UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _________________________________
FORM 10-Q
 _________________________________
_______________________________________________________
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 201724, 2021
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number : 001-35803
 ________________________________________________________________________________________
Mallinckrodt public limited companyplc
(Exact name of registrant as specified in its charter)
 _________________________________
_______________________________________________________
Ireland98-1088325
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
3 LotusCollege Business & Technology Park, The Causeway, Staines-Upon-Thames,Cruiserath,
Surrey TW18 3AG, United KingdomBlanchardstown, Dublin 15, Ireland
(Address of principal executive offices) (Zip Code)


Telephone: +44 017 8463 6700+353 1 696 0000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x☒     No o☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x☒     No o☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filerAccelerated Filerx☐Accelerated filerFiler☒oEmerging Growth Company☐
Non-accelerated filerFilero(Do not check if smaller reporting company)☐Smaller reporting companyReporting Company☐o
Emerging growth companyo


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o☐      No  x☒


Indicate numberAs of October 29, 2021, the registrant had 84,723,768 ordinary shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Ordinary shares,at $0.20 par value - 95,004,912 shares as of November 3, 2017

value.



MALLINCKRODT PLC
INDEX
 
Page
Page
FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Statements of IncomeOperations for the three and nine months ended September 29, 201724, 2021 and September 30, 2016.25, 2020.
2
Condensed Consolidated Statements of Comprehensive IncomeOperations for the three and nine months ended September 24, 2021 and September 29, 2017 and September 30, 2016.25, 2020.
3
4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 29, 201724, 2021 and September 30, 2016.25, 2020.
5
Condensed Consolidated StatementStatements of Changes in Shareholders' Equity for the period December 30, 2016 to three and nine months ended September 29, 2017.24, 2021 and September 25, 2020.
6
7
4535
6150
6151
6352
6352
6352
6353
Item 4.
Mine Safety Disclosures.
63
Other Information.54
63
Item 6.
Exhibits.
64
SIGNATURES
65












PART I. FINANCIAL INFORMATION
 
Item 1.Financial Statements.


MALLINCKRODT PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(unaudited, in millions, except per share data)

Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Net sales (includes refined estimate of the retrospective one-time charge of $0.7 million and $535.1 million related to the Medicaid lawsuit for the three and nine months ended September 25, 2020)$507.2 $698.3 $1,611.6 $1,530.6 
Cost of sales319.2 403.0 958.4 1,171.7 
Gross profit188.0 295.3 653.2 358.9 
Selling, general and administrative expenses127.3 220.8 408.3 683.2 
Research and development expenses47.3 65.5 166.3 225.8 
Restructuring charges, net11.0 3.2 17.5 15.8 
Non-restructuring impairment charges— — 64.5 63.5 
(Gains) losses on divestiture— (9.7)0.8 (10.1)
Opioid-related litigation settlement loss (gain) (Note 12)125.0 (25.8)125.0 (34.1)
Medicaid lawsuit (Note 12)— (0.2)— 105.1 
Operating (loss) income(122.6)41.5 (129.2)(690.3)
Interest expense(48.7)(62.2)(160.7)(200.9)
Interest income— 0.9 1.9 5.4 
Other (expense) income, net(3.5)— 15.9 1.1 
Reorganization items, net(126.2)— (329.2)— 
Loss from continuing operations before income taxes(301.0)(19.8)(601.3)(884.7)
Income tax benefit(32.0)(211.6)(81.9)(69.2)
(Loss) income from continuing operations(269.0)191.8 (519.4)(815.5)
Income (loss) from discontinued operations, net of income taxes5.3 (0.2)6.0 23.8 
Net (loss) income$(263.7)$191.6 $(513.4)$(791.7)
Basic (loss) income per share (Note 6):
(Loss) income from continuing operations$(3.18)$2.27 $(6.13)$(9.66)
Income (loss) from discontinued operations0.06 — 0.07 0.28 
Net (loss) income$(3.11)$2.26 $(6.06)$(9.38)
Basic weighted-average shares outstanding84.7 84.6 84.7 84.4 
Diluted (loss) income per share (Note 6):
(Loss) income from continuing operations$(3.18)$2.27 $(6.13)$(9.66)
Income (loss) from discontinued operations0.06 — 0.07 0.28 
Net (loss) income$(3.11)$2.26 $(6.06)$(9.38)
Diluted weighted-average shares outstanding84.7 84.6 84.7 84.4 

 Three Months Ended Nine Months Ended
 September 29,
2017		 September 30,
2016		 September 29,
2017		 September 30,
2016
Net sales$793.9
 $887.2
 $2,429.3
 $2,569.6
Cost of sales393.3
 397.0
 1,194.0
 1,165.5
Gross profit400.6
 490.2
 1,235.3
 1,404.1
        
Selling, general and administrative expenses205.7
 267.8
 745.9
 702.0
Research and development expenses59.5
 67.9
 190.9
 200.8
Restructuring charges, net14.3
 6.8
 32.1
 29.2
Non-restructuring impairment charges—
 —
 —
 16.9
Losses (gains) on divestiture and license0.4
 —
 (56.6) —
Operating income120.7
 147.7
 323.0
 455.2
        
Interest expense(92.6) (94.0) (279.0) (286.8)
Interest income1.3
 0.5
 2.8
 1.1
Other income (expense), net3.7
 (0.6) 6.2
 (2.6)
Income from continuing operations before income taxes33.1
 53.6
 53.0
 166.9
        
Income tax benefit(31.2) (56.4) (110.8) (218.3)
Income from continuing operations64.3
 110.0
 163.8
 385.2
        
(Loss) income from discontinued operations, net of income taxes(0.6) 5.0
 361.9
 47.4
        
Net income$63.7
 $115.0
 $525.7
 $432.6
        
Basic earnings per share (Note 7):       
Income from continuing operations$0.66
 $1.02
 $1.65
 $3.53
(Loss) income from discontinued operations(0.01) 0.05
 3.64
 0.43
Net income$0.66
 $1.07
 $5.28
 $3.97
        
Basic weighted-average shares outstanding96.7
 107.6
 99.5
 109.1
        
Diluted earnings per share (Note 7):       
Income from continuing operations$0.66
 $1.01
 $1.64
 $3.50
(Loss) income from discontinued operations(0.01) 0.05
 3.63
 0.43
Net income$0.66
 $1.06
 $5.27
 $3.93
        
Diluted weighted-average shares outstanding97.0
 108.6
 99.8
 110.0


See Notes to Condensed Consolidated Financial Statements.






2

MALLINCKRODT PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEOPERATIONS
(unaudited, in millions)



Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Net (loss) income$(263.7)$191.6 $(513.4)$(791.7)
Other comprehensive (loss) income, net of tax:
Currency translation adjustments(1.1)1.0 (0.3)0.7 
Derivatives, net of tax— — — 0.1 
Benefit plans, net of tax(0.2)(0.6)(0.6)(1.3)
Total other comprehensive (loss) income, net of tax(1.3)0.4 (0.9)(0.5)
Comprehensive (loss) income$(265.0)$192.0 $(514.3)$(792.2)
 Three Months Ended Nine Months Ended
 September 29,
2017		 September 30,
2016		 September 29,
2017		 September 30,
2016
Net income$63.7
 $115.0
 $525.7
 $432.6
Other comprehensive income (loss), net of tax:       
Currency translation adjustments5.6
 1.9
 13.0
 9.5
Unrecognized gain on derivatives, net of $-, $0.2, $0.2 and $0.2 tax0.3
 —
 0.9
 0.4
Unrecognized (loss) gain on benefit plans, net of $-, ($19.1), ($31.4) and ($14.0) tax(0.5) (21.8) 45.4
 (30.2)
Unrecognized (loss) gain on investments, net of $-, $-, $- and $- tax(10.5) —
 0.1
 —
Total other comprehensive income (loss), net of tax(5.1) (19.9) 59.4
 (20.3)
Comprehensive Income$58.6
 $95.1
 $585.1
 $412.3


See Notes to Condensed Consolidated Financial Statements.




3

MALLINCKRODT PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in millions, except share data)

September 24,
2021		December 25,
2020
Assets
Current Assets:
Cash and cash equivalents$1,322.6 $1,070.6 
Accounts receivable, less allowance for doubtful accounts of $5.0 and $4.5431.7 538.8 
Inventories367.6 344.9 
Prepaid expenses and other current assets203.7 350.0 
Total current assets2,325.6 2,304.3 
Property, plant and equipment, net767.7 833.1 
Intangible assets, net5,684.1 6,184.5 
Other assets380.6 393.5 
Total Assets$9,158.0 $9,715.4 
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt$1,388.1 $3,587.9 
Accounts payable122.2 93.3 
Accrued payroll and payroll-related costs62.7 79.4 
Accrued interest25.7 26.9 
Accrued and other current liabilities387.1 331.2 
Total current liabilities1,985.8 4,118.7 
Pension and postretirement benefits32.6 34.6 
Environmental liabilities60.3 59.8 
Deferred income taxes61.5 80.6 
Other income tax liabilities82.9 100.1 
Other liabilities86.0 109.8 
Liabilities subject to compromise (Note 2)6,335.5 4,192.6 
Total Liabilities8,644.6 8,696.2 
Shareholders' Equity:
Preferred shares, $0.20 par value, 500,000,000 authorized; none issued and outstanding— — 
Ordinary A shares, €1.00 par value, 40,000 authorized; none issued and outstanding— — 
Ordinary shares, $0.20 par value, 500,000,000 authorized; 94,290,199, and 94,111,303 issued;
84,722,432 and 84,605,156 outstanding
18.9 18.8 
Ordinary shares held in treasury at cost, 9,567,767 and 9,506,147(1,616.1)(1,616.1)
Additional paid-in capital5,596.0 5,587.6 
Retained deficit(3,474.9)(2,961.5)
Accumulated other comprehensive loss(10.5)(9.6)
Total Shareholders' Equity513.4 1,019.2 
Total Liabilities and Shareholders' Equity$9,158.0 $9,715.4 
 September 29,
2017		 December 30,
2016
Assets   
Current Assets:   
Cash and cash equivalents$371.8
 $342.0
Accounts receivable, less allowance for doubtful accounts of $4.0 and $4.0464.3
 431.0
Inventories341.3
 350.7
Prepaid expenses and other current assets121.1
 131.9
Notes receivable154.0
 —
Current assets held for sale—
 310.9
Total current assets1,452.5
 1,566.5
Property, plant and equipment, net962.4
 881.5
Goodwill3,459.5
 3,498.1
Intangible assets, net8,545.9
 9,000.5
Other assets191.6
 259.7
Total Assets$14,611.9
 $15,206.3
    
Liabilities and Shareholders' Equity   
Current Liabilities:   
Current maturities of long-term debt$318.2
 $271.2
Accounts payable104.9
 112.1
Accrued payroll and payroll-related costs84.4
 76.1
Accrued interest78.1
 68.7
Income taxes payable28.1
 101.7
Accrued and other current liabilities440.4
 557.1
Current liabilities held for sale—
 120.3
Total current liabilities1,054.1
 1,307.2
Long-term debt5,517.4
 5,880.8
Pension and postretirement benefits67.5
 136.4
Environmental liabilities73.1
 73.0
Deferred income taxes2,294.1
 2,398.1
Other income tax liabilities78.5
 70.4
Other liabilities414.2
 356.1
Total Liabilities9,498.9
 10,222.0
Shareholders' Equity:   
Preferred shares, $0.20 par value, 500,000,000 authorized; none issued and outstanding—
 —
Ordinary A shares, €1.00 par value, 40,000 authorized; none issued and outstanding—
 —
Ordinary shares, $0.20 par value, 500,000,000 authorized; 118,666,830 and 118,182,944 issued;
95,662,446 and 104,667,545 outstanding

23.7
 23.6
Ordinary shares held in treasury at cost, 23,004,384 and 13,515,399(1,352.3) (919.8)
Additional paid-in capital5,474.1
 5,424.0
Retained earnings980.6
 529.0
Accumulated other comprehensive loss(13.1) (72.5)
Total Shareholders' Equity5,113.0
 4,984.3
Total Liabilities and Shareholders' Equity$14,611.9
 $15,206.3


See Notes to Condensed Consolidated Financial Statements.




4

MALLINCKRODT PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)

Nine Months Ended
September 24,
2021		September 25,
2020
Cash Flows From Operating Activities:
Net loss$(513.4)$(791.7)
Adjustments to reconcile net cash from operating activities:
Depreciation and amortization506.1 675.5 
Share-based compensation8.4 17.6 
Deferred income taxes(19.1)304.0 
Non-cash impairment charges64.5 63.5 
Losses (gains) on divestiture0.8 (10.1)
Reorganization items, net22.5 — 
Other non-cash items(6.0)(21.6)
Changes in assets and liabilities:
Accounts receivable, net105.7 61.1 
Inventories(30.9)(43.9)
Accounts payable14.7 (52.4)
Income taxes92.5 (431.2)
Opioid-related litigation settlement liability125.0 — 
Medicaid lawsuit(4.8)640.2 
Other40.4 (116.3)
Net cash from operating activities406.4 294.7 
Cash Flows From Investing Activities:
Capital expenditures(39.2)(42.4)
Proceeds from divestitures, net of cash15.7 (0.7)
Other1.4 6.7 
Net cash from investing activities(22.1)(36.4)
Cash Flows From Financing Activities:
Repayment of external debt(128.2)(134.6)
Debt financing costs— (9.3)
Repurchase of shares— (0.4)
Other— (36.3)
Net cash from financing activities(128.2)(180.6)
Effect of currency rate changes on cash(0.9)0.2 
Net change in cash, cash equivalents and restricted cash255.2 77.9 
Cash, cash equivalents and restricted cash at beginning of period1,127.0 822.6 
Cash, cash equivalents and restricted cash at end of period$1,382.2 $900.5 
Cash and cash equivalents at end of period$1,322.6 $844.2 
Restricted cash included in prepaid expenses and other assets at end of period23.3 20.2 
Restricted cash included in other long-term assets at end of period36.3 36.1 
Cash, cash equivalents and restricted cash at end of period$1,382.2 $900.5 
 Nine Months Ended
 September 29,
2017		 September 30,
2016
Cash Flows From Operating Activities:   
Net income$525.7
 $432.6
Adjustments to reconcile net cash from operating activities:   
Depreciation and amortization606.5
 628.5
Share-based compensation46.1
 34.4
Deferred income taxes(128.7) (324.0)
Non-cash impairment charges—
 16.9
Gain on divestitures(418.1) 1.7
Other non-cash items40.8
 54.7
Changes in assets and liabilities, net of the effects of acquisitions:   
Accounts receivable, net(34.7) (37.2)
Inventories(18.2) (2.8)
Accounts payable(30.2) 3.3
Income taxes(68.1) 11.6
Other(72.6) 53.5
Net cash from operating activities448.5
 873.2
Cash Flows From Investing Activities:   
Capital expenditures(151.3) (133.9)
Acquisitions and intangibles, net of cash acquired(35.9) (245.4)
Proceeds from divestitures, net of cash576.9
 3.0
Other0.5
 5.3
Net cash from investing activities390.2
 (371.0)
Cash Flows From Financing Activities:   
Issuance of external debt540.0
 36.3
Repayment of external debt and capital leases(887.5) (439.0)
Debt financing costs(12.7) —
Proceeds from exercise of share options4.0
 10.4
Repurchase of shares(437.7) (377.5)
Other(18.6) (23.0)
Net cash from financing activities(812.5) (792.8)
Effect of currency rate changes on cash2.7
 1.8
Net change in cash, cash equivalents and restricted cash28.9
 (288.8)
Cash, cash equivalents and restricted cash at beginning of period361.1
 588.4
Cash, cash equivalents and restricted cash at end of period$390.0
 $299.6
    
Cash and cash equivalents at end of period$371.8
 $280.5
Restricted cash included in prepaid expenses and other current assets at end of period—
 0.1
Restricted cash included in other assets at end of period18.2
 19.0
Cash, cash equivalents and restricted cash at end of period$390.0
 $299.6


See Notes to Condensed Consolidated Financial Statements.






5


MALLINCKRODT PLC
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited, in millions)
 
Ordinary SharesTreasury SharesAdditional
Paid-In Capital		Retained DeficitAccumulated Other Comprehensive Loss
Total
Shareholders'
Equity
Number
Par
 Value
NumberAmount
Balance as of December 27, 201993.5 $18.7 9.4 $(1,615.7)$5,562.5 $(2,016.9)$(7.9)$1,940.7 
Net loss— — — — — (50.2)— (50.2)
Other comprehensive loss— — — — — — (1.3)(1.3)
Vesting of restricted shares0.1 — — — (0.1)— — (0.1)
Share-based compensation— — — — 6.7 — — 6.7 
Balance as of March 27, 202093.6 $18.7 9.4 $(1,615.7)$5,569.1 $(2,067.1)$(9.2)$1,895.8 
Net loss— — — — — (933.1)— (933.1)
Other comprehensive income— — — — — — 0.4 0.4 
Vesting of restricted shares0.5 0.1 0.1 (0.3)— — — (0.2)
Share-based compensation— — — — 6.6 — — 6.6 
Balance as of June 26, 202094.1 $18.8 9.5 $(1,616.0)$5,575.7 $(3,000.2)$(8.8)$969.5 
Net income— — — — — 191.6 — 191.6 
Other comprehensive income— — — — — — 0.4 0.4 
Vesting of restricted shares— — — (0.1)— — — (0.1)
Share-based compensation— — — — 4.3 — — 4.3 
Balance as of September 25, 202094.1 $18.8 9.5 $(1,616.1)$5,580.0 $(2,808.6)$(8.4)$1,165.7 
Balance as of December 25, 202094.1 $18.8 9.5 $(1,616.1)$5,587.6 $(2,961.5)$(9.6)$1,019.2 
Net loss— — — — — (143.9)— (143.9)
Other comprehensive income— — — — — — 0.1 0.1 
Vesting of restricted shares— — — — (0.1)— — (0.1)
Share-based compensation— — — — 3.6 — — 3.6 
Balance as of March 26, 202194.1 $18.8 9.5 $(1,616.1)$5,591.1 $(3,105.4)$(9.5)$878.9 
Net loss— — — — — (105.8)— (105.8)
Other comprehensive income— — — — — — 0.3 0.3 
Vesting of restricted shares0.2 0.1 0.1 — 0.1 — — 0.2 
Share-based compensation— — — — 2.4 — — 2.4 
Balance as of June 25, 202194.3 $18.9 9.6 $(1,616.1)$5,593.6 $(3,211.2)$(9.2)$776.0 
Net loss— — — — — (263.7)— (263.7)
Other comprehensive loss— — — — — — (1.3)(1.3)
Share-based compensation— — — — 2.4 — — 2.4 
Balance as of September 24, 202194.3 $18.9 9.6 $(1,616.1)$5,596.0 $(3,474.9)$(10.5)$513.4 
 Ordinary Shares Treasury Shares 
Additional
Paid-In Capital
 Retained Earnings Accumulated Other Comprehensive Loss 
Total
Shareholders'
Equity
 Number 
Par
 Value
 Number Amount  
Balance at December 30, 2016118.2
 $23.6
 13.5
 $(919.8) $5,424.0
 $529.0
 $(72.5) $4,984.3
Impact of accounting standard adoptions—
 —
 —
 —
 —
 (72.1) —
 (72.1)
Net income—
 —
 —
 —
 —
 525.7
 —
 525.7
Currency translation adjustments—
 —
 —
 —
 —
 —
 13.0
 13.0
Change in derivatives, net of tax—
 —
 —
 —
 —
 —
 0.9
 0.9
Unrecognized gain on benefit plans—
 —
 —
 —
 —
 —
 45.4
 45.4
Unrecognized gain on investments—
 —
 —
 —
 —
 —
 0.1
 0.1
Share options exercised0.1
 —
 —
 —
 4.0
 —
 —
 4.0
Vesting of restricted shares0.4
 0.1
 —
 (4.7) —
 —
 —
 (4.6)
Share-based compensation—
 —
 —
 —
 46.1
 —
 —
 46.1
Reissuance of treasury shares—
 —
 —
 5.2
 —
 (2.0) —
 3.2
Repurchase of shares—
 —
 9.5
 (433.0) —
 —
 —
 (433.0)
Balance at September 29, 2017118.7
 $23.7
 23.0
 $(1,352.3) $5,474.1
 $980.6
 $(13.1) $5,113.0


 
See Notes to Condensed Consolidated Financial Statements.





6

MALLINCKRODT PLC
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited, dollars in millions, except share data, per share data and where indicated)


1.Background and Basis of Presentation
Background
Mallinckrodt plc and itsis a global business of multiple wholly owned subsidiaries (collectively, "Mallinckrodt" or "the Company"), is a global business that develops, manufactures, marketsdevelop, manufacture, market and distributesdistribute specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; and analgesics and hemostasisgastrointestinal products.
The Company operates in two reportable segments, which are further described below:
•Specialty Brands includes branded medicines;innovative specialty pharmaceutical brands; and
•Specialty Genericsincludes niche specialty generic drugs and active pharmaceutical ingredients ("API"API(s)") and external manufacturing.
.
The Company owns or has rights to use the trademarks and trade names that are used in conjunction with the operation of its business. One of the more important trademarks that the Company owns or has rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the United States ("U.S.") and other jurisdictions. Solely for convenience, the Company only uses the ™ or ® symbols the first time any trademark or trade name is mentioned in the following notes. Such references are not intended to indicate in any way that the Company will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks and trade names. Each trademark or trade name of any other company appearing in the following notes is, to the Company's knowledge, owned by such other company.


Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in U.S. Dollarsdollars and in accordance with accounting principles generally accepted in the U.S. ("GAAP"). The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of net salesrevenues and expenses. Actual results may differ from those estimates. The unaudited condensed consolidated financial statements include the accounts of Mallinckrodt plc,the Company, its wholly-ownedwholly owned subsidiaries and entities in which they own or control more than fifty percent50.0% of the voting shares, or have the ability to control through similar rights. All intercompany balances and transactions have been eliminated in consolidation and all normal recurring adjustments necessary for a fair presentation have been included in the results reported.
The results of entities disposed of are included in the unaudited condensed consolidated financial statements up to the date of disposal, and where appropriate, these operations have been reflected asreported in discontinued operations. Divestitures of product lines and businesses that did not qualify asmeeting the criteria for discontinued operations have been reflected in operating (loss) income. All intercompany balances and transactions have been eliminated in consolidation and, in the opinion of management, all normal recurring adjustments necessary for a fair presentation have been included in the interim results reported.
The December 30, 2016fiscal year end balance sheet data was derived from the unaudited condensedaudited consolidated financial statements, but doesdo not include all of the annual disclosures required by GAAP; accordingly these unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited annual consolidated and combined financial statements included in its Annual Report on Form 10-K for the periodfiscal year ended September 30, 2016,December 25, 2020 filed with the U.S. Securities and Exchange Commission ("SEC") on November 29, 2016.March 10, 2021.

