Share Plans

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Share Plans

17. Share Plans

Total share-based compensation cost was $10.2 million, $25.3 million and $33.8 million for fiscal 2021, 2020 and 2019, respectively. These amounts are generally included within SG&A expenses in the consolidated statements of operations. The Company recognized a related tax benefit associated with this expense of zero in both fiscal 2021 and 2020 and $1.2 million in fiscal 2019.

Stock Compensation Plans

Over the years, the Company has adopted and amended its Mallinckrodt Pharmaceuticals Stock and Incentive Plan, which provides for the award of share options, share appreciation rights, annual performance bonuses, long-term performance awards, restricted units, restricted shares, deferred share units, promissory shares and other share-based awards (collectively, "Awards"). The maximum number of common shares to be issued as Awards, subject to adjustment as provided under the terms of the respective plans were as follows:

	Maximum Number of Common Shares to be Issued as Awards (in millions)
2013 Plan	5.7
2015 Plan	17.8
2018 Plan	26.8

Share options. Share options are granted to purchase the Company's ordinary shares at prices that are equal to the fair market value of the shares on the date the share option is granted. Share options generally vest in equal annual installments over a period of four years and expire ten years after the date of grant. The grant-date fair value of share options, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. Forfeitures are estimated based on historical experience.

Share option activity and information was as follows:

	Share Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding as of December 28, 2018	7,007,051	$	38.74
Granted	1,378,175	22.09
Exercised	(45,324)	20.67
Expired/Forfeited	(1,449,202)	34.80
Outstanding as of December 27, 2019	6,890,700	36.39
Expired/Forfeited	(820,988)	39.65
Outstanding as of December 25, 2020	6,069,712	35.95
Expired/Forfeited	(516,193)	45.63
Outstanding as of December 31, 2021	5,553,519	35.05		1.7	$	—
Vested and non-vested expected to vest as of December 31, 2021	5,352,763	35.14		5.5	$	—
Exercisable as of December 31, 2021	4,616,911	38.56		2.0	—

As of December 31, 2021, there was $1.6 million of total unrecognized compensation cost related to non-vested share option awards, which is expected to be recognized over a weighted-average period of 1.0 year.

The grant-date fair value of share options has been estimated using the Black-Scholes pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. The expected volatility assumption is based on the historical and implied volatility of the Company's peer group with similar business models. The expected life assumption is based on the contractual and vesting term of the share option, employee exercise patterns and employee post-vesting termination behavior. The expected annual dividend per share is based on the Company's current intentions regarding payment of cash dividends. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The weighted-average assumptions used in the Black-Scholes pricing model for shares granted in fiscal 2019, along with the weighted-average grant-date fair value, were as follows:

Expected share price volatility	45.8		%
Risk-free interest rate	2.2		%
Expected annual dividend per share	—		%
Expected life of options (in years)	5.3
Fair value per option	$	9.66

In fiscal 2019, the total intrinsic value of options exercised was $0.3 million and the related tax benefit was $0.1 million.

Restricted share units. Recipients of restricted share units ("RSUs") have no voting rights and receive dividend equivalent units that vest upon the vesting of the related shares. RSUs generally vest in equal annual installments over a period of four years. Restrictions on RSUs lapse upon normal retirement, death or disability of the employee. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the service period. The fair market value of RSUs granted is determined based on the market value of the Company's shares on the date of grant.

RSU activity was as follows:

	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 28, 2018	1,685,101	$	29.54
Granted	755,180	20.13
Exercised	(713,274)	35.29
Expired/Forfeited	(307,987)	24.81
Non-vested as of December 27, 2019	1,419,020	22.68
Exercised	(647,167)	24.23
Expired/Forfeited	(281,182)	22.11
Non-vested as of December 25, 2020	490,671	20.96
Exercised	(186,930)	23.43
Expired/Forfeited	(60,844)	19.58
Non-vested as of December 31, 2021	242,897	19.40

The total vest date fair value of Mallinckrodt RSUs vested during fiscal 2021 was $4.4 million. As of December 31, 2021, there was $1.9 million of total unrecognized compensation cost related to non-vested RSUs granted, which is expected to be recognized over a weighted-average period of 1.1 years.

Performance share units. Similar to recipients of RSUs, recipients of performance share units ("PSUs") have no voting rights and receive dividend equivalent units. The grant-date fair value of PSUs, adjusted for estimated forfeitures, is generally recognized as expense on a straight-line basis from the grant-date through the end of the performance period. The vesting of PSUs and related dividend equivalent units is generally based on various performance metrics and relative total shareholder return (total shareholder return for the Company as compared to total shareholder return of the PSU peer group), measured over a three year performance period. The PSU peer group is comprised of various healthcare companies which attempts to replicate the Company's mix of businesses. Depending on Mallinckrodt's relative performance during the performance period, a recipient of the award is entitled to receive a number of ordinary shares equal to a percentage, ranging from 0.0% to 200.0%, of the award granted.

During December 2020, all outstanding PSUs were cancelled by the Human Resources and Compensation Committee of the Company's Board of Directors.

PSU activity was as follows (1):

	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 28, 2018	1,161,529	$	28.61
Granted	448,363	32.46
Forfeited	(414,387)	30.54
Non-vested as of December 27, 2019	1,195,505	23.85
Forfeited	(1,195,505)	23.85
Non-vested as of December 25, 2020	—	—

(1)    The number of shares disclosed within this table are at the target number of 100.0%.

The Company generally uses the Monte Carlo model to estimate the probability of satisfying the performance criteria and the resulting fair value of PSU awards. The assumptions used in the Monte Carlo model for PSUs granted during fiscal 2019 were as follows:

Expected stock price volatility	55.2	%
Peer group stock price volatility	41.3
Correlation of returns	47.8

Employee Stock Purchase Plans

Effective March 16, 2016, upon approval by the shareholders of Mallinckrodt, the Company adopted a new qualified Mallinckrodt Employee Stock Purchase Plan ("ESPP"). Substantially all full-time employees of the Company's U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries are eligible to participate in the ESPP. Eligible employees authorize payroll deductions to be made to purchase shares at 15.0% below the market price at the beginning or end of an offering period. Employees

are eligible to authorize withholdings such that purchases of shares may amount to $25,000 of fair market value for each calendar year as prescribed by the IRC Section 423. Mallinckrodt has elected to deliver shares by utilizing treasury stock accumulated by the Company. The ESPP was suspended effective June 30, 2019 and remains unavailable as of December 31, 2021.