Share Plans

12 Months Ended

Dec. 30, 2022

Share-based Payment Arrangement [Abstract]

Share Plans

17. Share Plans

Total share-based compensation cost was $1.4 million, $1.7 million, $10.2 million and $25.3 million for the period June 17, 2022 through December 30, 2022 (Successor), the period January 1, 2022 through June 16, 2022 (Predecessor), fiscal 2021 (Predecessor) and fiscal 2020 (Predecessor), 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 for the period June 17, 2022 through December 30, 2022 (Successor), the period January 1, 2022 through June 16, 2022 (Predecessor), fiscal 2021 (Predecessor) and fiscal 2020 (Predecessor).

Stock Compensation Plans

On the Effective Date, all outstanding equity-based awards under the Mallinckrodt Pharmaceuticals Stock and Incentive Plan, as amended and restated effective February 23, 2022, were automatically cancelled without consideration.

A new Mallinckrodt Pharmaceuticals Stock and Incentive Plan became effective on the Effective Date, 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 plan was 1.8 million shares.

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
Outstanding as of December 27, 2019 (Predecessor)	6,890,700	36.39
Expired/Forfeited	(820,988)	39.65
Outstanding as of December 25, 2020 (Predecessor)	6,069,712	35.95
Expired/Forfeited	(516,193)	45.63
Outstanding as of December 31, 2021 (Predecessor)	5,553,519	35.05
Expired/Forfeited	(5,553,519)	35.05
Outstanding as of June 16, 2022 (Predecessor)	—	—

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 three 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 12/27/2019 (Predecessor)	1,419,020	22.68
Exercised	(647,167)	24.23
Expired/Forfeited	(281,182)	22.11
Non-vested as of 12/25/2020 (Predecessor)	490,671	20.96
Exercised	(186,930)	23.43
Expired/Forfeited	(60,844)	19.58
Non-vested as of 12/31/2021 (Predecessor)	242,897	19.40
Expired/Forfeited	(242,897)	19.40
Non-vested as of June 16, 2022 (Predecessor)	—	—
Non-vested as of June 17, 2022 (Successor)	—	—
Granted	890,485	12.03
Non-vested as of December 30, 2022 (Successor)	890,485	12.03

The total fair value of RSU awards granted during the period from June 17, 2022 through December 30, 2022 (Successor) was $10.7 million. As of December 30, 2022 (Successor), there was $9.4 million of total unrecognized compensation cost related to non-vested RSUs granted, which is expected to be recognized over a weighted-average period of 2.2 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.

A portion of the PSUs granted in fiscal 2022 will be settled in shares and are classified as equity-based awards, and a portion of the PSUs have the ability to be settled in either shares or cash and are classified as liability-based awards. The Company recognized $0.1 million of equity-based compensation costs during the period from June 17, 2022 through December 30, 2022 (Successor). The fair value of the liability-based awards is measured quarterly and is based on the Company's performance. Payment, if any, for the liability-based awards is expected to be made in fiscal 2024.

PSU activity was as follows (1):

	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 27, 2019 (Predecessor)	1,195,505	23.85
Forfeited	(1,195,505)	23.85
Non-vested as of December 25, 2020 (Predecessor)	—	—
Non-vested as of June 17, 2022 (Successor)	—	—
Granted	675,821	8.34
Non-vested as of December 30, 2022 (Successor)	675,821	8.34

(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 the period June 17, 2022 through December 30, 2022 (Successor) were as follows:

Expected stock price volatility	38.9	%
Peer group stock price volatility	128.0
Correlation of returns	24.4

The weighted-average grant-date fair value per share of PSUs granted was $8.34 and $2.51 for the equity-based and liability-based awards from the period from June 17, 2022 through December 30, 2022 (Successor), respectively. As of December 30, 2022, there was $5.5 million and $1.7 million of unrecognized compensation cost related to the equity-based and liability-based awards, respectively, which are both expected to be recognized over a weighted average period of 1.9 years.