Voluntary Filing Under Chapter 11 and Going Concern
The Company completedaccompanying unaudited condensed consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the salerealization of assets and the satisfaction of liabilities in the normal course of business.
On October 12, 2020, Mallinckrodt plc and certain of its Nuclear Imaging businesssubsidiaries voluntarily initiated proceedings (the "Chapter 11 Cases") under chapter 11 of title 11 ("Chapter 11") of the United States Code (the "Bankruptcy Code"), to modify its capital structure, including restructuring portions of its debt, and resolve potential legal liabilities, including but not limited to those described in Note 12 as Opioid-Related Matters and Acthar Gel-Related Matters. In connection with the filing of the Chapter 11 Cases, the Company entered into a Restructuring Support Agreement (as amended, supplemented or otherwise modified, the "RSA") (further detail for which is provided in Note 2) as part of a prearranged plan of reorganization. See Note 2 for further information on January 27, 2017.the voluntary petitions for reorganization, the RSA and agreements in principle subsequently memorialized in the Company's Chapter 11 plan of reorganization.
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Substantial doubt about the Company's ability to continue as a going concern exists in light of its Chapter 11 Cases. The Company's ability to continue as a going concern is contingent upon, among other things, its ability to, subject to the approval by the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), implement a plan of reorganization, emerge from the Chapter 11 proceedings and generate sufficient liquidity following the reorganization to meet its obligations, most notably its opioid and Acthar® Gel (repository corticotropin injection) ("Acthar Gel")-related settlements, restructured debt obligations, and operating needs.
Although management believes that the reorganization of the Company through the Chapter 11 proceedings will appropriately position the Company upon emergence, the commencement of these proceedings constituted an event of default under certain of the Company’s debt agreements, enforcement of any remedies in respect of which is automatically stayed as a result of the Chapter 11 proceedings. There are a number of risks and uncertainties associated with the Company’s bankruptcy, including, among others that: (a) the Company’s prearranged plan of reorganization may never be confirmed or become effective, (b) the RSA may be terminated by one or more of the parties thereto, (c) the Bankruptcy Court may grant or deny motions in a manner that is adverse to the Company and its subsidiaries, and (d) the Chapter 11 Cases may be converted into cases under chapter 7 of the Bankruptcy Code.
The transactions contemplated by the Company's Chapter 11 plan of reorganization are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated. As a result, prior year balances have been recastthe Company has concluded that management’s plans at this stage do not alleviate substantial doubt about the Company’s ability to presentcontinue as a going concern.
The unaudited condensed consolidated financial statements do not include any adjustments related to the financial resultsrecoverability and classification of recorded asset amounts and classification of liabilities that might result from the outcome of this uncertainty.
Pursuant to sections 1107(a) and 1108 of the Bankruptcy Code, the Debtors (as defined in Note 2) retain control of their assets and are authorized to operate their business as a discontinued operation.debtors-in-possession while being subject to the jurisdiction of the Bankruptcy Court. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business and subject to applicable orders of the Bankruptcy Court, for amounts other than those reflected in the accompanying unaudited condensed consolidated financial statements. Any such actions occurring during the Chapter 11 Cases authorized by the Bankruptcy Court could materially impact the amounts and classifications of assets and liabilities reported in the Company's unaudited condensed consolidated financial statements. For more information regarding the Chapter 11 Cases, see Note 2.


Fiscal Year
The Company historically reportedreports its results based on a "52-53 week" year ending on the last Friday of September. On May 17, 2016, the Board of Directors of the Company approved a change in the Company’s fiscal year end to the last Friday in December from the last Friday in September. The change in fiscal year became effective for the Company’s 2017 fiscal year, which began on December 31, 2016 and will end on December 29, 2017. As a result of the change in fiscal year end, the Company filed a Transition Report on Form 10-Q on February 7, 2017 covering the period from October 1, 2016 through December 30, 2016.December. Unless otherwise indicated, the three and nine months ended September 29, 201724, 2021 refers to the thirteen and thirty-nine week periodperiods ended September 29, 201724, 2021 and the three and nine months ended September 30, 201625, 2020 refers to the fourteenthirteen and fortythirty-nine week periodperiods ended September 30, 2016.25, 2020. The full year fiscal 2020 consisted of 52 weeks, while fiscal 2021 will consist of 53 weeks and end on December 31, 2021.




2.Recently Issued Accounting StandardsBankruptcy Proceedings
AdoptedVoluntary Filing Under Chapter 11
On October 12, 2020 (the "Petition Date"), Mallinckrodt plc and certain of its subsidiaries voluntarily initiated the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court to effectuate settlements contemplated in the RSA. The entities that filed the Chapter 11 Cases include the Company, substantially all of the Company’s U.S. subsidiaries, including certain subsidiaries of Mallinckrodt plc operating the Specialty Generics business (the "Specialty Generics Subsidiaries") and the Specialty Brands business (the "Specialty Brands Subsidiaries"), and certain of the Company’s international subsidiaries (together with the Company, Specialty Generics Subsidiaries and Specialty Brands Subsidiaries, the "Debtors"). Pursuant to orders granted by the Ontario Superior Court of Justice, the Chapter 11 proceedings commenced by a limited subset of the Company's subsidiaries have also been recognized and given effect in Canada. The Chapter 11 Cases are being jointly administered under the caption In re Mallinckrodt plc, Case No. 20-12522 (JTD). Information about the Chapter 11 Cases, including the case docket, may be found free of charge at https://restructuring.primeclerk.com/Mallinckrodt/.
The Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2017-04, "Intangibles - GoodwillDebtors continue to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and Other: Simplifying the Test for Goodwill Impairment," in January 2017. This update eliminates step 2 from the goodwill impairment test, and requires the goodwill impairment test to be performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The Company early adopted this standard in fiscal 2017, which did not have a material impact to the unaudited condensed consolidated financial statements. The Company will apply this standard to prospective goodwill impairment tests.
The FASB issued ASU 2016-16, "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory," in October 2016. This update simplifies the practice of how income tax consequences of an intra-entity transfer of an asset other than inventory should be recognized. Upon adoption, the entity must recognize such income tax consequences when the intra-entity transfer occurs rather than waiting until such time as the asset has been sold to an outside party. The Company early adopted this standard in fiscal 2017, which resulted in a $75.0 million decrease to beginning retained earnings with an offsetting decrease of $67.2 million to other assets and a $7.8 million decrease to prepaid expenses on its unaudited condensed consolidated balance sheet. The prior periods were not restated.
The FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," in August 2016 and ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," in November 2016. These updates provide guidance for nine targeted clarifications with respect to how cash receipts and cash payments are classified in the statements of cash flows,accordance with the objective of reducing diversity in practice. The Company early adopted these standards in fiscal 2017 and revised the prior year statement of cash flows. The adoption of ASU 2016-18, regarding presentation of restricted cash, increased the net cash used in investing activities during the nine months ended September 30, 2016 by $47.4 million. The adoption of ASU 2016-15, regarding the other targeted clarifications, did not result in any material changes to the unaudited condensed consolidated financial statements.
The FASB issued ASU 2016-09, "Stock Compensation," in March 2016. This update simplifies several aspectsapplicable provisions of the accounting for share-based payment award transactions, including the income tax consequences, classification of awards as either equity or liabilities,Bankruptcy Code and classification of certain tax effects within the statement of cash flows. The Company adopted this guidance in fiscal 2017, which resulted in a $2.9 million increase to beginning retained earnings 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.
The FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments," in September 2015. This update requires an acquirer to recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjusting amounts are determined. The amendments in this update require an entity to present separately on the faceorders of the income statement or disclose inBankruptcy Court. As debtors-in-possession, the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustmentDebtors are authorized to the provisional amounts had been recognizedcontinue to operate as of the acquisition date. The Company adopted this standard in fiscal 2017, which did not have any impact on historical acquisitions.
The FASB issued ASU 2015-11, "Simplifying the Measurement of Inventory," in July 2015. The issuance of this update is part of the FASB's initiative to more closely align the measurement of inventory between GAAPongoing businesses, and International Financial Reporting Standards ("IFRS"). Under the new guidance, inventory must be measured at the lower of costmay pay all debts and net realizable value. Net realizable value is the estimated selling priceshonor all obligations arising in the ordinary course of their businesses after the Petition Date. However, the Debtors may not pay third-party claims or creditors on account of obligations arising before the Petition Date or engage in transactions outside the ordinary course of business less reasonably predictable costswithout approval of completion, disposal,the Bankruptcy Court.
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Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by the Debtors, as well as most litigation pending against the Company as of the Petition Date, are subject to an automatic stay. However, under the Bankruptcy Code, certain regulatory or criminal proceedings generally are not subject to the automatic stay and transportation. may continue unless otherwise ordered by the Bankruptcy Court. Absent an order of the Bankruptcy Court providing otherwise, substantially all pre-petition liabilities will be resolved under a Chapter 11 plan of reorganization.
Among other requirements, a Chapter 11 plan of reorganization must comply with the priority scheme established by the Bankruptcy Code, under which certain post-petition and secured or “priority” pre-petition liabilities need to be satisfied before general unsecured creditors and holders of the Company's equity are entitled to receive any distribution. Upon solicitation of the plan of reorganization to creditors, with an accompanying court-approved disclosure statement, certain impaired creditors and interest holders will vote by ballot to approve or reject the plan. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 Cases to the claims and interests of each of these constituencies. See Restructuring Support Agreement and Plan of Reorganization section below for contemplated distributions to creditors and interest holders.
Under the Bankruptcy Code, the Debtors may assume, modify, assign or reject certain executory contracts and unexpired leases, including, without limitation, leases of real property and equipment, subject to the approval of the Bankruptcy Court and to certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease in this Quarterly Report on Form 10-Q, including, where applicable, the express termination rights thereunder or a quantification of their obligations, must be read in conjunction with, and is qualified by, any overriding rejection rights the Debtors have under the Bankruptcy Code.
As discussed further below, the Debtors obtained approval from the Bankruptcy Court for certain "first day" motions, including motions to obtain customary relief intended to continue ordinary course operations after the Petition Date.

Significant Bankruptcy Court Actions
First Day Motions
On October 14, 2020, the Debtors received Bankruptcy Court approval of their customary motions filed on the Petition Date ("First Day Motions") on an interim basis seeking court authorization to continue to support its business operations during the Chapter 11 Cases, including the continued payment of employee wages and benefits without interruption, payment of critical and foreign vendors, continuation of customer programs, continuation of use of existing cash management programs and allowance of certain financing payments under a cash collateral order. The First Day Motions were subsequently approved by the Bankruptcy Court on a final basis at hearings.
Chapter 11 Financing
The Company adopted this standardobtained an order of the Bankruptcy Court in fiscal 2017, which did not havethe Chapter 11 Cases (in a material impactform agreed with, among others, the agent under the senior secured credit facilities, lenders under the senior secured revolving credit facility and the senior secured term loans and holders of the first lien senior notes and the second lien senior notes) permitting the use of cash collateral to finance the Chapter 11 Cases. Such use is subject to an approved budget, updated and submitted every four weeks, consisting of rolling thirteen week periods subject to the unaudited condensed consolidated financial statements.consent of the lenders under the senior secured revolving credit facility and the senior secured term loans.

Such order requires that the Company make cash adequate protection payments on the senior secured revolving credit facility and the senior secured term loans for, among other things, unpaid pre-petition and post-petition fees, unpaid pre-petition interest (at the specified contract rate) and post-petition interest (at a rate equal to (1) the adjusted London Inter-Bank Offered Rate ("LIBOR"), plus (2) the contract-specified applicable margin, and plus (3) an incremental 200 basis points), quarterly amortization payments on the senior secured term loans and reimbursement of certain costs. Such order further requires that the Company make cash adequate protection payments on the first lien senior notes and the second lien senior notes for, among other things, unpaid pre-petition and post-petition interest (at the specified non-default interest rate) and reimbursement of certain costs. On April 13, 2021, the Debtors received Bankruptcy Court approval of their motion to amend the final cash collateral order as of March 22, 2021 to pay post-petition interest on the senior secured term loans at a rate equal to (1) the adjusted LIBOR, plus (2) the contract-specified applicable margin, and plus (3) an incremental 250 basis points for its senior secured term loans.
Not Yet Adopted
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Interest expense incurred and paid with respect to the incremental adequate protection payments of 200 basis points and 250 basis points on the senior secured revolving credit facility and the senior secured term loans, respectively, were as follows:
September 24,
2021
Three Months EndedNine Months Ended
Interest expense incurred for adequate protection payments$15.8 $46.1 
Cash paid for adequate protection payments16.4 45.5 
The FASB issued ASU 2017-12, "Derivativescash collateral order provides that it is without prejudice to (i) the rights of certain parties to request additional or alternative adequate protection from the Bankruptcy Court, (ii) the rights of lenders under the senior secured revolving credit facility and Hedging: Targeted Improvementsthe senior secured term loans to Accounting for Hedging Activities" in August 2017. This update simplifiesseek a higher rate of interest and (iii) the application of hedge accounting and enhances the economicsrights of the entity’s risk management activities in its financial statements. The update amendsholders of the guidance on designationfirst lien senior notes and measurement for qualifying hedging relationships requiring the applicationsecond lien senior notes to seek payment of a modified retrospective approachmake-whole premium.
Bar Date
On December 31, 2020, the Bankruptcy Court entered an order approving a deadline of February 16, 2021 at 5:00 pm (Eastern Time) (the "General Bar Date") and April 12, 2021, at 5:00 p.m. (Eastern Time) (the “Governmental Bar Date”) (collectively, together the "Bar Dates") for filing claims against the Debtors relating to the period prior to the Petition Date for general claims and government claims, respectively. The preceding Bar Dates do not cover opioid claims (inclusive of voluntary injunction opioid claims). The Company's review of asserted claims is discussed further below in Chapter 11 Claims Process.
Administrative Expense Bar Date
On May 20, 2021, the Bankruptcy Court entered an order approving a deadline of June 28, 2021 at 5:00 pm (Eastern Time) (the "Administrative Expense Bar Date") for filing claims against the Debtors relating to the period from the Petition Date to April 30, 2021 for administrative expense requests by certain creditors. The preceding Administrative Expense Bar Date does not cover opioid claims (inclusive of voluntary injunction opioid claims). The Company's review and reconciliation of asserted administrative expense requests is ongoing.
Injunctive Litigation Relief
The Bankruptcy Court entered an order extending its prior injunctions against certain opioid and Acthar Gel-related litigation matters proceeding against the Debtors and also against certain covered non-Debtors on August 30, 2021. Refer to Note 12 for further discussion.

Restructuring Support Agreement and Plan of Reorganization
Restructuring Support Agreement
On October 11, 2020, the dateCompany and the other Debtors entered into a RSA with creditors holding approximately 84%, by aggregate principal amount, of adoption. This guidance is effectivethe Company’s outstanding guaranteed unsecured senior notes and with a group of governmental plaintiffs in the opioid litigation pending against the Company and certain of its subsidiaries, including 50 state and territory attorneys general and the court-appointed plaintiffs’ executive committee in the opioid multidistrict litigation (collectively, the "RSA Supporting Parties"). After the bankruptcy filing, the Multi-State Governmental Entities Group (the "MSGE Group") entered into a joinder to the RSA that gained the support of approximately 1,300 cities, municipalities, hospital and school districts, amongst others. On March 11, 2021, an ad hoc group of lenders holding approximately $1,300.0 million, by aggregate principal amount, of the Company’s outstanding senior secured term loan due September 2024 (the "2017 Term Loan") and senior secured term loan due February 2025 (the "2018 Term Loan") agreed to join the RSA as supporting parties and certain of the existing supporting parties agreed to certain amendments thereto (the "Joinder and Amendment").
The restructuring transactions will be effectuated through the Chapter 11 plan of reorganization, which among other things provides for a financial restructuring that would reduce the Company’s total debt by approximately $1,300.0 million. Pursuant to the RSA, each of the Debtors and the RSA Supporting Parties has made certain customary commitments to each other in connection with the pursuit of the transactions contemplated by the term sheets attached thereto. The Debtors have agreed, among other things, to use commercially reasonable efforts to make all requisite filings with the Bankruptcy Court; continue to involve and update the RSA Supporting Parties’ representatives in the bankruptcy process; and satisfy certain other covenants. The RSA Supporting Parties have committed to support and vote for the CompanyChapter 11 plan of reorganization implementing the terms of the RSA and have agreed to use commercially reasonable efforts to take, or refrain from taking, certain actions in furtherance of such support.
The RSA contains milestones for the progress of the Chapter 11 Cases (the "Milestones"), which include the dates by which the Debtors are required to, among other things, obtain certain orders of the Bankruptcy Court and consummate the Debtors’ emergence from bankruptcy. Among other milestones, the RSA (as amended, including by the Joinder and Amendment) requires the Debtors to have filed a Chapter 11 plan of reorganization by no later than April 20, 2021, the Bankruptcy Court to have entered an order
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confirming the Chapter 11 plan of reorganization by no later than August 15, 2021 and the Debtors to have emerged from bankruptcy by no later than November 15, 2021. The Bankruptcy Court commenced the plan confirmation hearing on November 1, 2021, to which scheduling the parties to the RSA consented.
The RSA (as supplemented by the above-described joinders, including the Joinder and Amendment) incorporates the terms agreed to by the parties reflected in the term sheets attached to the RSA and such joinders, including the Joinder and Amendment, including an agreement by the RSA Supporting Parties. Each of the parties to the RSA may terminate the agreement (and thereby their support for the associated plan of reorganization) under certain limited circumstances. Any Debtor may terminate the RSA upon, among other circumstances: (i) its board of directors, after consultation with legal counsel, reasonably determining in good faith that performance under the RSA would be inconsistent with its fiduciary duties; and (ii) certain actions by the Bankruptcy Court, including dismissing the Chapter 11 Cases or converting the Chapter 11 Cases into cases under Chapter 7 of the Bankruptcy Code.
The RSA Supporting Parties also have specified termination rights, including, among other circumstances, termination rights that arise if certain of the Milestones have not been achieved, extended, or waived. Termination by one of these creditor groups will result in the termination of the RSA as to the terminating group only, with the RSA remaining in effect with respect to the Debtors and the non-terminating group.
The transactions contemplated by the RSA are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated.
Plan of Reorganization
On September 2, 2021, the Debtors reached agreements in principle with (1) the Governmental Plaintiff Ad Hoc Committee (the “GAHC”), the MSGE Group, and the Official Committee of Opioid Related Claimants appointed in the Chapter 11 Cases (the “OCC” and, together with the GAHC and the MSGE Group, the “Opioid Claimants”), (2) the Official Committee of Unsecured Creditors appointed in the Chapter 11 Cases (the “UCC”) and (3) holders of more than two-thirds of the outstanding principal amount of the 10.00% second lien senior secured notes due April 2025 (the "Second Lien Notes") issued by Company’s subsidiaries Mallinckrodt International Finance S.A. and Mallinckrodt CB LLC (the “Settling Second Lien Noteholders”) and the trustee for the Second Lien Notes, in each case relating to the treatment of certain claims pursuant to the proposed Joint Chapter 11 Plan of Reorganization of Mallinckrodt plc and Its Debtor Affiliates Under Chapter 11 of the Bankruptcy Code dated as of June 18, 2021 (the "Proposed Plan"), as it was amended to conform to such agreements in principle (the “Amended Plan”) as filed by the Debtors on September 29, 2021.
The RSA Supporting Parties along with the OCC, the UCC and the Settling Second Lien Noteholders (in accordance with the agreements in principle) agree to support the following as memorialized in the Amended Plan, which may be amended, modified or supplemented from time to time:
•A proposed resolution of all opioid-related claims against the Company and its subsidiaries. Under the terms of the amended proposed settlement (the "Amended Proposed Opioid-Related Litigation Settlement"), which would become effective upon Mallinckrodt’s emergence from the Chapter 11 process, subject to court approval and other conditions:
◦Opioid claims would be channeled to one or more trusts, which would receive $1,725.0 million in structured payments consisting of (i) a $450.0 million payment upon the Company’s emergence from Chapter 11; (ii) a $200.0 million payment upon each of the first quarterand second anniversaries of fiscal 2019.emergence; (iii) a $150.0 million payment upon each of the third through seventh anniversaries of emergence; and (iv) a $125.0 million payment upon the eighth anniversary of emergence with an eighteen-month prepayment option at a discount for all but the first payment.
◦Opioid claimants would also receive warrants for approximately 19.99% of the reorganized Company’s new outstanding shares, after giving effect to the exercise of the warrants, but subject to dilution from equity reserved under the management incentive plan, exercisable at any time on or prior to the sixth anniversary of the Company's emergence, at a strike price reflecting an aggregate equity value for the reorganized Debtors of $1,551.0 million (the "New Opioid Warrants").
◦Upon commencing the Chapter 11 filing, the Company has begun to comply with an agreed-upon operating injunction with respect to the operation of its opioid business.
•A proposed resolution with the U.S. Department of Justice and other governmental parties to settle a range of litigation matters and disputes relating to Acthar Gel.
◦The Company has reached an agreement in principle with the U.S. Department of Justice ("DOJ") and other governmental parties to settle a range of litigation matters and disputes relating to Acthar Gel (the "Proposed Acthar Gel-Related Settlement") including the Medicaid lawsuit with the Centers for Medicare and Medicaid Services ("CMS"), a related False Claims Act ("FCA") lawsuit in Boston, and an Eastern District of Pennsylvania ("EDPA") FCA lawsuit relating to Acthar Gel's previous owner's (Questcor Pharmaceuticals Inc. ("Questcor")) interactions with an independent charitable foundation. Under the Proposed Acthar Gel-Related Settlement, which was conditioned upon the Company entering the Chapter 11 restructuring process, the Company has agreed to pay
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$260.0 million to the DOJ and other parties over seven years and reset Acthar Gel’s Medicaid rebate calculation as of July 1, 2020, such that state Medicaid programs will receive 100% rebates on Acthar Gel Medicaid sales, based on current Acthar Gel pricing. Additionally, upon execution of the settlement, the Company will dismiss its appeal of the U.S. District Court of Columbia's ("D.C. District Court") adverse decision in the Medicaid lawsuit, which appeal was filed in the U.S. Court of Appeals for the District of Columbia ("D.C. Circuit"). Also in connection with the Proposed Acthar Gel-Related Settlement, the Company expects to enter into a corporate integrity agreement ("CIA") with the Office of Inspector General of the Department of Health and Human Services. The Company continues to work with the government to finalize the CIA. In turn, the U.S. Government will drop its demand for approximately $640 million in retrospective Medicaid rebates for Acthar Gel and agree to dismiss the FCA lawsuit in Boston and the EDPA FCA lawsuit.
Mallinckrodt has entered into the Proposed Acthar Gel-Related Settlement to settle with the DOJ and other governmental parties solely to move past these litigation matters and disputes and will make no admission of liability. The Company is assessingworking to complete the timing of adoption andsettlement with the impact of this guidance onDOJ, as well as various states that are party to the unaudited condensed consolidated financial statements.Boston FCA litigation, subject to court approval.
The FASB issued ASU 2017-09, "Compensation - Stock Compensation: Scope of Modification Accounting," in May 2017. Under the new guidance, the effects of a•A modification should be accounted for unless all of the following are met: (1)Company's senior secured term loans. At the fair value or calculated intrinsic valueend of the modified award is the same as the fair valuecourt-supervised process, lenders holding allowed claims in respect of the original award immediately before the original award is modified; (2) the vesting conditions of the modified awardCompany’s 2017 and 2018 Term Loans are the same as the vesting conditions of the original award


immediately before the original award is modified; and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This guidance is effective for the Company in the first quarter of fiscal 2018. The Company expects the impact of this guidanceexpected to be immaterial to the unaudited condensed consolidated financial statements upon adoption.
The FASB issued ASU 2017-07, "Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost," in March 2017. This update requires that the service cost component be disaggregated from the other components of net benefit cost. Service cost should be reported in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net benefit cost should be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This guidance is effective for the Company in the first quarter of fiscal 2018. The Company expects the impact of this guidance to be immaterial to the unaudited condensed consolidated financial statements upon adoption.
The FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," in January 2017. This update provides a screen to determine whether or not a set of assets is a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of assets is not a business. If the screen is not met, the amendments in this updatereceive either (1) require that to be considered a business, a set of assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. This guidance is effective for the Company in the first quarter of fiscal 2018. Depending upon the individual facts and circumstances of future transactions, this guidance may result in more transactions being accounted for as asset acquisitions rather than business combinations.
The FASB issued ASU 2014-09, "Revenue from Contracts with Customers," in May 2014. The issuance of ASU 2014-09 and IFRS 15, "Revenue from Contracts with Customers," completes the joint effort by the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and IFRS. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customerssenior secured term loans in an amount equal to the remaining principal amount of claims (as reduced by, inter alia, the excess cash flow ("ECF") Payment) bearing interest at a rate per annum equal to LIBOR plus 5.25% (with respect to the 2017 Term Loan) or LIBOR plus 5.50% (with respect to the 2018 Term Loan) (the "Adjusted Interest Rate"), maturing on the earlier of September 30, 2027 and 5.75 years after emergence and without any financial maintenance covenant or (2) payment in full in cash. A mandatory prepayment in an amount equal to $114.0 million arising from excess cash flow with respect to fiscal 2020 was paid to the holders of the Company’s 2017 and 2018 Term Loans on March 19, 2021.
•The reinstatement or repayment of the Company's senior secured revolving credit facility. At the end of the court-supervised process, all allowed claims under such facility would be paid in full in cash with the proceeds of newly incurred debt.
•The reinstatement of the agreements associated with the Company's 10.00% first lien senior notes. At the end of the court-supervised process, all allowed claims under these agreements would either be reinstated at existing rates and maturities if the applicable holders' purported make-whole claims are disallowed or, if such reinstatement is not permitted or if the applicable holders' make-whole claims are allowed, receive take-back notes at market rates with an extended maturity.
•A modification of the Company's 10.00% second lien senior notes. At the end of the court-supervised process, lenders holding allowed claims in respect of the Company’s 10.00% second lien senior secured notes are expected to receive their pro rata share of new 10.00% second lien senior secured notes due 2025 that reflectswill have the same principal amount and other economic terms as the existing second lien senior secured notes.
•A restructuring of the Company’s unsecured notes under the guaranteed unsecured notes indentures. At the end of the court-supervised process, holders of allowed claims under indentures governing the Guaranteed Unsecured Notes (the 5.75% Senior Notes due 2022, the 5.625% Senior Notes due 2023 and the 5.50% Senior Notes due 2025) and the Guaranteed Unsecured Notes are expected to receive their pro rata share of $375.0 million of new 10.00% second lien senior secured notes due seven years after emergence and 100% of the new Mallinckrodt ordinary shares, subject to dilution by the warrants described above and certain other equity.
•A proposed resolution of other remaining claims and treatment of equity holders. At the end of the court-supervised process, certain trade creditors and holders of other allowed general unsecured claims, including holders of the 9.50% debentures due May 2022, the 8.00% debentures due March 2023 and the 4.75% senior notes due April 2023, are expected to share in $135.0 million in cash, plus other potential consideration, in accordance with the allocations as prescribed in the Amended Plan, and equity holders would receive no recovery.
On April 20, 2021, the Debtors filed a joint plan of reorganization of the Debtors (the "Original Plan") reflecting the terms of the RSA, as amended by the Joinder and Amendment and a related proposed Disclosure Statement (the “Original Disclosure Statement”). On each of June 8, 2021 (or, with respect to which the entity expectsOriginal Disclosure Statement, June 9, 2021), June 15, 2021 and June 17, 2021, the Debtors filed with the Bankruptcy Court amended versions of the Original Plan and the Original Disclosure Statement. Finally, on June 18, 2021, the Debtors filed with the Bankruptcy Court a solicitation version of the Proposed Plan, and a solicitation version of a related Disclosure Statement (the “Disclosure Statement”). Contemporaneously, the Debtors filed a motion requesting that the Court (i) establish the Proposed Plan solicitation and voting procedures, (ii) approve the forms of ballots, solicitation packages, and related notices to be entitled in exchange for those goods or services, applying the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract(s); (3) determine the transaction price; (4) allocate the transaction pricesent to the performance obligationsvarious creditors and interest holders in connection with confirmation of the contract(s)Plan, and (iii) establish certain deadlines in connection with the approval of the disclosure statement (the “Solicitation and Voting Procedures”). On September 29,
12

