generated during the three months ended December 30, 2016.

During fiscal years 2017, 2016, and 2015 net cash payments for income taxes was $73.4 million, $165.4 million and $123.8 million, respectively. During the three months ended December 30, 2016 net cash payments for income taxes was $95.6 million.

The Company has a provincial tax holiday in Canada that expires on April 1, 2027. The tax holiday reduced non-U.K. tax expense by $1.8 million, $1.0 million and $5.1 million for the fiscal years 2017, 2016 and 2015, respectively. Due to an operating loss, there is no benefit from the tax holiday for the three months ended December 30, 2016.

The reconciliation between U.K. income taxes at the statutory rate and the Company's provision for income taxes on continuing operations is as follows:



	Fiscal Year Ended									Three Months Ended
	December 29, 2017			September 30, 2016			September 25, 2015			December 30, 2016
Provision (benefit) for income taxes at U.K. statutory income tax rate ⁽¹⁾	$	11.7		$	46.6		$	21.4		$	(59.7	)
Adjustments to reconcile to income tax provision:
Rate difference between U.K. and non-U.K. jurisdictions ^{(2) (5)}	(219.9		)	(249.3		)	(152.9		)	(123.0		)
Valuation allowances, nonrecurring	(3.7		)	2.1			(2.1		)	—
Adjustments to accrued income tax liabilities and uncertain tax positions ⁽⁷⁾	5.1			(14.9		)	(7.0		)	0.9
Interest and penalties on accrued income tax liabilities and uncertain tax positions	0.2			(16.4		)	0.3			(0.1		)
Investment in partnership	—			—			—			(12.7		)
Credits, principally research and orphan drug ⁽³⁾ ⁽⁴⁾	(13.8		)	(33.7		)	(8.1		)	(0.7		)
Impairments non deductible	—			—			—			75.3
Permanently nondeductible and nontaxable items	6.4			7.9			14.7			1.6
Pension plan settlement, release of tax effects lodged in other comprehensive income	(2.4		)	—			—			—
Divestiture of Intrathecal Therapy Business	18.2			—			—			—
U.S. Tax Reform ⁽⁶⁾	(456.9		)	—			—			—
Legal Entity Reorganization ⁽⁷⁾	(1,054.8		)	—			—			—
Other	0.3			2.1			4.4			(3.3		)
Benefit for income taxes	$	(1,709.6	)	$	(255.6	)	$	(129.3	)	$	(121.7	)


(1)	The statutory tax rate reflects the U.K. statutory tax rate of 19% for fiscal 2017 and 20% for fiscal 2016, 2015 and the three months ended December 30, 2016.


(2)	Includes the impact of certain recurring valuation allowances for U.K. and non-U.K. jurisdictions.


(3)	During fiscal 2015, the Research Credit tax law was extended, with a retroactive effective date of January 1, 2014. As such, fiscal 2015 includes approximately $3.6 million of credit related to the period January 1, 2014 through September 26, 2014.


(4)	During fiscal 2016, the Company realized a tax benefit of $27.4 million resulting from a U.K. tax credit on a dividend between affiliates.


(5)	During the three months ended December 30, 2016, the rate difference between U.K. and non-U.K. jurisdictions was favorably impacted by a benefit of $16.1 million on a $102.0 million settlement with the Federal Trade Commission and a benefit of $34.5 million on a $207.0 million goodwill impairment in the Specialty Generics segment.


(6)	Reflects redetermination of the Company's deferred tax liabilities as a result of the new U.S. statutory income tax rate of 21% at the date of enactment. Other line items, to the extent U.S. related, are reflected at the former U.S. statutory income tax rate of 35%.


(7)	Associated unrecognized tax benefit netted within this line.

