Discontinued Operations

On September 28, 2018, we signed a definitive agreement to sell all of the equity interests in our oxygen-related products business within our BioMedical segment to NGK Spark Plug Co., Ltd. for $133.5 (the “Divestiture”). The sale is expected to close within the fourth quarter of 2018, following the satisfaction of customary closing conditions, including regulatory requirements. The strategic decision to divest the oxygen-related products business reflects our strategy and capital allocation approach to focus on our core capabilities and offerings.

As a result of the Divestiture, the asset group, which includes our respiratory and on-site generation systems businesses, met the criteria to be held for sale. Furthermore, we determined that the assets held for sale qualify for discontinued operations. As such, the financial results of the respiratory therapy and on-site generation systems businesses are reflected in our unaudited condensed consolidated statements of operations and comprehensive income as discontinued operations for all periods presented. Furthermore, current and non-current assets and liabilities of discontinued operations are reflected in the unaudited condensed consolidated balance sheets for both periods presented.

Summarized Financial Information of Discontinued Operations

The following table represents income from discontinued operations, net of tax:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018		2017			2018		2017
Sales	$	43.0	$	37.8		$	120.6	$	109.3
Cost of sales	31.3		25.3			87.1		78.5
Selling, general and administrative expenses	6.8		8.6			21.4		25.5
Amortization expense	0.6		0.7			1.8		2.2
Operating income ⁽¹⁾	4.3		3.2			10.3		3.1
Other expenses (income), net	0.4		(0.1		)	0.6		(1.2		)
Income before income taxes	3.9		3.3			9.7		4.3
Income tax expense ⁽²⁾	3.2		1.2			5.0		1.7
Income from discontinued operations, net of tax	$	0.7	$	2.1		$	4.7	$	2.6

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⁽¹⁾	Includes depreciation expense of $0.4 for both the three months ended September 30, 2018 and 2017. Includes depreciation expense of $1.3 and $1.2 for the nine months ended September 30, 2018 and 2017, respectively.

⁽²⁾

Income tax expense of $3.2 and $1.2 for the three months ended September 30, 2018 and 2017, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 82.1% and 36.4%, respectively. Income tax expense of $5.0 and $1.7 in the nine months ended September 30, 2018 and 2017, respectively, represents taxes on both U.S. and foreign earnings at a combined effective income tax rate of 51.5% and 39.5%, respectively.

The effective income tax rate of 82.1% and 51.5% for the three and nine months ended September 30, 2018 differed from the U.S. federal statutory rate of 21% primarily due to the effect of U.S. and foreign tax costs directly related to the Divestiture.

The effective income tax rate of 36.4% and 39.5% for the three and nine months ended September 30, 2017 differed from the U.S. federal statutory rate of 35% primarily due to the effect of certain losses recorded in the UK for which no tax benefit is recorded.

The following table represents the assets and liabilities from discontinued operations:



	September 30, 2018		December 31, 2017
Accounts receivable, net	$	30.4	$	26.3
Inventories, net	50.5		35.2
Unbilled contract revenue	0.7		0.5
Prepaid expenses	1.2		1.0
Other current assets	3.9		3.7
Current assets of discontinued operations	$	86.7	$	66.7

Property, plant, and equipment, net	$	13.0	$	12.6
Goodwill	9.1		9.1
Identifiable intangible assets, net	14.3		16.1
Other assets	0.3		0.4
Non-current assets of discontinued operations	$	36.7	$	38.2

Accounts payable	$	20.1	$	8.6
Customer advances and billings in excess of contract revenue	1.6		0.6
Accrued salaries, wages, and benefits	4.6		2.7
Current portion of warranty reserve	2.2		2.6
Other current liabilities	2.9		1.4
Current liabilities of discontinued operations	$	31.4	$	15.9

Long-term deferred tax liabilities	$	0.4	$	0.4
Other long-term liabilities	3.0		2.2
Non-current liabilities of discontinued operations	$	3.4	$	2.6