2021 the Debtors filed the Amended Plan with the Bankruptcy Court incorporating the Amended Proposed Opioid-Related Litigation Settlement, the settlement with the UCC and the settlement with the Settling Second Lien Noteholders.
The Amended Plan and the related Disclosure Statement describe, among other things, the terms of the Amended Plan; the Debtors contemplated financial restructuring (the “Restructuring”); and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance is effective forevents leading up to the Company inChapter 11 Cases; certain events that have occurred or are anticipated to occur during the first quarterChapter 11 Cases, including the anticipated solicitation of fiscal year 2018. The FASB subsequently issued additional ASUsvotes to clarifyapprove the guidance in ASU 2014-09. The ASUs issued include ASU 2016-08, "RevenueProposed Plan from Contracts with Customers;" ASU 2016-10 "Revenue from Contracts with Customers, Identifying Performance Obligationscertain of the Debtors’ creditors and Licensing;" and ASU 2016-12, "Narrow-Scope Improvements and Practical Expedients." The Company has completed its assessment of certain customer arrangements and has preliminarily assessed certain other customer arrangements based onaspects of the natureRestructuring.
By order dated June 17, 2021, the Bankruptcy Court approved the Disclosure Statement and the Solicitation and Voting Procedures. Pursuant to the Solicitation and Voting Procedures, the Debtors mailed the ballots, solicitation packages and related notices by June 24, 2021, and votes were due by October 13, 2021, with exception of its business;holders of class 8 and at this time,9 whose votes were due October 20, 2021. In accordance with the Company does not anticipate a significant impact upon adoption. However, the assessmentDebtors’ proposed confirmation timeline, which is ongoing and a more detailed analysis of contracts subject to change by the preliminary assessmentBankruptcy Court, a hearing to consider confirmation of the Amended Plan (which may be adjourned or reviewextended from time to time) commenced on November 1, 2021.

Event of additional contracts may identify a more significant impact. The Company currently expects, in part due to the limited anticipated impact, that it will utilize the modified retrospective transition approach of adopting the ASU.default
The Company's statuscommencement of various ASUs arethe Chapter 11 Cases above constituted an event of default under certain of the Company’s debt agreements. Subject to any applicable provisions of the Bankruptcy Code, the Company’s debt instruments and agreements, as further described in Note 10 and within the notes to the financial statements included within the Company'sCompany’s Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.

3.Discontinued Operations and Divestitures
Discontinued Operations
Nuclear Imaging: On January 27, 2017, the Company completed the sale of its Nuclear Imaging business to IBA Molecular ("IBAM") for approximately $690.0 million before tax impacts, including up-front consideration of approximately $574.0 million, up to $77.0 million of contingent consideration and the assumption of certain liabilities. The Company recorded a pre-tax gain on the sale of the Nuclear Imaging business of $362.8 million during the nine months ended September 29, 2017, which excluded any potential proceeds from the contingent consideration and reflects a charge of $0.6 million during the three months ended September 29, 2017 primarilyDecember 25, 2020, provide that, as a result of the final working capital adjustmentcommencement of the Chapter 11 Cases, the principal amount, together with accrued and unpaid interest thereon, and in the case of the indebtedness outstanding under the senior notes, premium, if any, thereon, shall be immediately due and payable. Accordingly, all long-term debt was classified as current on the unaudited condensed consolidated balance sheets as of September 24, 2021 and December 25, 2020. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 Cases and the creditors’ rights in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code.

Financial Reporting in Reorganization
Effective on the Petition Date, the Company began to apply Financial Accounting Standards Board Accounting Standards Codification ("ASC") Topic 852 - Reorganizations, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions directly associated with the purchase agreement.


The following table summarizesreorganization from activities related to the ongoing operations of the business within the financial results ofstatements for periods subsequent to the Nuclear Imaging business presentedPetition Date. Expenses, realized gains and losses, and provisions for losses that are directly associated with reorganization proceedings must be reported separately as reorganization items, net in the unaudited condensed consolidated statements of income:
 Three Months Ended Nine Months Ended
Major line items constituting income from discontinued operationsSeptember 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Net sales$—
 $108.8
 $31.6
 $315.0
Cost of sales—
 54.6
 15.6
 153.8
Selling, general and administrative expenses—
 19.1
 7.8
 64.5
Restructuring charges, net—
 (0.3) —
 0.1
Other—
 2.2
 (0.2) 3.6
Income from discontinued operations—
 33.2
 8.4
 93.0
(Loss) gain on divestiture of discontinued operations(0.6) —
 362.8
 —
(Loss) income from discontinued operations, before income taxes(0.6) 33.2
 371.2
 93.0
Income tax (benefit) expense(0.1) 24.8
 5.2
 43.8
(Loss) income from discontinued operations, net of income taxes$(0.5) $8.4
 $366.0
 $49.2

During the three months ended September 29, 2017, there was an income tax benefit of $0.1 million associated with the $0.6 million loss recognized on divestiture. During the nine months ended September 29, 2017, there was income tax expense of $0.9 million associated with the $362.8 million gain on divestiture and a $4.3 million income tax expense associated with the $8.4 million income from discontinued operations. The tax impact of the gain recognized on divestiture was favorably impacted by a benefit from permanently deductible items.

The following table summarizes the assets and liabilities of the Nuclear Imaging business that are classified as held for sale onIn addition, the unaudited condensed consolidated balance sheets:
 September 29, 2017 December 30, 2016
Carrying amounts of major classes of assets included as part of discontinued operations   
Accounts receivable$—
 $49.6
Inventories—
 20.0
Property, plant and equipment, net—
 188.7
Other current and non-current assets—
 52.6
Total assets classified as held for sale in the balance sheet$—
 $310.9
    
Carrying amounts of major classes of liabilities included as part of discontinued operations   
Accounts payable$—
 $19.7
Other current and non-current liabilities—
 100.6
Total liabilities classified as held for sale in the balance sheet$—
 $120.3

The following table summarizes significant cash and non-cash transactionssheet must distinguish pre-petition liabilities subject to compromise ("LSTC") of the Nuclear Imaging businessDebtors from pre-petition liabilities that are included withinnot subject to compromise, post-petition liabilities, and liabilities of the subsidiaries of the Company that are not debtors in the Chapter 11 Cases. LSTC are pre-petition obligations that are not fully secured and have at least a possibility of not being repaid at the full claim amount. Where there is uncertainty about whether a secured claim will be paid or impaired pursuant to the Chapter 11 Cases, the Debtors have classified the entire amount of the claim as LSTC.
Furthermore, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession, actions to enforce or otherwise effect the payment of certain claims against the Debtors in existence before the Petition Date are stayed while the Debtors continue business operations as debtors-in-possession. These claims are reflected as LSTC in the unaudited condensed consolidated balance sheets as of September 24, 2021 and December 25, 2020. Additional claims (which could be LSTC) may arise after the Petition Date resulting from the rejection of executory contracts, including leases, and from the determination by the Bankruptcy Court (or agreement by parties-in-interest) of allowed claims for contingencies and other disputed amounts.
Certain subsidiary entities are not debtors under the Chapter 11 Cases. However, condensed combined financial statements of cash flows for the respective periods:
 Three Months Ended Nine Months Ended
 September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Depreciation$—
 $4.5
 $—
 $14.3
Capital expenditures—
 4.0
 0.3
 7.8
All otherDebtors are not presented in the notes to the unaudited condensed consolidated financial statements as the assets and liabilities, operating results and cash flows of the non-debtor entities included in the consolidated financial statements are insignificant and, therefore, the unaudited condensed consolidated financial statements presented herein materially represent the unaudited condensed combined financial statements of the debtor entities for all periods presented.
Non-debtor entity intercompany balances from/due to the debtor entities at the end of each period were:
13

September 24,
2021		December 25,
2020
Intercompany receivables$137.2 $282.3 
Intercompany payables119.7 120.3 
The intercompany balances were primarily attributable to the Company's centralized approach to cash management and financing of its operations. The permission to continue the use of existing cash management systems during the pendency of the Chapter 11 Cases was approved by the Bankruptcy Court on a final basis as part of the First Day motions as described further above.
The Company is currently assessing whether or not it qualifies for fresh start accounting upon emergence from Chapter 11. If the Company were to meet the requirements to adopt the fresh start accounting rules, its assets and liabilities would be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on its unaudited condensed consolidated balance sheets as of September 24, 2021 and December 25, 2020.

Liabilities Subject to Compromise
As a result of the commencement of the Chapter 11 Cases, the payment of pre-petition liabilities is subject to compromise or other treatment pursuant to a plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-petition liabilities are stayed. Although payment of pre-petition claims generally is not permitted, the Bankruptcy Court granted the Debtors the authority to pay certain pre-petition claims in designated categories and subject to certain terms and conditions. This relief generally was designed to preserve the value of the Debtors' business and assets. As described above, among other things, the Bankruptcy Court authorized, but did not require, the Debtors to pay certain pre-petition claims relating to employee wages and benefits, critical and foreign vendors and customer programs.
The determination of how liabilities will ultimately be settled or treated cannot be made until the Bankruptcy Court confirms a Chapter 11 plan of reorganization and such plan becomes effective. Accordingly, the ultimate amount of such liabilities is not determinable at this time. GAAP requires pre-petition liabilities that were impactedare subject to compromise to be reported at the amounts expected to be allowed by this discontinued operationthe Bankruptcy Court, even if they may be settled for different amounts. The amounts currently classified as LSTC are preliminary and may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determinations of the secured status of certain claims, the values of any collateral securing such claims, rejection of executory contracts, continued reconciliation or other events.

Liabilities subject to compromise at the end of each period consisted of the following:
September 24,
2021		December 25,
2020
Accounts payable (1)
$43.5 $61.9 
Accrued interest35.2 35.2 
Debt (2)
3,760.1 1,660.7 
Medicaid lawsuit634.1 638.9 
Opioid-related litigation settlement liability (3)
1,725.0 1,600.0 
Other current and non-current liabilities (4)
107.3 163.5 
Pension and postretirement benefits30.3 32.4 
Total liabilities subject to compromise$6,335.5 $4,192.6 
(1)Pre-petition accounts payable balances have been reclassified accordingly.repaid under effectuated trade agreements pursuant to the critical vendor motion approved by the Bankruptcy Court.

(2)Subsequent to December 25, 2020, in accordance with the agreement in principle reached with the Settling Second Lien Noteholders on September 2, 2021 and Joinder and Amendment to the RSA entered into in March 2021, $322.9 million of Second Lien Notes and $1,776.5 million of outstanding senior secured term loans, respectively, were classified as LSTC in the Company's unaudited condensed consolidated balance sheet as of September 24, 2021.


CMDS: On November 27, 2015,(3)In accordance with the agreement in principle reached with the Opioid Claimants on September 2, 2021, and subsequently memorialized in the Amended Plan on September 29, 2021, the Company completed the salerecorded an accrual of its contrast media and delivery systems ("CMDS") business to Guerbet S.A. ("Guerbet") for cash consideration of approximately $270.0$125.0 million subject to net working capital adjustments. During the three months ended September 30, 2016, the Company had no net sales and a loss on the sale of business of $4.0 million, with $0.4 million related income tax effect. During the nine months ended September 30, 2016, the Company had $1.8 million of net sales, a $0.2 million income tax effect and $4.4 million loss, net of tax. All activity related to the CMDS businessadditional payment expected to be made on the eighth anniversary of the effective date of emergence, which has been reportedclassified as LSTC in discontinued operations.the Company's unaudited condensed consolidated balance sheet as of September 24, 2021.

Divestitures
On January 30, 2017,(4)The decrease in other current and non-current liabilities was primarily attributable to the Bankruptcy Court's approval of the Company's rejection of its Bedminster facility lease, which resulted in a $34.8 million adjustment to the carrying value of the respective lease liability in LSTC to reflect the estimated allowed claim amount. The remaining decrease was primarily attributable to a decrease of $15.6 million in the fair value of contingent consideration related to an asset for which the Company announced that it had entered into a definitive agreementis no longer pursuing further development. Refer to sell its Intrathecal Therapy business to Piramal Enterprises Limited's subsidiary in the United Kingdom ("U.K."), Piramal Critical Care ("Piramal"),Note 12 for approximately $203.0 million, including fixed consideration of $171.0 million and contingent consideration of up to $32.0 million. The $171.0 million of fixed consideration consisted of $17.0 million received at closing and a $154.0 million note receivable that is due one year from the transaction closing date. The transaction was completed on March 17, 2017. The Company recorded a pre-tax gainfurther information on the salevaluation of contingent consideration.

Contractual interest
14

While the Chapter 11 Cases are pending, the Company is not accruing interest on its unsecured debt instruments as of the business of $56.6 million duringPetition Date on a go-forward basis as the nine months ended September 29, 2017, which excluded any potential proceeds fromDebtors do not anticipate making interest payments due under their respective unsecured debt instruments; however, the contingent consideration and reflects a post-sale working capital adjustment of $0.4 million during the three months ended September 29, 2017.Debtors expect to pay all interest payments in full as they come due under their respective senior secured debt instruments. The financial results of the Intrathecal Therapy business are presented within continuing operations as this divestiture did not meet the criteria for discontinued operations classification.
As part of the divestiture and calculation of the gain, the Company wrote off intangible assets of $48.7 million and goodwill of $49.8 million, from the Specialty Brands segment, ascribed to the Intrathecal Therapy business. The Company is committed to reimburse up to $7.3 million of product development expenses incurred by Piramal. The remaining items included in the gain calculation are attributable to inventory transferred and transaction costs incurred by the Company.

4.Acquisitions, License Agreements and Other Investments
During the three months ended September 29, 2017 and September 30, 2016, the Company recognized $2.7 million and $3.4 million, respectively, of expense primarily associated with fair value adjustments of acquired inventory. During the nine months ended September 29, 2017 and September 30, 2016, the Company recognized $8.6 million and $8.1 million, respectively, of expense primarily associated with fair value adjustments of acquired inventory. Thetotal aggregate amount of acquisition-related costs included within operating incomeinterest payments due under the Company's unsecured debt instruments for the three and nine months ended September 29, 2017 were $1.224, 2021, which it did not pay was $17.7 million and $2.3 million, respectively. $64.2 million.

Chapter 11 Claims Process
The Debtors have received over 50,000 proofs of claim since the Petition Date. The Debtors continue their review and analysis of certain claims including litigation claims, trade creditor claims, non-qualified benefit plan claims, customer deposits and advances, along with other tax and regulatory claims, and therefore, the ultimate liability of the Debtors for such claims may differ from the amount recorded in LSTC. To the extent that the Debtors believe that such claims will be allowed by the Bankruptcy Court, the Debtors will continue to record the expected allowed amounts of such claims as LSTC. The determination of the expected allowed amount of acquisition-related costs includeda claim is based on many factors, including whether the Debtors are party to a settlement agreement with applicable claimholders or their representatives, and is not necessarily limited to information available to the Debtors. Claims covered by a settlement agreement include the Proposed Acthar Gel-Related Settlement and Amended Opioid-Related Litigation Settlement (collectively, the "Proposed Settlements"). See Restructuring Support Agreement and Plan of Reorganization section within operating incomethis note for more information on settlement of these claims. As the Debtors continue to resolve claims, differences between those final allowed claims and the liabilities recorded in the unaudited condensed consolidated balance sheet will be recognized as reorganization items, net in the Company's consolidated statements of operations in the period in which they are resolved. The determination of how liabilities will ultimately be resolved cannot be made until the Bankruptcy Court approves a plan of reorganization or approves orders related to settlement of specific liabilities. Accordingly, the ultimate amount or resolution of such liabilities is not determinable at this time. The resolution of such claims could result in substantial adjustments to the Company's consolidated financial statements.

Reorganization items, net
Reorganization items, net, represent amounts incurred after the Petition Date as a direct result of the Chapter 11 Cases and are comprised of bankruptcy-related professional fees and adjustments to reflect the carrying value of LSTC at their estimated allowed claim amounts, as such adjustments are approved by the Bankruptcy Court. Cash paid for reorganization items, net for the nine months ended September 24, 2021 was $209.1 million. Reorganization items, net, for the three and nine months ended September 30, 2016 was $3.8 million and $5.8 million, respectively.24, 2021 included the following:
September 24,
2021
Three Months EndedNine Months Ended
Professional fees$119.4 $306.6 
Debt valuation adjustments6.8 23.1 
Adjustments of other claims— (0.5)
Total reorganization items, net$126.2 $329.2 

15

3.Revenue from Contracts with Customers
Product Sales Revenue
See Note 13 for presentation of the Company's net sales by product family.
Reserves for variable consideration
The following table reflects activity in the Company's acquisitions and license agreements are described further withinsales reserve accounts:
 Rebates and ChargebacksProduct Returns Other Sales Deductions Total
Balance as of December 27, 2019$295.8 $28.4 $13.2 $337.4 
Provisions1,453.7 22.3 44.3 1,520.3 
Provision for Medicaid lawsuit (Note 12) (1)
535.1 — — 535.1 
Payments or credits(1,461.3)(24.3)(45.8)(1,531.4)
Balance as of September 25, 2020$823.3 $26.4 $11.7 $861.4 
Balance as of December 25, 2020$196.5 $26.6 $12.3 $235.4 
Provisions1,588.6 18.2 42.5 1,649.3 
Payments or credits(1,535.7)(23.5)(32.6)(1,591.8)
Balance as of September 24, 2021$249.4 $21.3 $22.2 $292.9 

(1)Excludes the notes$105.1 million that is reflected as a component of operating expenses as it represents a pre-acquisition contingency related to the financial statements included withinportion of the liability that arose from sales of Acthar Gel prior to the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.

InfaCare
On September 25, 2017, the Company acquired InfaCare Pharmaceutical Corporationacquisition of Questcor Pharmaceuticals Inc. ("InfaCare"Questcor") in August 2014. See Note 12 for further detail on the status of the Medicaid lawsuit.

Product sales transferred to customers at a transaction valued at approximately $80.4 million, with additional payments of up to $345.0 million dependent on regulatorypoint in time and sales milestones ("the InfaCare Acquisition"). Consideration for the transaction consisted of approximately $37.2 million in cash paidover time were as follows:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Product sales transferred at a point in time80.3 %79.5 %78.7 %78.5 %
Product sales transferred over time19.7 20.5 21.3 21.5 

Transaction price allocated to the prior shareholdersremaining performance obligations
The following table includes estimated revenue from contracts extending greater than one year for certain of InfaCarethe Company's hospital products that are expected to be recognized in the future related to performance obligations that were unsatisfied or partially unsatisfied as of September 24, 2021:
Remainder of Fiscal 2021$35.6 
Fiscal 2022106.4 
Fiscal 202364.4 
Thereafter14.7 

Costs to fulfill a contract
As of September 24, 2021 and December 25, 2020, the assumption of approximately $43.2 million of debt and other liabilities, which was repaid in conjunction with the InfaCare Acquisition. InfaCare is focused on development and commercialization of proprietary pharmaceuticals for neonatal and pediatric patient populations. InfaCare's developmental product stannsoporfin, a heme oxygenase inhibitor, is under investigation for its potential to reduce the production of bilirubin, the elevation of which can contribute to serious consequences in infants. The fairtotal net book value of the contingent consideration associated withdevices used in the transaction was $35.0 million at September 25, 2017. The InfaCare Acquisition was funded with cash on hand.

Stratatech
On August 31, 2016, the Company acquired Stratatech Corporation ("Stratatech") -Company's portfolio of drug-device combination products, which includes StrataGraft®, a regenerative skin tissue and a technology platform for genetically enhanced skin tissues - for upfront considerations of $76.0are used in satisfying future performance obligations, were $26.5 million and contingent milestone payments, which are primarily regulatory, and royalty obligations that could result in up to $121.0 million of additional consideration ("the Stratatech Acquisition"). Stratatech is a regenerative medicine company focused on the development of unique, proprietary skin substitute products. Developmental products include StrataGraft® regenerative skin tissue ("StrataGraft") and a technology platform for genetically enhanced skin tissues. The Stratatech Acquisition was funded with cash on hand.




Hemostasis Products
On February 1, 2016, the Company acquired three commercial stage topical hemostasis drugs from The Medicines Company ("the Hemostasis Acquisition") - RECOTHROM® Thrombin topical (Recombinant) ("Recothrom"), PreveLeakTM Surgical Sealant ("PreveLeak"), and RAPLIXATM (Fibrin Sealant (Human)) ("Raplixa") - for upfront consideration of $173.5 million, inclusive of existing inventory, and contingent sales-based milestone payments that could result in up to $395.0 million of additional consideration. The fair value of the contingent consideration and acquired contingent liabilities associated with the transaction were $52.0 million and $10.6$25.8 million, respectively, at February 1, 2016. The Hemostasis Acquisition was funded with cashand were classified in property, plant and equipment, net, on hand.