The rate difference between U.K. and Non-U.K. jurisdictions changed from $249.3 million of tax benefit to $219.9 million of tax benefit for fiscal 2016 to fiscal 2017, respectively. The $29.4 million decrease in the tax benefit included $37.6 million of decreases primarily attributed to the divestiture of the Intrathecal Therapy business and the planned divestiture of the PreveLeak and Recothrom assets and fiscal 2016 one-time items that did not recur in fiscal 2017, and $15.2 million of decreases to the tax benefit associated with the impact of U.S. Tax Reform on a U.S. tax return year that straddles the effective date of the statutory rate change; partially offset by increases of $23.4 million to the tax benefit attributed to changes in operating income and termination and settlement of the Company's funded U.S. pension plan in fiscal 2017.

The rate difference between U.K. and Non-U.K. jurisdictions changed from $152.9 million of tax benefit to $249.3 million of tax benefit for fiscal 2015 to fiscal 2016, respectively. This change was predominately related to recent acquisitions, which resulted in more income in lower tax rate jurisdictions and less income in the higher tax rate U.S. jurisdiction relative to income in all jurisdictions. The change in the lower tax rate jurisdictions was predominately due to recent acquisitions, which resulted in more income in lower tax rate jurisdictions and less income in the higher tax rate U.S. jurisdiction relative to income in all jurisdictions. The change in the lower tax rate jurisdictions was primarily attributable to increased operating income partially offset by amortization. The change in the U.S. jurisdiction was primarily attributable to increased amortization and the cost of financing recent acquisitions. The $96.4 million increase in the tax benefit included increases of $146.3 million of tax benefit attributed to changes in operating income and $32.0 million of tax benefit related to acquisition and other non-acquisition related items; partially offset by $56.8 million of increased tax expense to the change in amortization and a $25.1 million decrease to the U.S. state tax benefit associated with the impact of recent acquisitions, integration thereof, and legislative changes.

During the three months ended December 29, 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. Given this Reorganization, the Internal Revenue Code required the Company to reallocate its tax basis from an investment in shares of a wholly-owned subsidiary to assets within another legal entity with no corresponding change in accounting basis. A deferred tax liability was not recognized on the wholly-owned subsidiary as there is a means for its recovery in a tax-free manner. The reallocation of tax basis resulted in a decrease to the net deferred tax liabilities associated with the assets within the other legal entity. As a result, during fiscal 2017, the Company recognized an income tax benefit, net of unrecognized tax benefits, of $1,054.8 million primarily as a result of a reduction to its net deferred tax liabilities.

In fiscal 2017, the Company recognized an income tax expense of $5.2 million associated with the Nuclear Imaging business divestiture, as discussed in Note 5, in discontinued operations within the consolidated statement of income.

The following table summarizes the activity related to the Company's unrecognized tax benefits, excluding interest:



	Fiscal Year Ended									Three Months Ended
	December 29, 2017			September 30, 2016			September 25, 2015			December 30, 2016
Balance at beginning of period	$	118.7		$	89.2		$	82.0		$	114.8
Additions related to current year tax positions	79.9			63.8			4.5			5.0
Additions related to prior period tax positions	0.3			10.8			19.9			—
Reductions related to prior period tax positions	(13.6		)	(37.8		)	(7.7		)	(1.1		)
Reductions related to disposition transactions	—			(6.6		)	—			—
Settlements	—			(2.6		)	(7.8		)	—
Lapse of statute of limitations	(2.8		)	(2.0		)	(1.7		)	—
Balance at end of period	$	182.5		$	114.8		$	89.2		$	118.7

During fiscal 2015, the Company made a payment of $8.9 million ($7.4 million of tax and $1.5 million of interest) to the U.S. IRS in connection with the settlement of certain tax matters for 2008 and 2009.

