

7.	Income Taxes

The Company recognized an income tax benefit of $53.4 million on a loss from continuing operations before income taxes of $81.5 million for the three months ended June 29, 2018, and an income tax benefit of $53.6 million on a loss from continuing operations before income taxes of $35.2 million for the three months ended June 30, 2017. This resulted in effective tax rates of 65.5% and 152.3% for the three months ended June 29, 2018 and June 30, 2017, respectively. The income tax benefit for the three months ended June 29, 2018 is comprised of $9.5 million of current tax expense and $62.9 million of deferred tax benefit which is predominantly related to acquired intangible assets. The income tax benefit for the three months ended June 30, 2017 is comprised of $33.9 million of current tax expense and $87.5 million of deferred tax benefit which is predominantly related to acquired intangible assets.

The Company recognized an income tax benefit of $96.8 million on a loss from continuing operations before income taxes of $167.9 million for the six months ended June 29, 2018, and an income tax benefit of $95.6 million on a loss from continuing operations before income taxes of $122.1 million for the six months ended June 30, 2017. This resulted in effective tax rates of 57.7% and 78.3% for the six months ended June 29, 2018 and June 30, 2017, respectively. The income tax benefit for the six months ended June 29, 2018 is comprised of $13.1 million of current tax expense and $109.9 million of deferred tax benefit which is predominantly related to acquired intangible assets. The income tax benefit for the six months ended June 30, 2017 is comprised of $67.8 million of current tax expense and $163.4 million of deferred tax benefit. The net deferred tax benefit of $163.4 million includes $190.6 million of deferred tax benefit, which is predominantly related to acquired intangible assets offset by $27.2 million of deferred tax expense related to utilization of tax attributes.

The income tax benefit was $53.4 million for the three months ended June 29, 2018, compared with a tax benefit of $53.6 million for the three months ended June 30, 2017. The $0.2 million net decrease in the tax benefit includes a decrease of $9.8 million attributable to U.S. Tax Reform; partially offset by an increase of $6.0 million attributable to changes in the amount and jurisdictional mix of operating income and an increase of $3.6 million attributable to the impact of acquisitions occurring since June 30, 2017.

The income tax benefit was $96.8 million for the six months ended June 29, 2018, compared with a tax benefit of $95.6 million for the six months ended June 30, 2017. The $1.2 million net increase in the tax benefit includes an increase of $31.2 million attributable to the impact of dispositions, an increase of $12.8 million attributable to changes in the amount and jurisdictional mix of operating income, and an increase of $8.1 million attributable to the impact of acquisitions occurring since June 30, 2017; partially offset by a decrease of $33.4 million attributable to U.S. Tax Reform and a decrease of $17.5 million attributable to the termination of the defined benefit pension plans which occurred during the six months ended June 30, 2017.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA reduces the U.S. federal corporate statutory rate from 35% to 21%, requires companies to pay a one-time transition tax on certain undistributed earnings of the Company's foreign subsidiaries of U.S. entities and creates new taxes on certain foreign sourced earnings. The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the TCJA. At June 29, 2018, the Company has not completed its accounting for all of the tax effects of the TCJA. As discussed below, the Company has recorded provisional estimates for certain provisions where the accounting is incomplete but a reasonable estimate can be made. In other cases, the Company continues to evaluate certain portions of the TCJA and the application of ASC 740 and no adjustments have been made in the unaudited condensed consolidated financial statements. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. These estimates may also be affected as the Company gains a more thorough understanding of the tax law.

In fiscal 2017, the Company adjusted certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. A provisional decrease of $444.8 million was recognized resulting in a corresponding deferred income tax benefit in fiscal 2017. For the six months ended June 29, 2018, no adjustments related to this provisional estimate were made. 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. These analyses include 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 fiscal 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 is based upon the amount of post-1986 cumulative undistributed earnings of certain of the Company's subsidiaries which was deferred from U.S. income tax under previous U.S. law. In fiscal 2017, the Company estimated this item would not result in any current or future tax. For the six months ended June 29, 2018, no adjustments related to this provisional estimate have been made. While the Company is able to make a reasonable estimate of the impact of the one-time transition 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 unaudited condensed consolidated financial statements and has not made a policy decision regarding whether to record deferred taxes on global intangible low-taxed income.

During the six months ended June 29, 2018, and the fiscal year ended December 29, 2017, the net cash payments for income taxes were $13.7 million and $73.4 million, respectively.

During the three and six months ended June 29, 2018, the Company recognized income tax expense of $9.0 million and $15.8 million, respectively, associated with the Specialty Generics Disposal Group, as shown in Note 4.

During the three and six months ended June 29, 2018, the Company received a total of $15.0 million in contingent consideration related to the sale of the Nuclear Imaging business, consisting of a $6.0 million cash payment and the issuance of $9.0 million par value non-voting preferred equity certificates. The Company recorded a tax expense of $1.5 million associated with the $6.0 million contingent consideration cash payment. The consideration received and related tax expense were recorded net as income from discontinued operations.

The Sucampo Acquisition resulted in a net deferred tax liability increase of $170.8 million. Significant components of this increase include $180.5 million of deferred tax liabilities associated with intangible assets and a $24.1 million deferred tax liability associated with inventory step-up. The increase in deferred tax liabilities is partially offset by $28.0 million of deferred tax assets associated with U.S. net operating losses, $2.7 million of deferred tax assets associated with U.S. tax credits, and various other net deferred tax assets of $3.1 million.

The sale of a portion of the Hemostasis business, inclusive of the PreveLeak and Recothrom products, was completed on March 16, 2018. This divestiture resulted in a net deferred tax liability decrease of $3.0 million. A significant component of this decrease includes a decrease of $3.0 million of deferred tax liability associated with inventory step-up. In addition, there was a decrease of $1.5 million of deferred tax asset associated with potential future consideration, a decrease of $2.4 million of deferred tax asset associated with net operating losses, and a decrease of $4.2 million of deferred tax asset associated with intangible assets, all of which were offset by a reduction in valuation allowance of $8.1 million.

The Company's unrecognized tax benefits, excluding interest, totaled $202.9 million at June 29, 2018 and $182.5 million at December 29, 2017. The net increase of $20.4 million primarily resulted from a net increase to current year tax positions of $0.9 million, net increases from prior period tax positions predominately from acquired companies of $19.9 million, and net decreases from settlements of $0.4 million. If favorably settled, $190.2 million of unrecognized tax benefits at June 29, 2018 would benefit the effective tax rate, of which up to $20.0 million may be reported in discontinued operations. The total amount of accrued interest related to these obligations was $17.8 million at June 29, 2018 and $7.1 million at December 29, 2017.

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 $39.8 million and the amount of related interest and penalties will decrease by up to $6.6 million.