Fair Value Allocation
The following amounts represent the preliminary allocations of the fair value of the identifiable assets acquired and liabilities assumed for the InfaCare Acquisition, including preliminary goodwill, intangible assets and the related deferred tax balances. The Company expects to complete its valuation analysis and finalize deferred tax balances as of the acquisition date no later than twelve months from the date of the acquisition. The changes in the purchase price allocation and preliminary goodwill based on the final valuation may include, but are not limited to, finalization of working capital settlements, the impact of U.S. state tax rates in determining the deferred tax balances and changes in assumptions utilized in the preliminary valuation report.
 InfaCare
Cash and cash equivalents$1.3
Intangible assets113.5
Goodwill13.3
Other assets, current and non-current0.1
Total assets acquired128.2
Current liabilities14.7
Deferred tax liabilities, net (non-current)11.3
Contingent consideration35.0
Total debt30.0
Total liabilities assumed91.0
Net assets acquired$37.2

The following is a reconciliation of the total consideration to net assets acquired:
 InfaCare
Total consideration, net of cash$70.9
Plus: cash assumed in acquisition1.3
Total consideration72.2
Less: contingent consideration(35.0)
Net assets acquired$37.2

Intangible assets acquired consist of the following:
InfaCareAmount Amortization Period
In-process research and development ("IPR&D") - stannsoporfin$113.5
 Non-Amortizable
The IPR&D intangible assets relates to stannsoporfin. The fair value of the IPR&D was determined using the income approach, which is a valuation technique that provides an estimate of fair value of the assets based on the market participant expectations of cash flows the asset would generate. The cash flows were discounted at a rate of 13.5%. The IPR&D discount rate for stannsoporfin was developed after assigning a probability of success to achieving the projected cash flows based on the current stage of development, inherent uncertainty in the FDA approval process and risks associated with commercialization of a new product. Based on the Company's preliminary estimate, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents future product development, the assembled workforce, and the tax status of the transaction. The goodwill is not deductible for U.S. income tax purposes. All assets acquired are included within the Company's Specialty Brands segment.



Licenses and Other Investments
In January 2017, $21.5 million of consideration was remitted to Mesoblast Limited ("Mesoblast") in exchange for equity shares and rights to a nine month exclusivity period related to any potential commercial and development agreements the Company may enter into for Mesoblast's therapy products used to treat acute graft versus host disease and/or chronic low back pain. As a result of this transaction the Company recorded an available for sale investment of $19.7 million included within prepaid and other current assets and an intangible asset of $1.8 million in the unaudited condensed consolidated balance sheet. This intangible assetsheets. The associated depreciation expense recognized during the nine months ended September 24, 2021 and September 25, 2020 was fully amortized as$4.4 million and $4.0 million, respectively.

Product Royalty Revenues
The Company licenses certain rights to Amitiza® (lubiprostone) ("Amitiza") to third parties in exchange for royalties on net sales of September 29, 2017the product. The Company receives a double-digit royalty based on a percentage of the gross profits of the licensed products sold
16

during the term of the agreements. The Company recognizes such royalty revenue as the nine month exclusivity period had ended.related sales occur. The associated royalty revenue recognized was as follows:

Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Royalty revenue$27.3 $20.4 $82.2 $52.3 



5.4.Restructuring and Related Charges
In July 2016,During fiscal 2018, the Company's BoardCompany launched a restructuring program designed to improve its cost structure. Charges of Directors approved a $100.0 million to $125.0 million restructuring program ("were provided for under the 2016 Mallinckrodt Program") designed to further improve the Company's cost structure as it continues to transform the business. The 2016 Mallinckrodt Program is expected to include actions across both the Specialty Brands and Specialty Generics segments, as well as within corporate functions. There is no specified time period associated with the 2016 Mallinckrodt Program.program. In addition to the 2016 Mallinckrodt Program,aforementioned program, the Company takes certainhas taken restructuring actions to generate synergies from its acquisitions.
Net restructuring and related charges by segment arewere as follows:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Specialty Brands$0.1 $— $0.1 $0.1 
Specialty Generics— — — 0.1 
Corporate11.6 3.2 19.4 15.6 
Restructuring and related charges, net11.7 3.2 19.5 15.8 
Less: accelerated deprecation(0.7)— (2.0)— 
Restructuring charges, net$11.0 $3.2 $17.5 $15.8 
 Three Months Ended Nine Months Ended
 September 29,
2017		 September 30,
2016		 September 29,
2017		 September 30,
2016
Specialty Brands$14.6
 $4.9
 $24.1
 $21.7
Specialty Generics(0.6) 0.7
 7.3
 2.3
Corporate1.5
 3.1
 4.3
 10.0
Restructuring and related charges, net15.5
 8.7
 35.7
 34.0
Less: accelerated depreciation(1.2) (1.9) (3.6) (4.8)
Restructuring charges, net$14.3
 $6.8
 $32.1
 $29.2


Net restructuring and related charges by program arewere comprised of the following:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
2018 Program$11.7 $3.2 $19.5 $17.8 
2016 Program 1
— — — (0.1)
Acquisition Programs— — — (1.9)
Total programs11.7 3.2 19.5 15.8 
Less: non-cash charges, including accelerated depreciation(1.7)— (4.3)— 
Total charges expected to be settled in cash$10.0 $3.2 $15.2 $15.8 
 Three Months Ended Nine Months Ended
 September 29,
2017		 September 30,
2016		 September 29,
2017		 September 30,
2016
2016 Mallinckrodt Program$15.5
 $8.3
 $35.7
 $8.3
2013 Mallinckrodt Program—
 0.3
 —
 22.7
Acquisitions—
 0.1
 —
 3.0
Total15.5
 8.7
 35.7
 34.0
Less: accelerated depreciation(1.2) (1.9) (3.6) (4.8)
Total charges expected to be settled in cash$14.3
 $6.8
 $32.1
 $29.2
(1)The 2016 Program was completed during fiscal 2020.


The following table summarizes cash activity for restructuring reserves, substantially all of which are related to contract termination costs, employee severance and benefits:benefits and exiting of certain facilities:
2018 Program
Balance as of December 25, 2020$1.0 
Charges15.8 
Changes in estimate(0.6)
Cash payments(10.1)
Balance as of September 24, 2021$6.1 
17

 2016 Mallinckrodt Program 2013 Mallinckrodt Program Acquisitions Total
Balance at December 30, 2016$9.5
 $5.1
 $0.2
 $14.8
Charges33.9
 —
 —
 33.9
Changes in estimate(1.8) —
 —
 (1.8)
Cash payments(19.8) (3.7) (0.2) (23.7)
Reclassifications(0.7) 0.3
 —
 (0.4)
Balance at September 29, 2017$21.1
 $1.7
 $—
 $22.8




NetAs of September 24, 2021, net restructuring and related charges including associated asset impairments, incurred cumulative-to-date relatedcumulative to the 2016 Mallinckrodt Program wasdate were as follows:
2018 Program
Specialty Brands$3.1 
Specialty Generics10.1 
Corporate73.3 
$86.5 
 2016 Mallinckrodt Program
Specialty Brands$31.3
Specialty Generics8.6
Corporate9.3
 $49.2
Substantially allAll of the restructuring reserves were included in accrued and other current liabilities on the Company's unaudited condensed consolidated balance sheets. Amounts paid in the future may differ from the amount currently recorded.



6.5.Income Taxes
As further discussed in Note 1, in light of the Company's Chapter 11 Cases initiated on October 12, 2020, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of the unaudited condensed consolidated financial statements. The Company considered this in determining that certain net deferred tax assets were no longer more likely than not realizable. As a result, as of both September 24, 2021 and December 25, 2020, all of the Company's net deferred tax assets in applicable tax jurisdictions are fully offset by a valuation allowance.
The Company recognized an income tax benefit of $31.2$32.0 million on incomea loss from continuing operations before income taxes of $33.1$301.0 million for the three months ended September 29, 2017,24, 2021, and an income tax benefit of $56.4$211.6 million on incomea loss from continuing operations before income taxes of $53.6$19.8 million for the three months ended September 30, 2016.25, 2020. This resulted in effective tax rates of negative 94.3%10.6% and negative 105.2%1,068.7% for the three months ended September 29, 201724, 2021 and September 30, 2016,25, 2020, respectively. The income tax benefit for the three months ended September 29, 2017 is24, 2021 was comprised of $60.0$26.2 million of current tax benefit and $28.8$5.8 million of deferred tax expense.benefit. The net deferredcurrent tax expense of $28.8 million includes $45.5 million ofbenefit was predominantly related to an increase to prepaid taxes and a decrease to uncertain tax positions. The deferred tax benefit which iswas predominantly related to acquired intangible assetsasset amortization partially offset by $74.3 million of deferred tax expense related to utilization of tax attributes.loss carryforwards in non-valuation allowance jurisdictions. The income tax benefit for the three months ended September 30, 2016 is25, 2020 was comprised of $37.9$201.4 million of current tax expensebenefit and $94.3$10.2 million of deferred tax benefit. The current tax benefit which is predominantlywas primarily the result of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and unrecognized tax benefits, partially offset by the fiscal 2020 reorganization of the Company's intercompany financing and associated legal entity ownership. The deferred tax benefit was predominately related to acquired intangible assets.the fiscal 2020 reorganization of the Company's intercompany financing and associated legal entity ownership.
The Company recognized an income tax benefit of $110.8$81.9 million on incomea loss from continuing operations before income taxes of $53.0$601.3 million for the nine months ended September 29, 2017,24, 2021, and an income tax benefit of $218.3$69.2 million on incomea loss from continuing operations before income taxes of $166.9$884.7 million for the nine months ended September 30, 2016.25, 2020. This resulted in effective tax rates of negative 209.1%13.6% and negative 130.8%7.8% for the nine months ended September 29, 201724, 2021 and September 30, 2016,25, 2020, respectively. The income tax benefit for the nine months ended September 29, 2017 is24, 2021 was comprised of $20.5$62.8 million of current tax expensebenefit and $131.3$19.1 million of deferred tax benefit. The netcurrent tax benefit was predominantly related to an increase to prepaid taxes and a decrease to uncertain tax positions. The deferred tax benefit of $131.3 million includes $232.8 million of deferred tax benefit which iswas predominantly related to acquired intangible assetsasset amortization, partially offset by $101.5 million of deferred tax expense related to utilization of tax attributes.loss carryforwards in non-valuation allowance jurisdictions. The income tax benefit for the nine months ended September 30, 2016 is25, 2020 was comprised of $85.9$370.3 million of current tax expensebenefit and $304.2$301.1 million of deferred tax expense. The current tax benefit which is predominantlywas primarily the result of the CARES Act and unrecognized tax benefits, partially offset by the fiscal 2020 reorganization of the Company's intercompany financing and associated legal entity ownership. The deferred tax expense was predominately related to acquired intangible assets.the valuation allowance recorded against the Company's net deferred tax assets and unrecognized tax benefits, partially offset by a tax benefit predominately related to the fiscal 2020 reorganization of the Company's intercompany financing and associated legal entity ownership.
The effectiveincome tax ratebenefit was $32.0 million for the three months ended September 29, 2017, as24, 2021, compared with the three months ended September 30, 2016 increased by 10.9 percentage points. Included within this net increase was a 109.4 percentage point increase related to the completionan income tax benefit of certain aspects of the reorganization of the Company's legal entity ownership discussed further below, which occurred during the three months ended September 29, 2017. Also within this increase was a 36.7 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred during the three months ended September 30, 2016. The remaining 135.2 percentage point decrease was primarily attributable to differing levels of income from continuing operations before taxes$211.6 million for the three months ended September 29, 2017 as compared with25, 2020. The $179.6 million net decrease in the three months ended September 30, 2016.tax benefit included a decrease of $236.8 million attributed to the CARES Act, partially offset by an increase of $32.0 million attributed to the fiscal 2020 reorganization of the Company’s intercompany financing and associated legal entity ownership, an increase of $12.6 million attributed to changes in the timing, amount and jurisdictional mix of income, an increase of $7.9 million attributed to uncertain tax positions and an increase of $4.7 million attributed to separation costs, reorganization items, net and restructuring charges, net.
The effectiveincome tax ratebenefit was $81.9 million for the nine months ended September 29, 2017, as24, 2021, compared with the nine months ended September 30, 2016 decreased by 78.3 percentage points. Included within this net decrease was a 183.5 percentage point decrease primarily attributable to differing levelsan income tax benefit of income from continuing operations before taxes$69.2 million for the nine months ended September 29, 2017 as compared with the nine months ended September 30, 2016. Of the remaining 105.2 percentage point25, 2020. The $12.7 million net increase a 16.5 percentage point increase is related toin the tax benefit included an increase of $202.7 million attributed to a U.K.valuation allowance recorded against the Company's net deferred tax credit on a dividend between affiliates, which occurred duringassets, an increase of $56.2 million attributed to changes in the nine months ended September 30, 2016, a 5.0 percentage pointtiming, amount and jurisdictional mix of income, an increase relatedof $25.7 million predominately attributed to the divestiture of the Intrathecal Therapy Business, which occurred during the nine months ended September 29, 2017, a 15.5 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred within the nine months ended September 30, 2016, and a 68.2 percentage point increase related to the completion of certain aspects of thefiscal 2020 reorganization of the Company'sCompany’s intercompany financing and associated legal entity ownership, discussed further below, which occurred duringan increase of
18

$10.8 million attributed to separation costs, reorganization items, net and restructuring charges, net and an increase of $2.8 million attributed to uncertain tax positions, partially offset by a decrease of $285.5 million attributed to the nine months ended September 29, 2017.CARES Act.
During the nine months ended September 29, 2017, the three months ended December 30, 201624, 2021 and the twelve months ended September 30, 2016, the Company’s25, 2020, net cash paidrefunds for income taxes net was $90.9 million, $95.6were $160.4 million and $165.4net cash payments for income taxes were $42.9 million, respectively. Included within the net cash refunds of $160.4 million were refunds of $178.8 million received as a result of provisions in the CARES Act and net payments of $18.4 million related to operational activity.


During the three and nine months ended September 29, 2017, the Company recognized an incomeThe Company's unrecognized tax benefit of $0.1benefits, excluding interest, totaled $334.2 million and income$349.0 million as of September 24, 2021 and December 25, 2020, respectively. The net decrease of $14.8 million primarily resulted from a lapse of statutes of limitations of $21.8 million and settlements of $0.2 million, partially offset by a net increase to prior period tax expensepositions of $5.2$7.2 million. If favorably settled, $63.2 million respectively associated withof unrecognized tax benefits as of September 24, 2021 would benefit the effective tax rate. The total amount of accrued interest and penalties related to these obligations was $17.9 million and $16.7 million as of September 24, 2021 and December 25, 2020, respectively. Due to a lapse of the statute of limitations noted above, $5.1 million of tax and interest on unrecognized tax benefits related to the Nuclear Imaging business divestiture, as discussed in Note 3,were eliminated, and a benefit of $5.1 million was recorded in discontinued operations within the unaudited condensed consolidated statement of income.

On October 6, 2017operations for 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. During the threenine months ended September 29, 2017, the Company recognized income tax expense of $36.1 million, with an offset to deferred tax liabilities commensurate with the completion of certain aspects of the Reorganization during the third quarter of 2017. See Note 20 Subsequent Events for additional information related to the future tax effects of this Reorganization.
The Company early adopted ASU 2016-16 in the first quarter of 2017 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 unaudited condensed consolidated balance sheets. The prior periods were not restated.
The Company adopted ASU 2016-09 in the first quarter of 2017 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.
The Company refined its acquisition accounting estimate associated with the measurement of its acquired Stratatech net deferred tax liabilities in the first quarter of 2017, resulting in a decrease to the acquired net deferred tax liabilities from $24.3 million to $22.1 million.
The InfaCare Acquisition resulted in a net deferred tax liability increase of $11.3 million. Significant components of this include $20.3 million of net deferred tax liabilities associated with intangibles partially offset by $8.7 million of deferred tax assets associated with non U.K. net operating losses.
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. Significant components of this increase include an increase of $56.5 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 $17.9 million of deferred tax liability associated with intangibles, an increase of $2.6 million of deferred tax asset associated with committed product development, and a decrease of $0.6 million of other net deferred tax assets.
The Company's unrecognized tax benefits, excluding interest, totaled $123.0 million at September 29, 2017 and $118.7 million at December 30, 2016. The net increase of $4.3 million primarily resulted from a net increase to current year positions of $8.7 million, net decreases from prior period tax positions of $1.7 million, and net decreases from lapse of statute of limitations of $2.7 million. If favorably settled, $121.3 million of unrecognized tax benefits at September 29, 2017 would favorably impact the effective tax rate. The total amount of accrued interest related to these obligations was $6.8 million at September 29, 2017 and $7.1 million at December 30, 2016.24, 2021.
It is reasonably possible that within the next twelve months the unrecognized tax benefits could decrease by up to $139.9 million and the amount of related interest and penalties could decrease by up to $16.4 million as a result of payments or releases due to the resolution of various U.K. and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation, thatlimitation.
Certain of the unrecognized tax benefits will decreaseCompany’s subsidiaries continue to be subject to examination by uptaxing authorities. The earliest open years subject to $30.2 millionexamination for various jurisdictions, including Ireland, Japan, Luxembourg, Switzerland and the amount of related interestUnited Kingdom are from 2013 to present and penalties will decrease by up to $4.4 million.the earliest open years for the U.S federal and state jurisdictions are 2013 and 2009, respectively.


7.6.(Loss) Earnings per Share
Basic(Loss) earnings per share is computed by dividing net incomeloss by the number of weighted-average shares outstanding during the period. DilutedDilutive securities, including participating securities, have not been included in the computation of (loss) earnings per share is computed usingas the weighted-average shares outstandingCompany reported a net (loss) income from continuing operations during all periods presented below and if dilutive, potential ordinary shares outstanding duringtherefore, the period. Potential ordinary shares represent the incremental ordinary shares issuable for restricted share units and share option exercises. The Company calculates the dilutive effect of outstanding restricted share units and share options on earnings per share by application of the treasury stock method.impact would be anti-dilutive.


The weighted-average number of shares outstanding used in the computations of both basic and diluted (loss) earnings per share were as follows (in millions):
 Three Months Ended Nine Months Ended
 September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Basic96.7
 107.6
 99.5
 109.1
Dilutive impact of restricted share units and share options0.3
 1.0
 0.3
 0.9
Diluted97.0
 108.6
 99.8
 110.0
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Basic and diluted84.7 84.6 84.7 84.4 


The computation of diluted weighted-average shares outstanding for the three and nine months ended September 29, 2017 excludes24, 2021 excluded approximately 4.3 million and 3.65.3 million shares of equity awards, respectively, because the effect would have been anti-dilutive. The computation of diluted weighted-average shares outstandingand for both the three and nine months ended September 30, 2016 excludes25, 2020 excluded approximately 1.6 million and 1.75.8 million shares of equity awards respectively, because the effect would have been anti-dilutive.


8.7.Inventories
Inventories were comprised of the following at the end of each period: 
September 24,
2021		December 25,
2020
Raw materials and supplies$54.6 $58.1 
Work in process218.8200.7
Finished goods94.286.1
$367.6 $344.9 

19
 September 29,
2017		 December 30,
2016
Raw materials and supplies$76.3
 $72.6
Work in process160.4
 178.4
Finished goods104.6
 99.7
 $341.3
 $350.7


9.8.Property, Plant and Equipment
The gross carrying amount and accumulated depreciation of property, plant and equipment were comprised of the following at the end of each periodperiod:
September 24,
2021		December 25, 2020
Property, plant and equipment, gross$1,892.4 $1,910.9 
Less: accumulated depreciation(1,124.7)(1,077.8)
Property, plant and equipment, net$767.7 $833.1 

Depreciation expense was as follows:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Depreciation expense$23.2 $25.5 $70.3 $75.7 
 September 29,
2017		 December 30, 2016
Property, plant and equipment, gross$1,820.4
 $1,679.4
Less: accumulated depreciation(858.0) (797.9)
Property, plant and equipment, net$962.4
 $881.5


Depreciation expense for property, plant and equipment was as follows:
 Three Months Ended Nine Months Ended
 September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Depreciation expense$27.3
 $27.3
 $83.5
 $87.6



10.9.Goodwill and Intangible Assets
The gross carrying amount and accumulated impairment of goodwill by segment at the end of each period were as follows:
 September 29, 2017 December 30, 2016
 Gross Carrying Amount Accumulated Impairment Gross Carrying Amount Accumulated Impairment
Specialty Brands$3,459.5
 $—
 $3,498.1
 $—
Specialty Generics207.0
 (207.0) 207.0
 (207.0)
Total$3,666.5
 $(207.0) $3,705.1
 $(207.0)

During the nine months ended September 29, 2017, the gross carrying value of goodwill within the Specialty Brands segment decreased by $38.6 million. The decrease was primarily attributable to the sale of the Intrathecal Therapy business to Piramal. The Company ascribed $49.8 million of goodwill to that business and it was factored into the gain on sale of the business. The decrease was offset by $13.3 million attributable to the InfaCare Acquisition. The remaining change in goodwill was related to a purchase accounting adjustment for the Stratatech Acquisition primarily attributable to changes in deferred tax balances.
The gross carrying amount and accumulated amortization of intangible assets were comprised of the following at the end of each period wereperiod:
September 24, 2021December 25, 2020
Gross Carrying AmountAccumulated AmortizationGross Carrying AmountAccumulated Amortization
Amortizable:
Completed technology$10,494.4 $5,016.9 $10,394.6 $4,586.6 
License agreements120.181.1 120.178.1
Trademarks77.726.1 77.723.5
Total$10,692.2 $5,124.1 $10,592.4 $4,688.2 
Non-Amortizable:
Trademarks$35.0 $35.0 
In-process research and development81.0 245.3 
Total$116.0 $280.3 

StrataGraft®
On June 15, 2021, the Company announced that the U.S. Food and Drug Administration ("FDA") had approved the StrataGraft biologics license application ("BLA") for the treatment of adults with deep partial-thickness burns. Upon FDA approval, the Company transferred the total $99.8 million of asset value from non-amortized, indefinite-lived acquired in-process research and development ("IPR&D") product rights to amortizable, finite-lived completed technology and will begin amortization of the asset in tandem with commercial launch of the product, which is expected during the fourth quarter of fiscal 2021.
Terlipressin
During September 2020, the FDA issued a Complete Response Letter ("CRL") regarding the Company's New Drug Application ("NDA") seeking approval for the investigational agent terlipressin to treat adults with hepatorenal syndrome type 1 ("HRS-1"). The CRL stated that, based on the available data, the agency cannot approve the terlipressin NDA in its current form and requires more information to support a positive risk-benefit profile for terlipressin for patients with HRS-1.
In response to receipt of the CRL, the Company had an End of Review Meeting on October 26, 2020 and a Type A Meeting on January 29, 2021 with the FDA where both parties engaged in constructive dialogue in an effort to clarify a viable path to U.S. approval. On August 18, 2021, the Company resubmitted its NDA for terlipressin to the FDA. The Prescription Drug User Fee Act (PDUFA) date for this development product is February 18, 2022. The Company will continue to assess the impact of any changes to planned revenue or earnings on the fair value of the associated IPR&D asset of $81.0 million included within intangible assets, net on the unaudited condensed consolidated balance sheets as follows:of September 24, 2021 and December 25, 2020.
20

 September 29, 2017 December 30, 2016
 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Amortizable:       
Completed technology$9,955.6
 $2,101.3
 $10,028.7
 $1,617.1
Licenses177.1
 120.1
 177.1
 112.7
Customer relationships30.0
 11.7
 27.6
 8.4
Trademarks82.2
 13.5
 82.1
 10.9
Other8.6
 8.6
 6.7
 6.7
Total$10,253.5
 $2,255.2
 $10,322.2
 $1,755.8
Non-Amortizable:       
Trademarks$35.0
   $35.0
  
In-process research and development512.6
   399.1
  
Total$547.6
   $434.1
  
The Company annually tests the indefinite-lived intangible assets for impairment, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable by either a qualitative or income approach. Management relies on a number of qualitative factors when considering a potential impairment such as changes to planned revenue or earnings that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset.