Unrecognized tax benefits, excluding interest, are reported in the following consolidated balance sheet captions in the amount shown:



	December 29, 2017		December 30, 2016
Accrued and other current liabilities	$	1.5	$	—
Other income tax liabilities	82.6		58.3
Deferred income taxes (non-current liability)	98.4		60.4
	$	182.5	$	118.7

Included within total unrecognized tax benefits at December 29, 2017, September 30, 2016, September 25, 2015 and December 30, 2016, were $180.8 million, $113.1 million, $87.4 million and $116.9 million respectively, of unrecognized tax benefits, which if favorably settled would benefit the effective tax rate. The remaining unrecognized tax benefits for each period would be offset by the write-off of related deferred and other tax assets, if recognized. During fiscal 2017, the Company recorded $2.6 million of additional interest through tax provision and acquisition accounting and decreased accrued interest by $2.7 million related to prior period reductions. During fiscal 2016, 2015 and the three months ended December 30, 2016, the Company accrued additional interest of $4.1 million, $5.7 million and zero, respectively. The total amount of accrued interest related to uncertain tax positions was $7.1 million, $7.2 million, $41.7 million and $7.1 million, respectively.

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 and appeals and the expiration of various statutes of limitation, that the unrecognized tax benefits could decrease by up to $38.4 million. Interest and penalties could decrease by up to $4.9 million.

Income taxes payable, including uncertain tax positions and related interest accruals, is reported in the following consolidated balance sheet captions in the amounts shown:



	December 29, 2017		December 30, 2016
Income taxes payable	$	15.8	$	101.7
Other income tax liabilities	94.1		70.4
	$	109.9	$	172.1

Tax items inherent in other assets decreased from $67.2 million at December 30, 2016 to zero as of December 29, 2017. The $67.2 million decrease was as a result of the early adoption of ASU 2016-16 which moved capitalized tax payments associated with non-current deferred intercompany transactions to retained earnings. Tax items inherent in prepaid expenses and other current assets decreased from $50.3 million at December 30, 2016 to $6.1 million as of December 29, 2017. The $44.2 million decrease was primarily due to the receipt of a $25.4 million U.K. tax credit receivable and a $7.8 million decrease related to the early adoption of ASU 2016-16. Prepaid expenses and other current assets includes $4.2 million and $40.2 million of receivables associated with tax payments on account with the taxing authorities and tax payments of $1.9 million and $10.1 million associated with current deferred intercompany transactions at December 29, 2017 and December 30, 2016, respectively.



	December 29, 2017		December 30, 2016
Other assets	$	—	$	67.2
Prepaid expenses and other current assets	6.1		50.3
	$	6.1	$	117.5

With a few exceptions, as of December 29, 2017, the earliest open years for U.S. federal and state tax jurisdictions are 2010 and 2009, respectively. Additionally, a number of tax periods from 2013 to present are subject to examination by tax authorities in various jurisdictions, including Ireland, Luxembourg, Switzerland and the U.K.

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred tax (liability) asset at the end of each fiscal year were as follows:



	December 29, 2017			December 30, 2016
Deferred tax assets:
Accrued liabilities and reserves	$	62.7		$	103.3
Inventories	22.3			36.5
Tax loss and credit carryforwards	1,734.5			1,173.7
Environmental liabilities	17.0			28.5
Rebate reserves	1.6			48.0
Expired product	7.5			9.7
Postretirement benefits	14.0			47.5
Federal and state benefit of uncertain tax positions and interest	11.3			17.2
Share-based compensation	23.6			26.1
Intangible assets	575.1			383.2
Other	16.0			—
	2,485.6			1,873.7
Deferred tax liabilities:
Property, plant and equipment	(47.0		)	(110.9		)
Intangible assets	(181.0		)	(759.2		)
Interest-bearing deferred tax obligations	(553.5		)	(1,801.4		)
Investment in partnership	(108.8		)	(173.6		)
Other	—			(2.0		)
	(890.3		)	(2,847.1		)
Net deferred tax asset (liability) before valuation allowances	1,595.3			(973.4		)
Valuation allowances	(2,267.9		)	(1,398.3		)
Net deferred tax liability	$	(672.6	)	$	(2,371.7	)

The deferred tax asset valuation allowances of $2,267.9 million and $1,398.3 million at December 29, 2017 and December 30, 2016, respectively, relate primarily to the uncertainty of the utilization of certain deferred tax assets, driven by non-U.K. net operating losses, credits and intangible assets. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets. The increase in tax loss and credit carryforwards and valuation allowances are primarily related to statutory deductions associated with internal transactions.