MNK-6105 and MNK-6106
During the three months ended March 26, 2021, the Company recognized a full impairment on its Specialty Brands IPR&D asset related to MNK-6105 and MNK-6106 of $64.5 million. The Company has decided it will no longer pursue further development of this asset.
Intangible asset amortization expense
Intangible asset amortization expense was as follows:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Amortization expense$145.3 $210.6 $435.8 $599.8 
 Three Months Ended Nine Months Ended
 September 29, 2017 September 30, 2016 September 29, 2017 September 30, 2016
Amortization expense$173.2
 $175.9
 $523.0
 $526.7


The estimated aggregate amortization expense on intangible assets owned by the Company and being amortized as of September 24, 2021, is expected to be as follows:
Remainder of Fiscal 2021$145.3
Fiscal 2022581.1
Fiscal 2023581.1
Fiscal 2024581.1
Fiscal 2025579.6

21
Remainder of Fiscal 2017$172.6
Fiscal 2018686.7
Fiscal 2019686.3
Fiscal 2020686.0
Fiscal 2021685.8




11.10.Debt
The commencement of the Chapter 11 Cases constituted an event of default under certain of the Company’s debt agreements. Accordingly, all debt not reclassified as LSTC with original long-term stated maturities was classified as current on the unaudited condensed consolidated balance sheets as of September 24, 2021 and December 25, 2020. However, any efforts to enforce payment obligations under the Company's debt instruments are automatically stayed as a result of the Chapter 11 Cases and the creditors’ rights in respect of the debt instruments are subject to the applicable provisions of the Bankruptcy Code. See Note 2 for further information.
Debt was comprised of the following at the end of each period:
 September 29, 2017 December 30, 2016
 Principal Unamortized Discount and Debt Issuance Costs Principal Unamortized Discount and Debt Issuance Costs
Current maturities of long-term debt:       
Variable-rate receivable securitization due July 2017$—
 $—
 $250.0
 $0.3
3.50% notes due April 2018300.0
 0.4
 —
 —
Term loan due March 2021—
 —
 20.0
 0.3
4.00% term loan due February 2022—
 —
 1.0
 —
Term loan due September 202418.6
 0.2
 —
 —
Capital lease obligation and vendor financing agreements0.2
 —
 0.8
 —
Total current debt318.8
 0.6
 271.8
 0.6
Long-term debt:       
3.50% notes due April 2018—
 —
 300.0
 0.9
4.875% notes due April 2020700.0
 6.3
 700.0
 8.2
Variable-rate receivable securitization due July 2020200.0
 0.7
 —
 —
Term loan due March 2021—
 —
 1,928.5
 33.4
4.00% term loan due February 2022—
 —
 5.5
 —
9.50% debentures due May 202210.4
 —
 10.4
 —
5.75% notes due August 2022884.0
 10.0
 884.0
 11.6
8.00% debentures due March 20234.4
 —
 4.4
 —
4.75% notes due April 2023526.5
 4.7
 600.0
 6.1
5.625% notes due October 2023738.0
 10.1
 738.0
 11.4
Term loan due September 20241,837.1
 27.7
 —
 —
5.50% notes due April 2025692.1
 9.3
 695.0
 10.2
Revolving credit facility—
 6.3
 100.0
 3.2
Total long-term debt5,592.5
 75.1
 5,965.8
 85.0
Total debt$5,911.3
 $75.7
 $6,237.6
 $85.6
September 24, 2021December 25, 2020
Principal
Unamortized Discount and Debt Issuance Costs (1)
Principal
Unamortized Discount and Debt Issuance Costs (1)
Secured debt:
Term loan due September 2024$1,403.9 $— $1,505.2 $12.3 
Term loan due February 2025372.6 — 399.5 5.0 
10.00% first lien senior notes due April 2025495.0 6.3495.07.7
10.00% second lien senior notes due April 2025322.9 —322.98.0
Revolving credit facility900.0 0.6900.01.7
Total secured debt3,494.4 6.9 3,622.6 34.7 
Unsecured debt:
9.50% debentures due May 202210.4—10.4 — 
5.75% senior notes due August 2022610.3—610.3 — 
8.00% debentures due March 20234.4—4.4 — 
4.75% senior notes due April 2023133.7—133.7 — 
5.625% senior notes due October 2023514.7—514.7 — 
5.50% senior notes due April 2025387.2 —387.2 — 
Total unsecured debt1,660.7 — 1,660.7 — 
Total debt, prior to reclassification to liabilities subject to compromise5,155.1 6.9 5,283.3 34.7 
Less: Current portion(1,395.0)(6.9)(3,622.6)(34.7)
Less: Amounts reclassified to liabilities subject to compromise (2)
(3,760.1)— (1,660.7)— 
Total long-term debt, net of current portion$— $— $— $— 
The Company's debt instruments are further described within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended September 30, 2016.
On July 28, 2017, Mallinckrodt Securitization S.à r.l. ("Mallinckrodt Securitization"), a wholly-owned special purpose subsidiary of the Company, entered into a $250.0 million accounts receivable securitization facility ("the Receivable Securitization") with a three year term. Mallinckrodt Securitization may, from time to time, obtain up to $250.0 million in third-party borrowings secured by certain receivables. The borrowings under the Receivable Securitization are to be repaid as the secured receivables are collected. Loans under the Receivable Securitization will bear interest (including facility fees) at a rate equal to one month LIBOR rate plus a margin of 0.9%. Unused commitments on the Receivables Securitization are subject to an annual commitment fee of 0.4%. The Receivable Securitization agreements contain customary representations, warranties, and affirmative and negative covenants. The size of the securitization facility may be increased to $300.0 million upon approval of the third-party lenders.

On February 28, 2017, Mallinckrodt International Finance, S.A. ("MIFSA") and Mallinckrodt CB LLC ("MCB") refinanced the March 2014 and August 2014 term loans, both of which were due in March 2021 ("the Existing Term Loans"). The refinanced term loans had an initial aggregate principal amount of $1,865.0 million, are due in September 2024 and bear interest at LIBOR plus 2.75% ("the 2017 Term Loan"). The 2017 Term Loan requires quarterly principal amortization payments in an amount equal to 0.25% of the original principal balance of the 2017 Term Loan payable on the last day of each calendar quarter, which commenced on June 30, 2017, with the remaining balance due on September 24, 2024. The Company accounted for the term loan refinancing as a debt modification.

In conjunction with the term loan refinancing, MIFSA and MCB replaced the existing revolving credit facility of $500.0 million due in March 2019 with a $900.0 million facility that matures on February 28, 2022 ("the 2017 Revolving Credit Facility"). The 2017 Revolving Credit Facility bears interest at LIBOR plus 2.25%. The 2017 Revolving Credit Facility reduced the letter of credit provision from $150.0 million to $50.0 million. Unused commitments under the 2017 Revolving Credit Facility are subject to an annual commitment fee of 0.275%. Fees applied to outstanding letters of credit is based on the interest rate applied to borrowings. The


2017 Revolving Credit Facility added certain wholly-owned subsidiaries of the Company as borrowers, in addition to Mallinckrodt plc, MIFSA and MCB.

The 2017 Term Loan and 2017 Revolving Credit Facility (collectively "the 2017 Facilities") are fully and unconditionally guaranteed by Mallinckrodt plc, certain of its direct or indirect wholly-owned U.S. subsidiaries and each of its direct or indirect wholly-owned subsidiaries that owns directly or indirectly any such wholly-owned U.S. subsidiaries and certain of its other subsidiaries (collectively, "the Guarantors"). The 2017 Facilities are secured by a security interest in certain assets of MIFSA, MCB and the Guarantors. The 2017 Facilities contain customary affirmative and negative covenants, which include, among other things, restrictions on the Company's ability to declare or pay dividends, create liens, incur additional indebtedness, enter into sale and lease-back transactions, make investments, dispose of assets and merge or consolidate with any other person.

(1)As a result of the 2017 Facilities financing transaction and the write-off of certain deferred financing costs associated with an $83.5 million payment on the Existing Term Loans,Company's Chapter 11 Cases, the Company expensed $23.1 million of unamortized discount and debt issuance costs, net, recorded a $10.0 million charge included within the other expense linein reorganization items, net in the unaudited condensed consolidated statement of income.operations during the nine months ended September 24, 2021.

(2)In connection with the Company’s Chapter 11 Cases, $3,760.1 million and $1,660.7 million outstanding secured and unsecured debt instruments have been reclassified to LSTC in the Company's unaudited condensed consolidated balance sheets as of September 24, 2021 and December 25, 2020, respectively. Up to the date of reclassification to LSTC, the Company continued to accrue interest expense in relation to the unsecured debt instruments reclassified to LSTC. The Company continues to accrue and pay interest on the outstanding secured debt instruments classified as LSTC in conjunction with the cash collateral order. Refer to Note 2 for further information.

As of September 29, 2017,24, 2021, the applicable interest rate on outstanding borrowings under the Company's revolving credit facility was approximately 3.58%, and there were no outstanding borrowings. As of September 29, 2017, the applicable interest rate on outstanding borrowings under the variable-rate receivable securitization was 2.13%, and outstanding borrowings totaled $200.0 million. At September 29, 2017,on the Company's variable-rate debt instruments were as follows:
Applicable interest rateOutstanding borrowings
Term loan due September 2024 (1)
6.00 %$1,403.9 
Term loan due February 2025 (1)
6.25 372.6 
Revolving credit facility (2)
4.38 900.0 
(1)The applicable interest rate for the senior secured term loan due September 2024 was 4.08%, and outstanding borrowings totaled $1,855.7 million.loans includes the incremental 250 basis points as a result of the amendment to the cash collateral order that took effect on March 22, 2021. Refer to Note 2 for further discussion on the amendment.
(2)Includes the incremental 200 basis points related to the cash adequate protection payments. Refer to Note 2 for further information.

As of September 29, 2017,24, 2021, the Company continues to be in full compliance with the provisions and covenants associated withwas fully drawn on its debt agreements.$900.0 million revolving credit facility.


22

12.11.Retirement Plans
The net periodic benefit cost for the Company's defined benefit pension plans was as follows:
 Three Months Ended Nine Months Ended
 September 29,
2017		 September 30,
2016		 September 29,
2017		 September 30,
2016
Service cost$—

$0.6
 $1.5
 $1.4
Interest cost0.1

2.7
 2.2
 9.7
Expected return on plan assets—

(4.1) (1.3) (12.5)
Amortization of net actuarial loss0.1

3.5
 2.7
 8.7
Amortization of prior service cost—
 —
 0.2
 —
Plan settlements—
 1.1
 69.7
 8.1
Net periodic benefit cost$0.2

$3.8
 $75.0
 $15.4

The net periodic benefit credit for the Company's postretirement benefit plans was approximately zero and $0.1 million for the three months ended September 29, 2017 and September 30, 2016, respectively, and for both the nine months ended September 29, 2017 and September 30, 2016 the net periodic benefit credit was approximately zero.

Net periodic benefit cost for the Company's defined benefit pension plans and postretirement benefit plans was included within cost of sales; research and development; and selling, general and administrative ("SG&A") expenses on the unaudited condensed consolidated statements of income.

Pension Plan Termination
During the nine months ended September 29, 2017, the Company completed the third-party settlement of remaining obligations of six defined benefit pension plans that were terminated during fiscal 2016. In conjunction with this final settlement, the Company made a $61.3 million cash contribution to the terminated plans and recognized a $69.7 million charge, included within SG&A expenses.



13.Accumulated Other Comprehensive Income (Loss)
The following summarizes the change in accumulated other comprehensive income (loss) for the nine months ended September 29, 2017 and September 30, 2016:
 Currency Translation Unrecognized Gain (Loss) on Derivatives Unrecognized Gain (Loss) on Benefit Plans Unrecognized Gain on Equity Securities Accumulated Other Comprehensive Income (Loss)
Balance at December 30, 2016$(19.5) $(5.7) $(47.3) $—
 $(72.5)
Other comprehensive income before reclassifications17.7
 —
 5.3
 0.1
 23.1
Amounts reclassified from accumulated other comprehensive income(4.7) 0.9
 40.1
 —
 36.3
Net current period other comprehensive income13.0
 0.9
 45.4
 0.1
 59.4
Balance at September 29, 2017$(6.5) $(4.8) $(1.9) $0.1
 $(13.1)

 Currency Translation Unrecognized Gain (Loss) on Derivatives Unrecognized Gain (Loss) on Benefit Plans Unrecognized Gain on Equity Securities Accumulated Other Comprehensive Income (Loss)
Balance at December 25, 2015$(7.9) $(6.3) $(51.1) $—
 $(65.3)
Other comprehensive income (loss) before reclassifications10.2
 —
 (39.5) —
 (29.3)
Amounts reclassified from accumulated other comprehensive income(0.7) 0.4
 9.3
 —
 9.0
Net current period other comprehensive income (loss)9.5
 0.4
 (30.2) —
 (20.3)
Balance at Balance at September 30, 2016$1.6
 $(5.9) $(81.3) $—
 $(85.6)

The following summarizes reclassifications from accumulated other comprehensive income for the nine months ended September 29, 2017 and September 30, 2016:
 
Amount Reclassified from
Accumulated Other Comprehensive Income
  
 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 
Line Item in the Unaudited Condensed Consolidated
Statement of Income
Amortization and other of unrealized loss on derivatives$1.1
 $0.6
 Interest expense
Income tax provision(0.2) (0.2) Income tax benefit
Net of income taxes0.9
 0.4
  
      
Amortization of pension and post-retirement benefit plans:     
Net actuarial loss2.8
 8.8
 
(1) 
Prior service credit(1.6) (2.1) 
(1) 
Divestiture of discontinued operations(3.1) —
 Income from discontinued operations, net of income taxes
Plan settlements69.7
 8.1
 
(1) Selling, general and
     administrative expenses
Total before tax67.8
 14.8
  
Income tax provision(27.7) (5.5) Income tax benefit
Net of income taxes40.1
 9.3
  
Currency translation(4.7) (0.7) Income from discontinued operations, net of income taxes
Total reclassifications for the period$36.3
 $9.0
  
(1)
These accumulated other comprehensive income components are included in the computation of net periodic benefit cost. See Note 12 for additional details.




14.Equity

Share Repurchases

On November 19, 2015, the Company's Board of Directors authorized a $500.0 million share repurchase program (the "November 2015 Program"), which was completed in the three months ended December 30, 2016. On March 16, 2016, the Company's Board of Directors authorized an additional $350.0 million share repurchase program (the "March 2016 Program"), which was completed during the three months ended March 31, 2017. On March 1, 2017, the Company's Board of Directors authorized an additional $1.0 billion share repurchase program (the "March 2017 Program"), which commenced upon the completion of the March 2016 Program. The March 2017 Program has no time limit or expiration date, and the Company currently expects to fully utilize the program.

 March 2017 Repurchase Program 
March 2016
Repurchase Program
 November 2015 Repurchase Program
 Number of Shares Amount Number of Shares Amount Number of Shares Amount
Authorized repurchase amount  $1,000.0
   $350.0
   $500.0
Repurchases:           
   Fiscal 2016 (1)
—
 —
 —
 —
 6,510,824
 425.6
Transition Period 2016—
 —
 1,501,676
 84.0
 1,063,337
 74.4
Fiscal 20174,111,722
 167.0
 5,366,741
 266.0
 —
 —
Remaining amount available  $833.0
   $—
   $—
(1)Represents the Company's historical fiscal year ending on the last Friday in September.

The Company also repurchases shares from employees in order to satisfy employee tax withholding requirements in connection with the vesting of restricted shares and share option exercises.

15.Guarantees
In disposing of assets or businesses, the Company has historicallyfrom time to time provided representations, warranties and indemnities to cover various risks and liabilities, including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities related to periods prior to disposition. The Company assesses the probability of potential liabilities related to such representations, warranties and indemnities and adjusts potential liabilities as a result of changes in facts and circumstances. The Company believes, given the information currently available, that theirthe ultimate resolutions will not have a material adverse effect on its financial condition, results of operations and cash flows.
In connection with the sale of the Specialty ChemicalsChemical business (formerly known as Mallinckrodt Baker) in fiscal 2010, the Company agreed to indemnify the purchaser with respect to various matters, including certain environmental, health, safety, tax and other matters. The indemnification obligations relating to certain environmental, health and safety matters have a term of 17 years from the sale, while some of the other indemnification obligations have an indefinite term. The amount of the liability relating to all of these indemnification obligations included in other liabilities on the Company's unaudited condensed consolidated balance sheets as of September 29, 201724, 2021 and December 30, 201625, 2020 was $14.9$15.0 million and $15.1$15.4 million, respectively, of which $12.2$12.3 million and $12.4$12.7 million, respectively, related to environmental, health and safety matters. The value of the environmental, health and safety indemnity was measured based on the probability-weighted present value of the costs expected to be incurred to address environmental, health and safety claims made under the indemnity. The aggregate fair value of these indemnification obligations did not differ significantly from their aggregate carrying value atas of September 29, 201724, 2021 and December 30, 2016.25, 2020. As of September 29, 2017,24, 2021, the maximum future payments the Company could be required to make under these indemnification obligations were $70.2 million. The Company was required to pay $30.0 million into an escrow account as collateral to the purchaser, of which $18.2 million and $19.0 million remained in restricted cash, included in other long-term other assets on the unaudited condensed consolidated balance sheets atas of both September 29, 201724, 2021 and December 30, 2016,25, 2020, respectively.
The Company has recorded liabilities for known indemnification obligations included as part of environmental liabilities, which are discussed in Note 16.within the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended December 25, 2020.
The Company is also liable for product performance; however, the Company believes, given the information currently available, that theirthe ultimate resolutionsresolution of any such claims will not have a material adverse effect on its financial condition, results of operations and cash flows.


The Company was previously required to provide the U.S. Nuclear Regulatory Commission financial assurance demonstrating its ability to fund the decommissioning of its Maryland Heights, Missouri, radiopharmaceuticals production facility upon closure. Following the sale of the Nuclear Imaging business, the surety bond was canceled in April 2017 and the Company is no longer required to provide financial assurance to the U.S. Nuclear Regulatory Commission for that facility. As of September 29, 2017,24, 2021, the Company had various other letters of credit, guarantees and surety bonds totaling $29.1 million.
As part$34.2 million and restricted cash of $40.6 million held in segregated accounts primarily to collateralize surety bonds for the Company's legal separation, the Company entered into a separation and distribution agreement with Covidien plc ("Covidien"), which was subsequently acquired by Medtronic plc. Such agreement provides for cross-indemnities principally designed to place financial responsibility of the obligations and liabilities of the Company's business with the Company and financial responsibility for the obligations and liabilities of Covidien's remaining business with Covidien, among other indemnities.environmental liabilities.


16.12.Commitments and Contingencies
The Company is subject to various legal proceedings and claims, including government investigations, environmental matters, product liability matters, patent infringement claims, product liability matters, environmental matters,personal injury, employment disputes, contractual disputes and other commercial disputes, including those described below. The Company believes that these legal proceedings and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these matters, the Company believes, unless otherwise indicated below, given the information currently available, that their ultimate resolutionsresolution will not have a material adverse effect on its financial condition, results of operations and cash flows.

On October 12, 2020, the Company announced that Mallinckrodt plc and certain of its subsidiaries voluntarily initiated the Chapter 11 Cases under the Bankruptcy Code in the Bankruptcy Court. As a result of initiating the Chapter 11 Cases, all litigation and proceedings against the Company have been automatically stayed, subject to certain limited exceptions. In addition, the Bankruptcy Court issued orders enjoining certain litigation against the Company and various individuals named in certain of the litigation described below that might otherwise be subject to such an exception. For further information about the Chapter 11 Cases, refer to Note 2.

Governmental Proceedings
Opioid RelatedOpioid-Related Matters
Since 2017, multiple U.S. states, counties, a territory, other governmental persons or entities and private plaintiffs have filed lawsuits against certain entities of the Company, as well as various other manufacturers, distributors, pharmacies, pharmacy benefit managers, individual doctors and/or others, asserting claims relating to defendants' alleged sales, marketing, distribution, reimbursement, prescribing, dispensing and/or other practices with respect to prescription opioid medications, including certain of the Company's products. As of November 1, 2021, the cases the Company is aware of include, but are not limited to, approximately 2,618
23

cases filed by counties, cities, Native American tribes and/or other government-related persons or entities; approximately 270 cases filed by hospitals, health systems, unions, health and welfare funds or other third-party payers; approximately 124 cases filed by individuals; approximately 6 cases filed by schools and school boards; and 17 cases filed by the Attorneys General for New Mexico, Kentucky, Rhode Island, Georgia, Florida, Alaska, New York, Nevada, South Dakota, New Hampshire, Louisiana, Illinois, Mississippi, West Virginia, Puerto Rico, Ohio, and Idaho, with Idaho being the only state Attorney General to file in federal as opposed to state court. As of November 1, 2021, the Mallinckrodt defendants in these cases consist of Mallinckrodt plc and the following subsidiaries of Mallinckrodt plc: Mallinckrodt Enterprises LLC, Mallinckrodt LLC, SpecGx LLC, Mallinckrodt Brand Pharmaceuticals Inc., Mallinckrodt Inc., MNK 2011 Inc., and Mallinckrodt Enterprises Holdings, Inc. Certain of the lawsuits have been filed as putative class actions. On October 8, 2020, the State of Rhode Island filed a lawsuit against the Company's President and Chief Executive Officer ("CEO"), Mark C. Trudeau, asserting similar claims relating to the marketing and distribution of prescription opioid medications. Rhode Island has voluntarily agreed to a stay of the lawsuit against Mr. Trudeau.
Most pending federal lawsuits have been coordinated in a federal multi-district litigation (“MDL”) pending in the U.S. District Court for the Northern District of Ohio. The MDL court has issued a series of case management orders permitting motion practice addressing threshold legal issues in certain cases, allowing discovery, setting pre-trial deadlines and setting a trial date on October 21, 2019 for two cases originally filed in the Northern District of Ohio by Summit County and Cuyahoga County against opioid manufacturers, distributors, and pharmacies ("Track 1 Cases"). The counties claimed that opioid manufacturers' marketing activities changed the medical standard of care for treating both chronic and acute pain, which led to increases in the sales of their prescription opioid products. They also alleged that opioid manufacturers' and distributors' failure to maintain effective controls against diversion was a substantial cause of the opioid crisis. On September 30, 2019, the Company announced that Mallinckrodt plc, along with its wholly owned subsidiaries Mallinckrodt LLC and SpecGx LLC, had executed a definitive settlement agreement and release with Cuyahoga and Summit Counties in Ohio. The settlement fully resolves the Track 1 cases against all named Mallinckrodt entities that were scheduled to go to trial in October 2019 in the MDL. Under the agreement, the Company paid $24.0 million in cash on October 1, 2019. In addition, the Company will provide $6.0 million in generic products, including addiction treatment products, and will also provide a $0.5 million payment in two years in recognition of the counties' time and expenses. Further in the event of a comprehensive resolution of government-related opioid claims, the Company has agreed that the two plaintiff counties will receive the value they would have received under such a resolution, less the payments described above. All named Mallinckrodt entities were dismissed with prejudice from the lawsuit. The value of the settlement should not be extrapolated to any other opioid-related cases or claims.
Other lawsuits remain pending in various state courts. In some jurisdictions, certain of the state lawsuits have been named in several lawsuits filed in federalconsolidated or coordinated for pre-trial proceedings before a single court brought by various counties and cities, along with other opioid manufacturers and, often, distributors. In general, thewithin their respective state court systems.
The lawsuits assert a variety of claims, ofincluding, but not limited to, public nuisance, negligence, civil conspiracy, fraud, violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) or similar state laws, violations of state Controlled Substances Acts or state False Claims Acts, product liability, consumer fraud, unfair or deceptive trade practices, false advertising, insurance fraud, unjust enrichment, negligence, negligent misrepresentation, and other common law and statutory claims arising from defendants’defendants' manufacturing, distribution, marketing and promotion of opioids and seek restitution, damages, injunctive and other relief and attorneys’attorneys' fees and costs. TheseThe claims have been filed generally are based on alleged misrepresentations and/or amendedomissions in connection with the sale and marketing of prescription opioid medications and/or an alleged failure to includetake adequate steps to prevent diversion.
Opioid-Related Litigation Settlement. On February 25, 2020, the Company announced that it had reached an agreement in principle with a court-appointed plaintiffs' executive committee representing the interest of thousands of plaintiffs in the MDL and supported by a broad-based group of 48 state and U.S. Territory Attorneys General on the terms of a global settlement that would resolve all opioid-related claims against the Company and its subsidiaries (the "Opioid-Related Litigation Settlement"). The Opioid-Related Litigation Settlement contemplated the filing of voluntary petitions under Chapter 11 by the Specialty Generics Subsidiaries and the establishment of a trust for the benefit of plaintiffs holding opioid-related claims against the Company (the "Opioid Claimant Trust"). Furthermore, under the terms of the Opioid-Related Litigation Settlement, subject to court approval and other conditions, it was contemplated that, the Company would (1) make cash payments of $1,600.0 million in structured payments over eight years, beginning upon the Specialty Generics Subsidiaries’ emergence from the completed Chapter 11 case, the substantial majority of which would be expected to be contributed to the Opioid Claimant Trust and (2) issue warrants with an eight year term to the Opioid Claimant Trust exercisable at a strike price of $3.15 per share to purchase the Company’s ordinary shares that would represent approximately 19.99% of the Company's fully diluted outstanding shares, including after giving effect to the exercise of the warrants (the “Settlement Warrants”).
Amended Opioid-Related Litigation Settlement. In conjunction with the Company's Chapter 11 filing on October 12, 2020, the Company entered into a RSA which includes a proposed resolution of all opioid-related claims against the Company and its subsidiaries that supersedes the Opioid-Related Litigation Settlement. On September 2, 2021, the Debtors reached an agreement in principle with the Opioid Claimants, which supersedes the Amended Opioid-Related Litigation Settlement as proposed in the RSA. The agreement in principle provides that, upon the Company’s emergence from the Chapter 11 process, subject to court approval and other conditions:
•Opioid claims would be channeled to one or more trusts, which would receive $1,725.0 million in structured payments consisting of (i) a $450.0 million payment upon the Company’s emergence from Chapter 11; (ii) a $200.0 million payment
24