Deferred taxes are reported in the following consolidated balance sheet captions in the amounts shown:



	December 29, 2017			December 30, 2016
Other assets	$	16.4		$	26.4
Deferred income taxes (non-current liability)	(689.0		)	(2,398.1		)
Net deferred tax liability	$	(672.6	)	$	(2,371.7	)

Non-current deferred tax liability decreased from $2,398.1 million at December 30, 2016 to $689.0 million at December 29, 2017, primarily due to $1,122.3 million of decreases associated with the Reorganization, $444.8 million of decreases associated with the TCJA’s reduction of the U.S. federal corporate statutory tax rate from 35% to 21%, $270.6 million of decreases associated with the payment of internal installment sale obligations and $63.6 million of decreases associated with the amortization of intangibles. These decreases are partially offset by $47.0 million of increases related to reductions of deferred tax assets associated with rebate reserves, $38.9 million of increases related to the divestiture of the Intrathecal Therapy business, $37.5 million of increases related to reductions of deferred tax assets associated with legal settlements, $29.7 million of increases related to recent acquisitions, $29.6 million of increases related to reductions of deferred tax assets associated with the termination and settlement of the Company's funded U.S. pension plans and $9.5 million of net increases related to operational activity.

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

The InfaCare Acquisition resulted in a net deferred tax liability increase of $8.7 million prior to recording the impact from the TCJA. Significant components of this include $13.8 million of net deferred tax liabilities associated with intangibles partially offset by $4.7 million of deferred tax assets associated with non U.K. net operating losses.

The Ocera Acquisition resulted in a net deferred tax liability increase of $23.2 million prior to recording the impact from the TCJA, which is primarily associated with intangibles.

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 prior to recording the impact from the TCJA. Significant components of this increase include an increase of $56.4 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 $16.6 million of deferred tax liability associated with intangibles, an increase of $2.7 million of deferred tax asset associated with committed product development, and an increase of $0.5 million of other net deferred tax assets.

At December 29, 2017, the Company had approximately $1,604.0 million of net operating loss carryforwards in certain non-U.K. jurisdictions measured at the applicable statutory rates, of which $1,489.9 million have no expiration and the remaining $114.1 million will expire in future years through 2038. As a result of the TCJA, the Company's Non-U.K. net operating losses decreased by $6.2 million. The Company had $106.4 million of U.K. net operating loss carryforwards measured at the applicable statutory rates at December 29, 2017, which have no expiration date.

At December 29, 2017 the Company also had $24.1 million of tax credits available to reduce future income taxes payable, primarily in jurisdictions within the U.S., of which $2.4 million have no expiration and the remainder expire during fiscal 2017 through 2038.

As of December 29, 2017, there are no remaining cumulative undistributed earnings of the Company's subsidiaries that may be subject to tax. The net decrease in such undistributed earnings was attributable to the removal of the earnings for the entities reclassified to discontinued operations, undistributed earnings associated with income and losses attributed to the current year activity, and a reduction of the remaining cumulative undistributed earnings pursuant to the TCJA. The Company has preliminarily evaluated the impact of the TCJA with respect to the one-time tax imposed upon the deemed repatriation of undistributed earnings and estimated that no tax will be imposed upon the Company under such provisions.

In fiscal 2017, the Company early adopted ASU 2016-16 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 consolidated balance sheets. The prior periods were not restated.

In fiscal 2017, the Company adopted ASU 2016-09 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.