upon each of the first and second anniversaries of emergence; (iii) a $150.0 million payment upon each of the third through seventh anniversaries of emergence; and (iv) a $125.0 million payment upon the eighth anniversary of emergence with an eighteen month prepayment option at a discount for all but the first payment.
•Opioid claimants would also receive warrants for approximately 19.99% of the reorganized Company’s new outstanding shares, after giving effect to the exercise of the warrants, but subject to dilution from equity reserved under the management incentive plan, exercisable at any time on or prior to the sixth anniversary of the Company's emergence, at a strike price reflecting an aggregate equity value for the reorganized Debtors of $1,551.0 million (the "New Opioid Warrants").
•Upon commencing the Chapter 11 filing, the Company has begun to comply with an agreed-upon operating injunction with respect to the operation of its opioid business.
In accordance with the announced agreement in principle, the Company recorded an accrual for the additional structured cash payment related to this contingency of $125.0 million during the three months ended September 24, 2021. As of September 24, 2021 and December 25, 2020, the Company maintained an accrual for this contingency of $1,725.0 million and $1,600.0 million within LSTC, respectively. No value has been ascribed to the warrants as of September 24, 2021 or December 25, 2020 as the Company cannot reasonably estimate the equity value upon emergence. For further information on the terms of this proposed resolution, refer to Note 2.
Other Opioid-Related Matters. On June 1, 2020, a putative class action lawsuit was filed against Mallinckrodt plc, Mallinckrodt Canada ULC, Her Majesty the Queen in right of the Province of British Columbia ("Province") and the College of Pharmacists of British Columbia ("College") in the Supreme Court of British Columbia, captioned Laura Shaver v. Mallinckrodt Canada ULC, et al., Court File No. VLC-S-S-205793. The action purports to be brought on behalf of any persons: (1) prescribed Methadose for opioid agonist treatment in British Columbia after March 1, 2014; (2) covered by Pharmacare Plan C within British Columbia who were prescribed Methadose for opioid agonist treatment after February 1, 2014; (3) who transitioned from compounded methadone to Methadose for opioid agonist treatment in British Columbia after March 1, 2014; (4) covered by Pharmacare Plan C within British Columbia who were transitioned from compounded methadone to Methadose for opioid agonist treatment after February 1, 2014; or (5) falling within such other class definition as the British Columbia Court may approve. The suit generally alleges that the Province’s decision to grant Methadose coverage under Pharmacare Plan C and remove compounded methadone from coverage under Pharmacare Plan C had adversely affected those being treated for opioid use disorder due to Methadose allegedly being a significantly less effective treatment than generic compounded methadone. The suit asserts that the Province, the College and the Mallinckrodt defendants knew (or ought to have known) about, failed to warn patients about and made false representations concerning, the efficacy of Methadose and the risks of switching from compounded methadone to Methadose. The suit seeks general, special, aggravated, punitive and exemplary damages in an unspecified amount, costs and interest and injunctive relief against the Province, the College and the Mallinckrodt defendants. Pursuant to two orders granted by the Ontario Superior Court of Justice (Commercial List) ("Canadian Court") on October 15, 2020, the Chapter 11 proceedings commenced by Mallinckrodt plc and Mallinckrodt Canada ULC pursuant to the U.S. Bankruptcy Code were recognized and given effect in Canada. Among other things, the Canadian Court has stayed all proceedings against the Mallinckrodt defendants, including the British Columbia class action proceedings. The Canadian Court granted a further order on February 25, 2021, staying the British Columbia class action proceedings against all defendants. At this stage, the Company is not able to reasonably estimate the expected amount or range of cost or any loss associated with this lawsuit.
New York State Opioid Stewardship Act. On October 24, 2018, the Company filed suit in the U.S. District Court for the Southern District of Illinois (October 26, 2017 and October 27, 2017), the U.S. District Court for the Southern District of Ohio (between September 22, 2017 and November 6, 2017), the U.S. District Court for the Northern District of Alabama (October 25, 2017), the U.S. District Court for the Eastern District of Michigan (October 12, 2017), and the U.S. District Courts for the Eastern and Western Districts of Kentucky (between October 3 and October 30, 2017). The Company intends to vigorously defend itself in these matters.
On June 13, 2017, the District Attorneys General of Tennessee’s First, Second and Third Judicial Districts and Baby Doe jointly filed a lawsuit in Circuit Court for Sullivan County in Kingsport, Tennessee against certain prescription opioid manufacturers, including the Company, and other parties. The lawsuit alleges violations of Tennessee’s Drug Dealer Liability Act and public nuisance laws arising out of defendants’ alleged opioid sales and marketing practices, seeking restitution, damages, injunctive and other relief and attorneys’ fees and costs. On September 29, 2017, a similar lawsuit was filedNew York against the CompanyState of New York, asking the court to declare New York State's Opioid Stewardship Act (“OSA”) unconstitutional and other parties by several other Tennessee District Attorneys Generalto enjoin its enforcement. On December 19, 2018, the court declared the OSA unconstitutional and two Baby Does in the Circuit Court for Campbell County in Jacksboro, Tennessee and generally parallels the claims in the Sullivan County lawsuit and seeks similar relief. On August 3, 2017, a lawsuit was filed in Multnomah County Circuit Court in Oregon by the County of Multnomah against certain prescription opioid manufacturers, including the Company, as well as distributors and healthcare providers, asserting claims of public nuisance, abnormally dangerous activity, fraud, and negligence, and seeking relief similar to that sought in the Tennessee and federal actions. The Company intends to vigorously defend itself in these matters.
The Company has also received various subpoenas and requests for information related to the distribution, marketing and sale of the Company’s opioid products. On July 26, 2017, the Company received a subpoena from the Department of Justice, on August 24, 2017, the Company received a Civil Investigative Demand (“CID”) from the Missouri Attorney General’s Office and on September 22, 2017, the Company received a subpoena from the New Hampshire Attorney General’s Office. The Company is in the process of responding to these subpoenas and the CID, and the Company intends to cooperate fully in these investigations.
SEC Subpoena. In January 2017, the Company received a subpoena from the SEC for documents related to the Company’s public statements, filings and other disclosures regarding Acthar sales, profits, revenue, promotion and pricing. The Company has responded to this subpoena, and the Company intends to cooperate fully in the investigation.
Boston Subpoena. In December 2016, the Company received a subpoena from the United States Attorney’s Office ("USAO") for the District of Massachusetts for documents related to the Company’s provision of financial and other support to patients, including


through charitable foundations, and related matters. The Company is in the process of responding to this subpoena, and the Company intends to cooperate fully in the investigation.
Texas Pricing Investigation. In November 2014, the Company received a CID from the Civil Medicaid Fraud Division of the Texas Attorney General's Office. According to the CID, the Attorney General's office is investigating the possibility of false reporting of information by the Company regarding the prices of certain of its drugs used by Texas Medicaid to establish reimbursement rates for pharmacies that dispensed the Company's drugs to Texas Medicaid recipients. The Company is in the process of responding to these requests.
Mallinckrodt Inc. v. U.S. Food and Drug Administration, et al. In November 2014, the Company filed a Complaint ("the Complaint") in the U.S. District Court for the District of Maryland Greenbelt Division against the FDA and the United States for judicial review of what the Company believes is the FDA's inappropriate and unlawful reclassification of the Company's Methylphenidate HCl Extended-Release tablets USP (CII) ("Methylphenidate ER") in the Orange Book: Approved Drug Products with Therapeutic Equivalence ("Orange Book") on November 13, 2014. The Company also sought a temporary restraining order ("TRO") directing the FDA to reinstate the Orange Book AB rating for the Company's Methylphenidate ER products. The court deniedgranted the Company's motion for a TRO and in July 2015,preliminary injunctive relief. On January 17, 2019, the court granted the FDA’s motion to dismiss with respect to threeState of the five counts in the Complaint and granted summary judgment in favor of the FDA with respect to the two remaining counts.  The CompanyNew York appealed the court’s decision tocourt's decision. On September 14, 2020, a panel of the U.S. Court of Appeals for the Fourth Circuit.Second Circuit reversed in part the lower court’s judgment, finding that the lower court should have dismissed the Company’s (and other parties’) challenges to the OSA for lack of subject matter jurisdiction. Together with the other plaintiffs, the Company filed a petition for rehearing en banc to challenge the panel's decision, which was denied on December 18, 2020. On February 12, 2021, the Second Circuit granted the parties' request to stay the mandate. The parties filed a petition for certiorari with the Supreme Court on May 17, 2021. The Supreme Court denied the petition on October 4, 2021. On October 18, 2016,21, 2021, the FDA initiated proceedings, proposingDistrict Court vacated its December 19, 2018 order, except for its invalidation of the "pass through prohibition" on the basis it violates the Commerce Clause. The invalidation of that provision remains in effect and the State of New York is permanently enjoined from enforcing it. In April 2019, the State of New York passed its 2020 budget, which amended the OSA so that if the OSA decision is reversed on appeal, the OSA would apply only to withdraw approvalthe sale or distribution of certain opioids in New York for 2017 and 2018 and, effective July 1, 2019, imposed an excise tax on certain opioids.

Acthar Gel-Related Matters
Medicaid Lawsuit. In May 2019, CMS issued a final decision directing the Company to revert to the original base date AMP used to calculate Medicaid drug rebates for Acthar Gel despite CMS having given the previous owner of the product, Questcor, written authorization in 2012 to reset the base date AMP. Upon receipt of CMS’s final decision, the Company filed suit in the D.C. District
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Court against the Agency under the Administrative Procedure Act seeking to have the decision declared unlawful and set aside. In March 2020, the Company received an adverse decision from the D.C. District Court. The Company immediately sought reconsideration by the D.C. District Court, which was denied. The Company then appealed the D.C. District Court’s decision to the D.C. Circuit. In June 2020, while its appeal remained pending, the Company was required to revert to the original base date AMP for Acthar in the government’s price reporting system.
As a result of this contingency, the Company incurred a retrospective one-time charge of $641.1 million (the "Acthar Gel Medicaid Retrospective Rebate"), of which $536.0 million and $105.1 million was reflected as a component of net sales and operating expenses, respectively, in the consolidated statement of operations for fiscal 2020. The $105.1 million reflected as a component of operating expenses represented a pre-acquisition contingency related to the portion of the Acthar Gel Medicaid Retrospective Rebate that arose from sales of Acthar Gel prior to the Company’s acquisition of Questcor in August 2014. As of September 24, 2021 and December 25, 2020, $634.1 million and $638.9 million related to the Medicaid lawsuit was recorded within LSTC, respectively.
The D.C. Circuit heard argument on the merits of the Company's Abbreviated New Drug Application ("ANDA") for Methylphenidate ER. Onappeal in September 2020, prior to the Company's filing of the Chapter 11 Cases on October 21, 2016,12, 2020. At the United States Courtjoint request of Appeals for the Fourthparties, the D.C. Circuit issued an order placing that litigationhas agreed to hold the case in abeyance pending the outcomecompletion of the withdrawal proceedings.Proposed Acthar Gel-Related Settlement, which was conditioned upon the Company entering the Chapter 11 restructuring process. Pursuant to the Proposed Acthar Gel-Related Settlement, the Company has agreed to pay $260.0 million over seven years and to reset Acthar Gel’s Medicaid rebate calculation as of July 1, 2020, such that state Medicaid programs will receive 100% rebates on Acthar Gel Medicaid sales, based on current Acthar Gel pricing. Additionally, upon execution of the Proposed Acthar Gel-Related Settlement, the Company will dismiss its D.C. Circuit appeal. The Company concurrently submittedexpects that the Proposed Acthar Gel-Related Settlement will be completed over the next several months, subject to the FDA requests for a hearing in the withdrawal proceeding and for an extension of the deadline for submitting documentation supporting the necessity of a hearing.  The FDA granted the Company’s initial request to extend the deadline, and on February 21, 2017, the FDA suspended the deadline in order to give the Center for Drug Evaluation and Research ("CDER") an opportunity to complete its production of documents. CDER shared an initial set of documents with the Company in June 2017 and is in the process of completing production documents to the Company. The Company is preparing the supporting documentation for its submission and plans to vigorously set forth its position in the withdrawal proceedings.Bankruptcy Court approval.

Other Related Matters
Therakos Investigation. ® Subpoena. In March 2014, the USAOU.S. Attorney's Office ("USAO") for the Eastern District of Pennsylvania ("EDPA") requested the production of documents related to an investigation of the U.S. promotion of Therakos’ immunotherapyTherakos® photopheresis ("Therakos") drug/device system UVADEX/UVAR XTS and UVADEX/CELLEX (collectively, the "Therakos System"), for indications not approved by the FDA, including treatment of patients with graft versus host disease ("GvHD") and solid organ transplant patients, including pediatric patients. The investigation also includes Therakos’included Therakos' efforts to secure FDA approval for additional uses of, and alleged quality issues relating to, UVADEX/UVAR. In August 2015, the USAO for the Eastern District of PennsylvaniaEDPA sent Therakos a subsequent request for documents related to the investigation and has since made certain related requests. The Company isresponded to these requests. On June 28, 2021, the USAO for EDPA and the entities named as defendants in the processqui tam complaint captioned United States ex. rel. Michael Johnson and Frank Strobl v. Therakos, et al., No. 12-cv-0454-JHS, that was filed under seal in 2012 filed a stipulation of responding to these requests.
FTC Investigation. In June 2014, Questcor Inc. ("Questcor") received a subpoena and CID from the FTC seeking documentary materials and information regarding the FTC's investigation into whether Questcor's acquisition of certain rights to develop, market, manufacture, distribute, sell and commercialize MNK-1411 (the product formerly described as Synacthen Depot®) from Novartis AG and Novartis Pharma AG (collectively, "Novartis") violates antitrust laws. Subsequently, California, Maryland, Texas, Washington, New York and Alaska (collectively, "the Investigating States") commenced similar investigations focused on whether the transaction violates state antitrust laws. On January 17, 2017, the FTC, all Investigating States (except California) ("the Settling States") and the Company entered into an agreement to resolve this matter for a one-time cash payment of $102.0 million and an agreement to license MNK-1411 to a third party designated by the FTC for possible development in Infantile Spasms ("IS") and Nephrotic Syndrome ("NS")dismissal in the U.S. To facilitate that settlement, a complaint was filed on January 18, 2017, in the U.S.United States District Court for the District of Columbia. The settlement was approved byEDPA terminating the court on January 30, 2017. On July 16, 2017, the Company announced the completion of the U.S. license of both the Synacthen trademark and certain intellectual property associated with MNK-1411 to West Pharmaceuticals to develop and pursue possible FDA approval of the product in IS and NS. The Company retains the right to develop MNK-1411 for all other indications in the U.S. and retains rights to the Synacthen trademark outside the U.S.matter.
Questcor DOJ Investigation. In September 2012,Questcor received a subpoena from the USAO for the Eastern District of Pennsylvania for information relating to its promotional practices related to Acthar. Questcor has also been informed by the USAO for the Eastern District of Pennsylvania that the USAO for the Southern District of New York and the SEC are participating in the investigation to review Questcor's promotional practices and related matters related to Acthar. On March 9, 2015, the Company received a "No Action" letter from the SEC regarding its review of the Company's promotional practices related to Acthar.
DEA Investigation. In November 2011 and October 2012, the Company received subpoenas from the U.S. Drug Enforcement Administration requesting production of documents relating to its suspicious order monitoring program for controlled substances. The USAO for the Eastern District of Michigan is investigating the possibility that the Company failed to report suspicious orders of controlled substances during the period 2006-2011 in violation of the Controlled Substances Act and its related regulations. The USAO for the Northern District of New York and Office of Chief Counsel for the U.S. Drug Enforcement Administration ("DEA") are investigating the possibility that the Company failed to maintain appropriate records and security measures with respect to manufacturing of certain controlled substances at its Hobart facility during the period 2012-2013. On July 11, 2017, the Company


entered into a final settlement with the DEA and the USAOs for the Eastern District of Michigan and the Northern District of New York to settle these investigations. As part of the agreement, the Company paid $35.0 million to resolve all potential claims.

Patent Litigation
Inomax Patent Litigation: Praxair Distribution, Inc. and Praxair, Inc. (collectively "Praxair"). In February 2015, INO Therapeutics LLC and Ikaria, Inc., subsidiaries of the Company, filed suit in the U.S. District Court for the District of Delaware against Praxair following receipt of a January 2015 notice from Praxair concerning its submission of an ANDA containing a Paragraph IV patent certification with the FDA for a generic version of Inomax. In July 2016, the Company filed a second suit against Praxair in the U.S. District Court for the District of Delaware following receipt of a Paragraph IV notice concerning three additional patents recently added to the FDA Orange Book that was submitted by Praxair regarding its ANDA for a generic version of Inomax. The infringement claims in the second suit have been added to the original suit. In September 2016, the Company filed a third suit against Praxair in the U.S. District Court for the District of Delaware following receipt of a Paragraph IV notice concerning a fourth patent recently added to the FDA Orange Book that was submitted by Praxair regarding its ANDA for a generic version of Inomax.
The Company intends to vigorously enforce its intellectual property rights relating to Inomax in both the Inter Partes Review ("IPR") and Praxair litigation proceedings to prevent the marketing of infringing generic products prior to the expiration of the patents covering Inomax. Trial of the suit filed in February 2015 was held in March 2017 and a decision was rendered September 5, 2017 that ruled five patents invalid and six patents not infringed. The Company has appealed the decision to the Court of Appeals for the Federal Circuit. An adverse outcome in the appeal of the Praxair litigation decision ultimately could result in the launch of a generic version of Inomax before the expiration of the last of the listed patents on February 19, 2034 (August 19, 2034 including pediatric exclusivity), which could adversely affect the Company's ability to successfully maximize the value of Inomax and have an adverse effect on its financial condition, results of operations and cash flows.
Inomax Patents: IPR Proceedings. In February 2015 and March 2015, the U.S. Patent and Trademark Office ("USPTO") issued Notices of Filing Dates Accorded to Petitions for IPR petitions filed by Praxair Distribution, Inc. concerning ten patents covering Inomax (i.e., five patents expiring in 2029 and five patents expiring in 2031).
In July 2015, the USPTO Patent Trial and Appeal Board ("PTAB") issued rulings denying the institution of four of the five IPR petitions challenging the five patents expiring in 2029.  The PTAB also issued a ruling in July 2015 that instituted the IPR proceeding in the fifth of this group of patents and the PTAB ruled in July 2016 that one claim of this patent survived review and is valid while the remaining claims were unpatentable.  The Company believes the valid claim describes and encompasses the manner in which Inomax is distributed in conjunction with its approved labeling and that Praxair infringes that claim. Praxair filed an appeal and the Company filed a cross-appeal of this decision to the Court of Appeals for the Federal Circuit. In March 2016, Praxair Distribution, Inc. submitted additional IPR petitions for the five patents expiring in 2029. The PTAB issued non-appealable rulings in August and September 2016 denying institution of all five of these additional IPR petitions. This group of five patents are those patents ruled invalid by the District Court in the September 5, 2017 decision.
In September 2015, the USPTO PTAB issued rulings that instituted the IPR proceedings in each of the second set of five patents that expire in 2031. In September 2016, the PTAB ruled that all claims in the five patents expiring in 2031 are patentable. Three of these patents were asserted in the Praxair litigation and part of the six patents ruled not infringed by the District Court in the September 5, 2017 decision.
Ofirmev Patent Litigation: B. Braun Medical Inc. In April 2017, Mallinckrodt Hospital Products Inc. and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against B. Braun Medical Inc. ("B. Braun") alleging that B. Braun infringed U.S. Patent Nos. 6,992,218 ("the ‘218 patent") and 9,399,012 ("the ‘012 patent") following receipt of a February 2017 notice from B. Braun concerning its submission of a New Drug Application ("NDA"), containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Following receipt of a second Paragraph IV notice letter from B. Braun on April 24, 2017 directed to the ‘012 patent, Mallinckrodt Hospital Products Inc. and Mallinckrodt IP filed suit in June 2017 in the U.S. District Court for the District of Delaware against B. Braun alleging that B. Braun infringed the ‘012 patent and U.S. 9,610,265 (“the ‘265 patent”). In both instances, a protective suit was filed in the U.S. District Court for the Eastern District of Pennsylvania to protect the 30-month stay against any venue challenge in Delaware. In July 2017, B. Braun filed motions to dismiss both actions in Delaware due to improper venue based on the recent U.S. Supreme Court TC Heartland decision on venue in patent cases, and also filed a separate motion to dismiss in the original action in Pennsylvania. Following receipt of a third Paragraph IV notice letter from B. Braun on July 13, 2017 that included a certification to the ‘265 patent, amended complaints were filed in July 2017 in the U.S. District Courts for the Districts of Delaware and Eastern District of Pennsylvania by Mallinckrodt Hospital Products Inc., Mallinckrodt IP and Pharmatop.  Also in July 2017, Mallinckrodt Hospital Products Inc., Mallinckrodt IP and Pharmatop filed a motion to stay the action in the Eastern District of Pennsylvania. A hearing occurred August 24, 2017 in the U.S. District Court for the District of Delaware regarding B. Braun’s motion to dismiss the Delaware actions for improper venue. A decision has not been rendered. A scheduling conference occurred October 4, 2017 in the U.S. District Court for the Eastern District of Pennsylvania and no decisions were rendered on any of the pending motions. A hearing on these pending motions has been scheduled for December 29, 2017.




Ofirmev Patent Litigation: Agila Specialties Private Limited, Inc. (now Mylan Laboratories Ltd.) and Agila Specialties Inc. (a Mylan Inc. Company), (collectively “Agila”).  In December 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against Agila alleging that Agila infringed U.S. Patent No. 6,028,222 ("the '222") patent and the '218 patent following receipt of a November 2014 notice from Agila concerning its submission of a NDA containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016 Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against Agila alleging that Agila infringed the ‘012 patent. On December 31, 2016, the parties entered into settlement agreements on both suits under which Agila was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA on or after December 6, 2020, or earlier under certain circumstances.
Ofirmev Patent Litigation: InnoPharma Licensing LLC and InnoPharma, Inc. In September 2014, Cadence and Mallinckrodt IP, subsidiaries of the Company, and Pharmatop, the owner of the two U.S. patents licensed exclusively by the Company, filed suit in the U.S. District Court for the District of Delaware against InnoPharma Licensing LLC and InnoPharma, Inc. (both are subsidiaries of Pfizer and collectively "InnoPharma") alleging that InnoPharma infringed the '222 patent and the '218 patent following receipt of an August 2014 notice from InnoPharma concerning its submission of a NDA, containing a Paragraph IV patent certification with the FDA for a competing version of Ofirmev. Separately, on December 1, 2016 Mallinckrodt IP filed suit in the U.S. District Court for the District of Delaware against InnoPharma alleging that InnoPharma infringed the ‘012 patent. On May 4, 2017, the parties entered into settlement agreements on both suits under which InnoPharma was granted the non-exclusive right to market a competing intravenous acetaminophen product in the U.S. under its NDA on or after December 6, 2020, or earlier under certain circumstances.
The Company has successfully asserted the ‘222 and ‘218 patents and maintained their validity in both litigation and proceedings at the USPTO. The Company will continue to vigorously enforce its intellectual property rights relating to Ofirmev to prevent the marketing of infringing generic or competing products prior to December 6, 2020, which, if unsuccessful, could adversely affect the Company's ability to successfully maximize the value of Ofirmev and have an adverse effect on its financial condition, results of operations and cash flows.
Tyco Healthcare Group LP, et al. v. Mutual Pharmaceutical Company, Inc. In March 2007, the Company filed a patent infringement suit in the U.S. District Court for the District of New Jersey against Mutual Pharmaceutical Co., Inc., et al. (collectively, "Mutual") after Mutual submitted an ANDA to the FDA seeking to sell a generic version of the Company's 7.5 mg RESTORIL™ sleep aid product. Mutual also filed antitrust and unfair competition counterclaims. The patents at issue have since expired or been found invalid. The trial court issued an opinion and order granting the Company's motion for summary judgment regarding Mutual's antitrust and unfair competition counterclaims. Mutual appealed this decision to the U.S. Court of Appeals for the Federal Circuit and the Federal Circuit issued a split decision, affirming the trial court in part and remanding to the trial court certain counterclaims for further proceedings. The Company filed a motion for summary judgment with the U.S. District Court regarding the remanded issues. In May 2015, the trial court issued an opinion granting-in-part and denying-in-part the Company’s motion for summary judgment. In March 2017, the parties entered into a settlement agreement and the case was dismissed.


Commercial and Securities Litigation
Putative Class ActionCity of Rockford and Other Acthar Gel-Related Matters. On March 12, 2021, the plaintiffs in City of Rockford v. Mallinckrodt ARD, Inc., et al. (“Rockford”), United Ass’n of Plumbers and Pipefitters Local 322 of Southern New Jersey v. Mallinckrodt ARD, LLC, et al. (“Local 322”), Steamfitters Local Union No. 420 v. Mallinckrodt ARD, LLC, et al. (“Steamfitters”), Int'l Union of Operating Engineers Local 542 v. Mallinckrodt ARD Inc., et al. (“Local 542”) and Acument Global Technologies, Inc., v. Mallinckrodt ARD Inc., et al. (“Acument”) filed a motion with the Joint Panel on Multi-District Litigation (MSP). On October 30, 2017, a putative class action lawsuit was filed against(“JPML”) under 28 U.S.C. § 1407 requesting that those cases and others alleging claims related to the Company and United BioSource Corporation ("UBC") in the U.S. District Court for the Central Districtprice of California. The case is captioned Acthar Gel (including Health Care Service Corp. v. Mallinckrodt ARD LLC, et al. (“HCSC”), City of Marietta v. Mallinckrodt ARD LLC (“Marietta”), Humana Inc. v. Mallinckrodt ARD LLC (“Humana”), MSP Recovery Claims, Series II, LLC, et al. v. Mallinckrodt ARD, Inc., et al. (“MSP”) and U.S. ex rel. Strunck v. Mallinckrodt ARD LLC ("Strunck")) be transferred to the Northern District of Illinois for coordinated or consolidated pretrial proceedings as a MDL (the “Section 1407 Motion”). The Company opposed the Section 1407 Motion. In April 2021, the U.S. District Courts in the Northern District of Illinois and the EDPA stayed consideration of the Company’s motions to transfer Rockford, MSP and Steamfitters to the District of Delaware pending a decision by the JPML. The EDPA District Court also denied Local 542's motion for reconsideration of the court's order transferring that case to the District of Delaware. On June 7, 2021, the JPML denied the Section 1407 Motion on the grounds that the timing and outcome of the bankruptcy proceedings made centralization premature.
On April 30, 2021, the Company filed several pleadings in the Chapter 11 Cases in respect of Acthar Gel-based claims, including without limitation the following: (a) objections to putative class proofs of claim filed by the City of Rockford, City of Marietta, Georgia, United Association of Plumbers and Pipefitters Local 322 of Southern New Jersey and Steamfitters Local Union No. 420; (b) objections to all purportedly Acthar Gel-related proofs of claim that state no basis for Acthar Gel-related liability against the named debtor; (c) a motion for establishment of an administrative claims bar date that would require all Acthar Gel claimants, among others,
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to promptly file any requests for payment of purported administrative claims; and (d) an adversary proceeding seeking a declaratory judgment that the claims of the City of Rockford, as a governmental unit, are dischargeable in the Chapter 11 Cases.
In May 2021, Law Enforcement Health Benefits, Inc. (“LEHB”) filed a putative class action complaint in the U.S. District Court for the Northern District of Illinois against the Company and certain of its officers and directors as well as third-party advisors captioned Law Enforcement Health Benefits, Inc. v. Trudeau, et al., No. 3:21-cv-50215 (N.D. Ill.) (“LEHB”). The complaintalleges antitrust claims under Section 1 and Section 2 and numerous state laws, RICO claims under 18 U.S.C. §§ 1962(a), 1962(c) and 1962(d), fraud, conspiracy to defraud, and unjust enrichment and incorporates the allegations at issue in Rockford and the Rockford-related cases discussed above. After the complaint was filed, the Company requested that the district court stay the case in light of the Chapter 11 Cases. The motion to stay was granted. In June 2021, LEHB voluntarily dismissed without prejudice the Mallinckrodt defendant entities that are debtors in the Chapter 11 Cases. In July 2021, LEHB voluntarily dismissed without prejudice most of the Company’s officers and directors as named defendants in the case. The case remains stayed. At this stage, the Company is not able to reasonably estimate the expected amount or range of cost or any loss associated with this lawsuit.
On June 16, 2021, the Bankruptcy Court held that the City of Rockford’s claims are dischargeable in the Chapter 11 Cases. On June 29, 2021, the Bankruptcy Court sustained the Company’s objections to the putative class proofs of claim filed by City of Rockford, City of Marietta, United Association of Plumbers and Pipefitters Local 322 of Southern New Jersey and Steamfitters Local Union No. 420.
In September 2021, the Company filed a motion in the Bankruptcy Court to assume the exclusive distribution agreement for Acthar Gel that plaintiffs in Rockford and the Rockford-related litigation matters (together, the “Ad Hoc Acthar Group”) allege is anticompetitive. The Ad Hoc Acthar Group moved to dismiss the motion to assume. In October 2021, the Company filed an adversary proceeding in the Bankruptcy Court seeking a declaratory judgment that the exclusive distribution agreement for Acthar Gel is lawful.
For additional details on Rockford, Local 322, Steamfitters, Local 542, Acument, Marietta, MSP and Strunck, refer to the notes to the financial statements included within the Company's Annual Report filed on Form 10-K for the fiscal year ended December 25, 2020.
Health Care Service Corporation Litigation. In February 2020, HCSC filed a non-class complaint against the Company in California state court alleging improper pricing, marketing and distribution of Acthar Gel, and challenging the acquisition of rights to Synacthen® Depot ("Synacthen") by the Company's predecessor-in-interest. The complaint included claims for violation of the New Jersey RICO statute and various states’ antitrust laws. It also included claims for conspiracy to violate the New Jersey RICO statute, fraud, unlawful restraint of trade, unfair and deceptive trade practices, insurance fraud, tortious interference with contract and unjust enrichment. The case, which is proceeding as Health Care Service Corp. v. Mallinckrodt ARD LLC, et al., alleges similar facts as those alleged in the Humana matter below. The Company intends to vigorously defend itself in this matter and the Company moved to dismiss the complaint in June 2020. In August 2020, the court dismissed the antitrust and tortious interference claims without prejudice, but held that HCSC could proceed to discovery on its remaining counts. The Company disagrees with the court's decision and contests liability. The Company was preparing to move to dismiss an amended complaint when the Company filed the Chapter 11 Cases. In January 2021, the Company removed this case to federal court and moved for transfer to the District of Delaware where the Company's Chapter 11 Cases are pending. HCSC moved to remand the case back to state court. On June 17, 2021, the district court in California remanded the case back to California state court. At this stage, the Company is not able to reasonably estimate the expected amount or range of cost or any loss associated with this lawsuit.
Humana Litigation. In August 2019, Humana Inc. filed a lawsuit against the Company in the U.S. District Court for the Central District of California captioned Humana Inc. v. Mallinckrodt ARD LLC alleging violations of federal and state antitrust laws; RICO violations under 18 U.S.C. § 1962(c); conspiracy to violate RICO under 18 U.S.C. § 1962(d); violations of state unfair competition, consumer fraud and deceptive trade practice laws; state insurance fraud; tortious interference with contract; and unjust enrichment related to the pricing and marketing of Acthar Gel and the acquisition of Synacthen by the Company's predecessor-in-interest. Humana alleges that it paid more than $700.0 million for Acthar Gel and seeks undisclosed damages from 2011 through present. The case alleges similar facts as those alleged in the MSP and Rockford matters, and includes references to allegations at issue in a pending qui tam action against the Company in the U.S. District Court for the EDPA. In March 2020, the court granted-in-part and denied-in-part the Company's motion to dismiss Humana's claims. The court dismissed Humana's antitrust and tortious interference claims with leave to amend. The court denied the Company's motion to dismiss Humana's RICO and other fraud-based claims. Humana filed an amended complaint in May 2020, which the Company moved to dismiss. In August 2020, the court granted-in-part and denied-in-part the Company's motion to dismiss the amended complaint. The court dismissed with prejudice Humana's claims under most state antitrust laws to the extent predicated on conduct before 2014 and Humana's tortious interference claims. The court ruled that Humana's federal antitrust, federal RICO, state insurance fraud and unjust enrichment claims may proceed. The Company disagrees with the court's decision and contest liability. The Company intends to vigorously defend itself in this matter. At this stage, the Company is not able to reasonably estimate the expected amount or range of cost or any loss associated with this lawsuit. In September 2020, the Company answered the remaining allegations and claims of the operative complaint. In October 2020, the court entered an order acknowledging the automatic stay of this litigation pursuant to §362 of the Bankruptcy Code. In January 2021, the Company moved to transfer this case to the District of Delaware where the Company's Chapter 11 Cases are pending. Humana opposed transfer. On June 28, 2021, the district court in California granted the Company’s motion to transfer the case to the District of
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Delaware where the Chapter 11 cases are pending. Humana, along with an assignee of claims by United Healthcare Services, Inc., Optum Rx Group Holdings and OptumRx Holdings, LLC and CVS Pharmacy, Inc. (together, the "Acthar Insurance Claimants"), has filed similar claims (including claims for administrative expense) in the Chapter 11 Cases. In August 2021, the Company filed a motion for partial summary judgement as to the Acthar Insurance Claimants' antitrust claims. In September 2021, the Bankruptcy Court denied the Company's motion for partial summary judgement in a bench ruling with a written ruling issued in October 2021.
Putative Class Action Securities Litigation (Strougo). In July 2019, a putative class action lawsuit was filed against the Company, its CEO Mark C. Trudeau, its Chief Financial Officer ("CFO") Bryan M. Reasons, its former Interim CFO George A. Kegler and its former CFO Matthew K. Harbaugh, in the U.S. District Court for the Southern District of New York, captioned Barbara Strougo v. Mallinckrodt plc, et al. The complaint purports to be brought on behalf of two classes: all Medicare Advantage Organizations and related entities in the U.S.persons who purchased or provided reimbursement for Acthar pursuant to (i) Medicare Part C contracts (Class 1)otherwise acquired Mallinckrodt's securities between February 28, 2018 and (ii) Medicare Part D contracts (Class 2) since January 1, 2011, with certain exclusions.July 16, 2019. The complaintlawsuit generally alleges that the defendants made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder related to the Company's clinical study designed to assess the efficacy and safety of its Acthar Gel in patients with amyotrophic lateral sclerosis. The lawsuit seeks monetary damages in an unspecified amount. A lead plaintiff was designated by the court on June 25, 2020, and on July 30, 2020, the court approved the transfer of the case to the U.S. District Court for the District of New Jersey. On August 10, 2020, an amended complaint was filed by the lead plaintiff alleging an expended putative class period of May 3, 2016 through March 18, 2020 against the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raiseMark C. Trudeau, Bryan M. Reasons, George A. Kegler and maintainMatthew K. Harbaugh, as well as newly named defendants Kathleen A. Schaefer, Angus C. Russell, Melvin D. Booth, JoAnn A. Reed, Paul R. Carter, and Mark J. Casey (collectively with Trudeau, Reasons, Kegler and Harbaugh, the price of Acthar. To this end, the"Strougo Defendants"). The amended complaint allegesclaims that the defendants made false and/or misleading statements and/or failed to disclose that: (i) the CMS had informed the Company unlawfully maintained a monopolythat it was using the wrong base date AMP for calculating the Medicaid rebate the Company owed CMS for Acthar Gel each quarter since 2014; (ii) the Company’s reported net income was improperly inflated in a purported ACTH product market by acquiringviolation of GAAP; (iii) the U.S. rights to Synacthen Depot and reaching anti-competitive agreementsCompany’s contingent liabilities associated with the otherrebates owed to CMS for Acthar Gel were misrepresented; (iv) the Company’s fiscal year 2019 guidance for Acthar Gel net sales was false; (v) the Company failed to disclose material information regarding the cases captioned Landolt v. Mallinckrodt ARD LLC, No. 1:18-cv-11931-PBS (D. Mass.) (Landolt) and U.S. ex rel. Strunck v. Mallinckrodt ARD LLC, No. 2:12-cv-0175-BMS (E.D. Pa.) (Strunck), or the related investigation by the DOJ and (vi) the Company failed to disclose that the clinical trials for Acthar Gel were purportedly initiated in order to make it appear that alternative revenue opportunities for Acthar Gel existed and thus offset the expected 10% decline in net sales as a result of the rebates the Company now had to pay. On October 1, 2020, the defendants by selling Acthar through an exclusive distribution network.filed a motion to dismiss the amended complaint. The complaint purports to allege claims under federal and state antitrust laws and state unfair competition and unfair trade practice laws. The Companydefendants intends to vigorously defend itselfthemselves in this matter. At this stage, the Company is not able to reasonably estimate the expected amount or range of cost or any loss associated with this lawsuit. As to the Company, this litigation is subject to the automatic stay under §362 of the Bankruptcy Code, and on December 4, 2020, the Bankruptcy Court also enjoined proceedings against the Strougo Defendants. The plaintiffs subsequently appealed the Bankruptcy Court action to the U.S. District Court in Delaware through a motion for reconsideration, which was denied by that court on January 27, 2021.
Employee Stock Purchase Plan (ESPP) Securities Litigation. OnIn July 20, 2017, a purported purchaser of Mallinckrodt stock through Mallinckrodt’s Employee Stock Purchase Plans (“ESPPs”),Mallinckrodt's ESPPs filed a derivative and class action lawsuit in the Federal District Court in the Eastern District of Missouri, captioned Solomon v. Mallinckrodt plc, et al., against the Company, its Chief Executive Officer Mark C. Trudeau ("CEO") ,CEO, its Chief Financial Officerformer CFO Matthew K. Harbaugh, ("CFO"), its Controller Kathleen A. Schaefer, and current and former directors of the Company. TheCompany (collectively, the "Solomon Defendants"). On September 6, 2017, plaintiff voluntarily dismissed the Missouriits complaint and refiled it in the U.S.Federal District Court for the Eastern District of Columbia.Missouri and refiled virtually the same complaint in the D.C. District Court. The complaint purports to be brought on behalf of all persons who purchased or otherwise acquired Mallinckrodt stock between November 25, 2014, and January 18, 2017, inthrough the ESPPs. In the alternative, the plaintiff alleges a class action for those same purchasers/acquirers of stock in the ESPPs during the same period. The complaint asserts claims under Section


11 of the Securities Act and for breach of fiduciary duty, misrepresentation, non-disclosure, mismanagement of the ESPPs’ESPPs' assets and breach of contract arising from substantially similar allegations as those contained in the putative Patricia A. Shenk v. Mallinckrodt plc, et al ("Shenk") class action securitieslawsuit. Stipulated co-lead plaintiffs were approved by the court on March 1, 2018. Co-lead Plaintiffs filed an amended complaint on June 4, 2018 having a class period of July 14, 2014 to November 6, 2017. The complaint seeks damages in an unspecified amount. On July 6, 2018, this matter was stayed by agreement of the parties pending resolution of the Shenk class action lawsuit. The defendants intends to vigorously defend themselves in this matter. On October 13, 2020, the trial court entered an order acknowledging the automatic stay of this litigation as to the Company pursuant to §362 of the Bankruptcy Code, and on December 4, 2020, the Bankruptcy Court also enjoined the proceedings against the individual named defendants.

Generic Price Fixing Litigation
Canadian (Eaton) Litigation. In December 2020, the Company received a statement of claim filed in federal court in Toronto, Ontario, Canada, naming the Company, Mallinckrodt Canada ULC, Mallinckrodt LLC and a predecessor to MNK 2011 LLC, as well as other pharmaceutical manufacturers, as defendants in an action captioned Kathryn Eaton v Teva Canada Limited et al. The claim purports to be brought on behalf of all persons or entities in Canada who, from January 23, 20171, 2012 to the present, purchased generic drugs in the private sector. The allegations and described below. Thererequests for relief in the statement of claim, in substance, are two competing movantssimilar to servethose in the 1199SEIU National Benefit Fund litigation, and include the claim that the Company breached the Competition Act in Canada. As a
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result of the Eaton action being served on the Mallinckrodt defendants, Mallinckrodt Canada ULC sought, and the Canadian Court granted, an order on April 20, 2021, among other things: (1) recognizing the Chapter 11 Cases of, and granting Canadian stays with respect to, Mallinckrodt LLC and MNK 2011 LLC; and (2) declaring that the Eaton action is stayed as lead plaintiff/lead counsel,against each of the Mallinckrodt defendants and the named predecessor to MNK 2011 LLC.
Rite Aid Litigation. In July 2020, a direct action complaint filed in the U.S. District Court for the EDPA named the Company and several other pharmaceutical manufacturers as new defendants in an action captioned Rite Aid Corp. et al. v. Actavis Holdco U.S., Inc. et al. The lawsuit purports to be brought by entities that directly purchased generic drugs from defendants or a co-conspirator. The complaint seeks monetary damages and injunctive relief for violations of Section 1 of the Sherman Antitrust Act, and is premised on facts similar to those motions remain pending.alleged in the State Attorneys General Litigation. This lawsuit has been consolidated with the Generic Pricing MDL. An amended complaint was filed in December 2020.
State Attorneys General Litigation. In June 2020, the Company, along with more than 20 other pharmaceutical manufacturers, was named as a defendant in a lawsuit brought by Attorneys General for 51 States, Territories, and the District of Columbia. The lawsuit, filed in the U.S. District Court for the District of Connecticut, alleges that manufacturers of generic drugs conspired to fix prices for certain generic drugs by communicating in advance of price increases and agreeing to certain market share allocations amongst competitors to thwart competition. The lawsuit alleges that prices for the generic drugs at issue were inflated as a result of the alleged conspiracies, causing harm to the U.S. healthcare system. The complaint seeks monetary damages and injunctive relief for violations of Section 1 of the Sherman Antitrust Act and various state antitrust, consumer protection, and unjust enrichment claims. This lawsuit has been consolidated with the Generic Pricing MDL and was selected as a bellwether case in May 2021. The Company disagrees with the Attorneys Generals’ characterization of the facts and applicable law.
Generic Pharmaceutical Antitrust MDL. In August 2016, a multidistrict litigation was established in the EDPA relating to allegations of antitrust violations with respect to generic pharmaceutical pricing (the "Generic Pricing MDL"). Plaintiffs in the Generic Pricing MDL, captioned In re: Generic Pharmaceuticals Pricing Antitrust Litigation, allege a conspiracy of price-fixing and customer allocation among generic drug manufacturers beginning in or around July 2009. Since its establishment, the Generic Pricing MDL has expanded to encompass dozens of pharmaceutical companies and more than 200 generic pharmaceutical drugs. Plaintiffs in the Generic Pricing MDL have proceeded with discovery collectively and recently issued subpoenas to former Company employees. The Company intends to vigorously defend itself in this matter.
Putative Class Action Litigation (Rockford). On April 6, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation ("UBC") in the U.S. District Court for the Northern District of Illinois. The case is captioned City of Rockford v. Mallinckrodt ARD, Inc., et al. The complaint purports to be brought on behalf of all self-funded entities in the U.S. and its Territories that paid for Acthar from August 2007 to the present. An amended complaint was filed on October 9, 2017, adding defendants and alleging that the Company engaged in anticompetitive, fraudulent, and deceptive acts to artificially raise and maintain the price of Acthar. To At this end, the amended complaint alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot; conspired with the other defendants and violated anti-racketeering laws by selling Acthar through an exclusive distribution network; and committed a fraud on consumers by misrepresenting the value of Acthar. The Company intends to vigorously defend itself in this matter.
Putative Class Action Securities Litigation. On January 23, 2017, a putative class action lawsuit was filed against the Company and its CEO in the U.S. District Court for the District of Columbia, captioned Patricia A. Shenk v. Mallinckrodt plc, et al. The complaint purports to be brought on behalf of all persons who purchased Mallinckrodt’s publicly traded securities on a domestic exchange between November 25, 2014 and January 18, 2017. The lawsuit generally alleges that the Company made false or misleading statements related to Acthar and Synacthen to artificially inflate the price of the Company’s stock. In particular, the complaint alleges a failure by the Company to provide accurate disclosures concerning the long-term sustainability of Acthar revenues, and the exposure of Acthar to Medicare and Medicaid reimbursement rates. On January 26, 2017, a second putative class action lawsuit, captioned Jyotindra Patel v. Mallinckrodt plc, et al. was filed against the same defendants named in the Shenk lawsuit in the U.S. District Court for the District of Columbia. The Patel complaint purports to be brought on behalf of shareholders during the same period of time as that set forth in the Shenk lawsuit and asserts claims similar to those set forth in the Shenk lawsuit. On March 13, 2017, a third putative class action lawsuit, captioned Amy T. Schwartz, et al., v. Mallinckrodt plc, et al., was filed against the same defendants named in the Shenk lawsuit in the U.S. District Court for the District of Columbia. The Schwartz complaint purports to be brought on behalf of shareholders who purchased shares of the Company between July 14, 2014 and January 18, 2017 and asserts claims similar to those set forth in the Shenk lawsuit. On March 23, 2017, a fourth putative class action lawsuit, captioned Fulton County Employees’ Retirement System v. Mallinckrodt plc, et al., was filed against the Company and its CEO and CFO in the U.S. District Court for the District of Columbia. The Fulton County complaint purports to be brought on behalf of shareholders during the same period of time as that set forth in the Schwartz lawsuit and asserts claims similar to those set forth in the Shenk lawsuit. On March 27, 2017, four separate plaintiff groups moved to consolidate the pending cases and to be appointed as lead plaintiffs in the consolidated case. Since that time, two of the plaintiff groups have withdrawn their motions. There are two competing movants to serve as lead plaintiff/lead counsel, and those motions remain pending. The Company intends to vigorously defend itself in this matter.
Retrophin Litigation. In January 2014, Retrophin, Inc. ("Retrophin") filed a lawsuit against Questcor in the U.S. District Court for the Central District of California, alleging a variety of federal and state antitrust violations based on Questcor's acquisition from Novartis of certain rights to develop, market, manufacture, distribute, sell and commercialize Synacthen. In June 2015, the parties entered into a binding settlement agreement, under the terms of which Retrophin agreed to dismiss the litigation with prejudice and Questcor agreed to make a one-time cash payment to Retrophin in the amount of $15.5 million.
Putative Class Action Securities Litigation. In September 2012, a putative class action lawsuit was filed against Questcor and certain of its officers and directors in the U.S. District Court for the Central District of California, captioned John K. Norton v. Questcor Pharmaceuticals, et al. The complaint purported to be brought on behalf of shareholders who purchased Questcor common stock between April 26, 2011 and September 21, 2012. The complaint generally alleged that Questcor and certain of its officers and directors engaged in various acts to artificially inflate the price of Questcor stock and enable insiders to profit through stock sales. The complaint asserted that Questcor and certain of its officers and directors violated sections l0(b) and/or 20(a) of the Securities Exchange Act of 1934, as amended ("the Exchange Act"), by making allegedly false and/or misleading statements concerning the clinical evidence to support the use of Acthar for indications other than infantile spasms, the promotion of the sale and use of Acthar in the treatment of multiple sclerosis and nephrotic syndrome, reimbursement for Acthar from third-party insurers, and Questcor's outlook and potential market growth for Acthar. The complaint sought damages in an unspecified amount and equitable relief against the defendants. This lawsuit was consolidated with four subsequently-filed actions asserting similar claims under the caption: In re Questcor Securities Litigation. In October 2013, the District Court granted in part and denied in part Questcor's motion to dismiss the consolidated amended complaint. In October 2013, Questcor filed an answer to the consolidated amended complaint and fact discovery was concluded in January 2015. In April 2015, the parties executed a long-form settlement agreement, under the terms of which Questcor agreed to pay $38.0 million to resolve the plaintiff's claims, inclusive of all fees and costs. Questcor and the individual defendants maintain that the plaintiffs' claims are without merit, and entered into the settlement to eliminate the uncertainties, burden and expense of further protracted litigation. During fiscal 2015, the Company established a $38.0 million reserve for this settlement, which was subsequently paid to a settlement fund. The court issued its final approval of the settlement on September 18, 2015.


Glenridge Litigation. In June 2011, Glenridge Pharmaceuticals, LLC ("Glenridge"), filed a lawsuit against Questcor in the Superior Court of California, Santa Clara County, alleging that Questcor had underpaid royalties to Glenridge under a royalty agreement related to net sales of Acthar. In August 2012, Questcor filed a separate lawsuit against the three principals of Glenridge, as well as Glenridge, challenging the enforceability of the royalty agreement. In August 2013, the lawsuits were consolidated into one case in the Superior Court of California, Santa Clara County. In October 2014, the parties entered into a binding term sheet settling the lawsuit. Under the terms of the settlement, the royalty rate payable by Questcor was reduced, royalties were capped instead of being payable for so long as Acthar was sold and Questcor agreed to pay Glenridge a reduced amount in satisfaction of royalties Questcor had previously accrued but not paid during the course of the lawsuit. In February 2015, the settlement agreement was finalized, with terms consistent with the October 2014 term sheet.

Pricing Litigation
State of Utah v. Apotex Corp., et al. The Company, along with several other pharmaceutical companies, was a defendant in this matter which was filed in May 2008, in the Third Judicial Circuit of Salt Lake County, Utah. The State of Utah alleges, generally, that the defendants reported false pricing information in connection with certain drugs that are reimbursable under Utah Medicaid, resulting in overpayment by Utah Medicaid for those drugs, and is seeking monetary damages and attorneys' fees. The Company believes that it has meritorious defenses to these claims and vigorously defended against them. In December 2015, the parties entered into a binding settlement agreement, under the terms of which the State of Utah agreed to dismiss the litigation with prejudice and the Company agreed to make a one-time cash payment to the State of Utah within the reserve established for this matter.

Environmental Remediation and Litigation Proceedings
The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites, including those described below. The ultimate cost of site cleanup and timing of future cash outlays is difficult to predict, given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. The Company concluded that, as of September 29, 2017, it was probable that it would incur remedial costs in the range of $37.8 million to $114.2 million. The Company also concluded that, as of September 29, 2017, the best estimate within this range was $75.5 million, of which $2.4 million was included in accrued and other current liabilities and the remainder was included in environmental liabilities on the unaudited condensed consolidated balance sheet at September 29, 2017. While it is not possible at this time to determine with certainty the ultimate outcome of these matters, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Coldwater Creek, Saint Louis County, Missouri. The Company is named as a defendant in numerous tort complaints with numerous plaintiffs pending in the U.S. District Court for the Eastern District of Missouri that were filed in or after February 2012. These cases allege personal injury for alleged exposure to radiological substances, including in Coldwater Creek in Missouri, and in the air. Plaintiffs allegedly lived and/or worked in various locations in Saint Louis County, Missouri, near Coldwater Creek. Radiological residues which may have been present in the creek have previously been remediated by the U.S. Army Corps of Engineers ("USACE"). The USACE continues to study and remediate the creek and surrounding areas. The Company believes that it has meritorious defenses to these complaints and is vigorously defending against them. The Company is unable to estimate a range of reasonably possible losses for the following reasons: (i) the proceedings are in intermediate stages; (ii) the Company has not received and reviewed complete information regarding the plaintiffs and their medical conditions; and (iii) there are significant factual and scientific issues to be resolved. Groups of bellwether plaintiffs have been selected by the court and discovery is ongoing. While it is not possible at this time to determine with certainty the ultimate outcome of this case, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Lower Passaic River, New Jersey. The Company and approximately 70 other companies originally comprised the Lower Passaic Cooperating Parties Group ("the CPG") and are parties to a May 2007 Administrative Order on Consent ("AOC") with the Environmental Protection Agency ("EPA") to perform a remedial investigation and feasibility study ("RI/FS") of the 17-mile stretch known as the Lower Passaic River Study Area ("the River"). The Company's potential liability stems from former operations at Lodi and Belleville, New Jersey. In June 2007, the EPA issued a draft Focused Feasibility Study ("FFS") that considered interim remedial options for the lower 8-miles of the river, in addition to a "no action" option. As an interim step related to the 2007 AOC, on June 18, 2012 the CPG voluntarily entered into an AOC with the EPA for remediation actions focused solely at mile 10.9 of the River. The Company's estimated costs related to the RI/FS and focused remediation at mile 10.9, based on interim allocations, are immaterial and have been accrued.
In April 2014, the EPA issued its revised FFS, with remedial alternatives to address cleanup of the lower 8-mile stretch of the River, which also included a "no action" option. The EPA estimated the cost for the remediation alternatives ranged from $365.0 million to $3.2 billion. The EPA's preferred approach would involve bank-to-bank dredging of the lower 8-mile stretch of the River


and installing an engineered cap at a discounted, estimated cost of $1.7 billion. Based on the issuance of the EPA's revised FFS, the Company recorded a $23.1 million accrual in the second quarter of fiscal 2014 representing the Company's estimate of its allocable share of the joint and several remediation liability resulting from this matter.
In April 2015, the CPG presented a draft of the RI/FS of the River to the EPA. The CPG's RI/FS included alternatives that ranged from "no action," targeted remediation of the entire 17-mile stretch of the River to remedial actions consistent with the EPA's preferred approach for the lower 8-mile stretch of the River and also included remediation alternatives for the upper 9-mile stretch of the River. The discounted cost estimates for the CPG remediation alternatives ranged from $483.4 million to $2.7 billion. The Company recorded an additional accrual of $13.3 million in the second quarter of fiscal 2015 based on the Company's estimate of its allocable share of the joint and several remediation liability resulting from this matter.
On November 20, 2015, the Company withdrew from the CPG, but remains liable for its obligations under the two above-referenced AOCs, as well as potential future liabilities.
On March 4, 2016, the EPA issued the Record of Decision ("ROD") for the lower 8 miles of the River. The EPA's selected remedy for this stretch of the River was a slight modification of the preferred approach it identified in the revised FFS issued in April 2014. The new discounted, estimated cost was $1.38 billion. By letter dated March 31, 2016, EPA notified the Company, and approximately 98 other parties, of the Company’s potential liability for the lower 8 miles of the River. The letter also announced the EPA's intent to seek to determine whether one company, Occidental Chemicals Corporation ("OCC"), would voluntarily enter into an agreement to perform the remedial design for the remedy selected in the ROD. The letter stated that, after execution of such an agreement, EPA planned to begin negotiation of an agreement under which OCC and the other major PRPs would implement and/or pay for the EPA’s selected remedy for the lower 8 miles of the River. Finally, the letter announced EPA's intent to provide a separate notice to unspecified parties of the opportunity to discuss a cash out settlement for the lower 8 miles of the River at a later date. On October 5, 2016, EPA announced that OCC had entered into an agreement to develop the remedial design.
By letter dated March 30, 2017, the EPA notified the Company, limited to its former Lodi facility, and nineteen other PRPs of their eligibility to enter into a cash out settlement for the lower 8 miles of the River. In exchange for the settlement, the Company would receive, inter alia, a covenant not to sue and contribution protection. There is no reopener provision should costs exceed estimated amounts. The Company submitted the executed settlement agreement to EPA on July 26, 2017. The settlement will be announced in the Federal Register and be subject to public comment, after which EPA will determine whether to proceed with the settlement.
Despite the issuance of the revised FFS and ROD by the EPA, and the RI/FS by the CPG, there are many uncertainties associated with the final agreed-upon remediation and the Company's allocable share of the remediation. Given those uncertainties, the amounts accrued may not be indicative of the amounts for which the Company may be ultimately responsible and will be refined as the remediation progresses.
Mallinckrodt Veterinary, Inc., Millsboro, Delaware. The Company previously operated a facility in Millsboro, Delaware ("the Millsboro Site") where various animal healthcare products were manufactured. In 2005, the Delaware Department of Natural Resources and Environmental Control found trichloroethylene ("TCE") in the Millsboro public water supply at levels that exceeded the federal drinking water standards. Further investigation to identify the TCE plume in the ground water indicated that the plume has extended to property owned by a third party near the Millsboro Site. The Company, and another former owner, have assumed responsibility for the Millsboro Site cleanup under the Alternative Superfund Program administered by the EPA. The Company and another PRP have entered into two AOCs with the EPA to perform investigations to abate, mitigate or eliminate the release or threat of release of hazardous substances at the Millsboro Site and to conduct an Engineering Evaluation/Cost Analysis ("EE/CA") to characterize the nature and extent of the contamination. The Company, along with the other party, continues to conduct the studies and prepare remediation plans in accordance with the AOCs. In January 2017, the EPA issued its Action Memorandum regarding the EE/CA. The parties have negotiated a third AOC to implement the removal action. The AOC has been fully executed, with an effective date of August 8, 2017. While it is not possible at this time to determine with certainty the ultimate outcome of this matter, the Company believes, given the information currently available, that the ultimate resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.
Crab Orchard National Wildlife Refuge Superfund Site, near Marion, Illinois. The Company is a successor in interest to International Minerals and Chemicals Corporation ("IMC"). Between 1967 and 1982, IMC leased portions of the Additional and Uncharacterized Sites ("AUS") Operable Unit at the Crab Orchard Superfund Site ("the Site") from the government and manufactured various explosives for use in mining and other operations. In March 2002, the Department of Justice, the U.S. Department of the Interior and the EPA (together, "the Government Agencies") issued a special notice letter to General Dynamics Ordnance and Tactical Systems, Inc. ("General Dynamics"), one of the other potentially responsible parties ("PRPs") at the Site, to compel General Dynamics to perform the RI/FS for the AUS Operable Unit. General Dynamics negotiated an AOC with the Government Agencies to conduct an extensive RI/FS at the Site under the direction of the U.S. Fish and Wildlife Service. General Dynamics asserted in August 2004 thatstage, the Company is jointly and severally liable, alongnot able to reasonably estimate the expected amount or range of cost or any loss associated with approximately eight other lessees and operators at the AUS Operable Unit, for alleged contamination of soils and groundwater resulting from historic operations, and has threatened to file a contribution claim against the Company and other parties for recovery of its costs incurred in connection with the RI/FS activities being conducted at thethis lawsuit.



AUS Operable Unit. The Company and other PRPs who received demand letters from General Dynamics have explored settlement alternatives, but have not reached settlement to date. General Dynamics has completed the RI and initiated the FS, and the PRPs have reached an agreement to enter into a non-binding mediation process, which has begun. While it is not possible at this time to determine with certainty the ultimate outcome of this matter, the Company believes, given the information currently available, that the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition, results of operations and cash flows.

Products Liability Litigation
Beginning with lawsuits brought in July 1976, the Company is named as a defendant in personal injury lawsuits based on alleged exposure to asbestos-containing materials. A majority of the cases involve product liability claims based principally on allegations of past distribution of products containing asbestos. A limited number of the cases allege premises liability based on claims that individuals were exposed to asbestos while on the Company's property. Each case typically names dozens of corporate defendants in addition to the Company. The complaints generally seek monetary damages for personal injury or bodily injury resulting from alleged exposure to products containing asbestos. The Company's involvement in asbestos cases has been limited because it did not mine or produce asbestos. Furthermore, in the Company's experience, a large percentage of these claims have never been substantiated and have been dismissed by the courts. The Company has not suffered an adverse verdict in a trial court proceeding related to asbestos claims and intends to continue to vigorously defend itself in these matters. When appropriate, the Company settles claims; however, amounts paid to settle and defend all asbestos claims have been immaterial. As of September 29, 2017, there were approximately 11,500 asbestos-related cases pending against the Company.
The Company estimates pending asbestos claims and claims that were incurred but not reported and related insurance recoveries, which are recorded on a gross basis in the unaudited condensed consolidated balance sheets. The Company's estimate of its liability for pending and future claims is based on claims experience over the past five years and covers claims either currently filed or expected to be filed over the next seven years. The Company believes that it has adequate amounts recorded related to these matters. While it is not possible at this time to determine with certainty the ultimate outcome of these asbestos-related proceedings, the Company believes, given the information currently available, that the ultimate resolutions of all known and anticipated future claims, after taking into account amounts already accrued, along with recoveries from insurance, will not have a material adverse effect on its financial condition, results of operations and cash flows.

Industrial Revenue Bonds
Through September 29, 2017, the Company exchanged title to $16.0 million of its plant assets in return for an equal amount of Industrial Revenue Bonds ("IRB") issued by Saint Louis County. The Company also simultaneously leased such assets back from Saint Louis County under capital leases expiring through December 2025, the terms of which provide it with the right of offset against the IRBs. The lease also provides an option for the Company to repurchase the assets at the end of the lease for nominal consideration. These transactions collectively result in a ten year property tax abatement from the date the property is placed in service. Due to the right of offset, the capital lease obligations and IRB assets are recorded net in the unaudited condensed consolidated balance sheets. The Company expects that the right of offset will be applied to payments required under these arrangements.

Interest-bearing Deferred Tax Obligation
As part of the integration of Questcor, the Company entered into an internal installment sale transaction related to certain Acthar intangible assets during the three months ended December 26, 2014. The installment sale transaction resulted in a taxable gain. In accordance with Internal Revenue Code Section 453A ("Section 453A")Interest
As a result of historical internal installment sales, the gain is considered taxable in the period in which installment payments are received. During the three months ended December 25, 2015, the Company entered into similar transactions with certain intangible assets acquired in the acquisitions of Ikaria, Inc. and Therakos, Inc. During the three months ended March 31, 2017, the Company sold its Intrathecal Therapy business with a portion of the consideration from the sale being in the form of a note receivable subject to the installment sale provisions described above. As of September 29, 2017, the Company had an aggregate $1,606.7 million of interest-bearing U.S. deferred tax liabilities associated with outstanding installment notes. The GAAP calculation of interest associated with these deferred tax liabilities is subject to variable interest rates. The Company recognized interest expense associated with these deferred tax liabilities of $17.6 million and $17.4 million for the three months ended September 29, 2017 and September 30, 2016, respectively, and $53.9 million and $55.1 million for the nine months ended September 29, 2017 and September 30, 2016, respectively.
The Company has reported Section 453AIRC §453A interest on its tax returns on the basis of its interpretation of the U.S. Internal Revenue Code and Regulations.IRC. Alternative interpretations of these provisions could result in additional interest payable on the deferred tax liability.payable. Due to the inherent uncertainty in these interpretations, the Company has deferred the recognition of the benefit associated with the Company’sCompany's interpretation and maintains a corresponding liability of $42.9$12.4 million and $30.3$28.2 million as of September 29,


201724, 2021 and December 30, 2016,25, 2020, respectively. The balancedecrease of this liability is expected$15.8 million was recognized as a benefit to increase over future periods until such uncertainty is resolved. Favorableinterest expense during the nine months ended September 24, 2021 due to lapses of certain statute of limitations. Further favorable resolution of this uncertainty would likely result in a material reversal of this liability and a benefit being recorded to interest expense within the unaudited condensed consolidated statements of income.operations.

Acquisition-Related Litigation
Several putative class actions were filed by purported holders of Questcor common stock in connection with the Questcor Acquisition (Hansen v. Thompson, et al., Heng v. Questcor Pharmaceuticals, Inc., et al., Buck v. Questcor Pharmaceuticals, Inc., et al., Ellerbeck v. Questcor Pharmaceuticals, Inc., et al., Yokem v. Questcor Pharmaceuticals, Inc., et al., Richter v. Questcor Pharmaceuticals, Inc., et al., Tramantano v. Questcor Pharmaceuticals, Inc., et al., Crippen v. Questcor Pharmaceuticals, Inc., et al., Patel v. Questcor Pharmaceuticals, Inc., et al., and Postow v. Questcor Pharmaceuticals, Inc., et al.). The actions were consolidated on June 3, 2014. The consolidated complaint named as defendants, and generally alleged that, the directors of Questcor breached their fiduciary duties in connection with the acquisition by, among other things, agreeing to sell Questcor for inadequate consideration and pursuant to an inadequate process. The consolidated complaint also alleged that the Questcor directors breached their fiduciary duties by failing to disclose purportedly material information to shareholders in connection with the merger. The consolidated complaint also alleged, among other things, that the Company aided and abetted the purported breaches of fiduciary duty. The lawsuits sought various forms of relief, including but not limited to, rescission of the transaction, damages and attorneys' fees and costs.
On July 29, 2014, the defendants reached an agreement in principle with the plaintiffs in the consolidated actions, and that agreement was reflected in a Memorandum of Understanding ("MOU"). In connection with the settlement contemplated by the MOU, Questcor agreed to make certain additional disclosures related to the proposed transaction with the Company, which are contained in the Company's Current Report on Form 8-K filed with the SEC on July 30, 2014. Additionally, as part of the settlement and pursuant to the MOU, the Company agreed to forbear from exercising certain rights under the merger agreement with Questcor, as follows: the four business day period referenced in Section 5.3(e) of the merger agreement with Questcor was reduced to three business days. Consistent with the terms of the MOU, the parties entered into a formal stipulation of settlement in February 2015 and re-executed the stipulation of settlement on May 7, 2015 (collectively the "Stipulation of Settlement").
The Stipulation of Settlement was subject to customary conditions, including court approval. On May 8, 2015, the California Court denied plaintiffs' Motion for Preliminary Approval of Settlement. On October 23, 2015, the parties submitted a proposed Stipulation and Order re Dismissal With Prejudice dismissing the action with prejudice as to each of the named plaintiffs and without prejudice as to the remainder of the class and, on October 30, 2015, the California Court entered that Order.


Other Matters
The Company is a defendant in a number of other pendingCompany's legal proceedings relatingand claims are further described within the notes to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or infinancial statements included within the aggregate, to have a material adverse effectCompany's Annual Report filed on its financial condition, results of operations and cash flows.Form 10-K for the fiscal year ended December 25, 2020.


17.13.Financial Instruments and Fair Value Measurements
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy are as follows:


Level 1— observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2— significant other observable inputs that are observable either directly or indirectly; and
29

Level 3— significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.


The following tables provide a summary of the significant assets and liabilities that are measured at fair value on a recurring basis at the end of each period:


September 24,
2021
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Assets:
Debt and equity securities held in rabbi trusts$37.9 $23.7 $14.2 $— 
Equity securities37.3 37.3 — — 
$75.2 $61.0 $14.2 $— 
Liabilities:
Deferred compensation liabilities$35.9 $— $35.9 $— 
Contingent consideration and acquired contingent liabilities27.1 — — 27.1 

$63.0 $— $35.9 $27.1 

December 25,
2020
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Assets:
Debt and equity securities held in rabbi trusts$33.0 $23.5 $9.5 $— 
Equity securities31.1 31.1 — — 
$64.1 $54.6 $9.5 $— 
Liabilities:
Deferred compensation liabilities$38.0 $— $38.0 $— 
Contingent consideration and acquired contingent liabilities34.7 — — 34.7 
$72.7 $— $38.0 $34.7 

September 29,
2017
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)
Assets:







Debt and equity securities held in rabbi trusts$34.1
 $23.2
 $10.9
 $—
Equity securities21.6
 21.6
 —
 —
Foreign exchange forward and option contracts0.6
 0.6
 —
 —
 $56.3
 $45.4
 $10.9
 $—

       
Liabilities:       
Deferred compensation liabilities$38.9
 $—
 $38.9
 $—
Contingent consideration and acquired contingent liabilities268.6
 —
 —
 268.6
Foreign exchange forward and option contracts1.2
 1.2
 —
 —

$308.7
 $1.2
 $38.9
 $268.6

 December 30,
2016		 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Assets:       
Debt and equity securities held in rabbi trusts$33.6
 $22.8
 $10.8
 $—
Foreign exchange forward and option contracts0.7
 0.7
 —
 —
 $34.3
 $23.5
 $10.8
 $—
        
Liabilities:       
Deferred compensation liabilities$32.5
 $—
 $32.5
 $—
Contingent consideration and acquired contingent liabilities250.5
 —
 —
 250.5
Foreign exchange forward and option contracts3.4
 3.4
 —
 —
 $286.4
 $3.4
 $32.5
 $250.5

Debt and equity securities held in rabbi trusts. Debt securities held in rabbi trusts primarily consist of U.S. government and agency securities and corporate bonds. When quoted prices are available in an active market, the investments are classified as level 1. When quoted market prices for a security are not available in an active market, they are classified as level 2. Equity securities held in rabbi trusts primarily consist of U.S. common stocks, which are valued using quoted market prices reported on nationally recognized securities exchanges.
Equity securities.securities. Equity securities consist of shares in Mesoblast,Silence Therapeutics plc ("Silence"), for which quoted prices are available in an active market; therefore, the investment is classified as level 1 and is valued based on quoted market prices reported on a nationallyan internationally recognized securities exchange.
Foreign exchange forward and option contracts. Foreign currency option and forward contracts are used to economically manage the foreign exchange exposures of operations outside the U.S. Quoted prices are available in an active market; as such, these derivatives are classified as level 1.
Deferred compensation liabilities. The Company maintains a non-qualified deferred compensation plan in the U.S., which permits eligible employees of the Company to defer a portion of their compensation. A recordkeeping account is set up for each participant and the participant chooses from a variety of funds for the deemed investment of their accounts. The recordkeeping accounts generally correspond to the funds offered in the Company's U.S. tax-qualified defined contribution retirement plan and the account balance fluctuates with the investment returns on those funds.
Contingent consideration and acquired contingent liabilities. The Company maintains various contingent consideration and acquired contingent liabilities associated with the acquisitions of Questcor, Hemostasis products, Stratatech and InfaCare.
During the nine months ended September 29, 2017, the Company paid the required annual payment of $25.0 million related to the license of developmental product MNK-1411 from Novartis. The fair value of the remaining contingent payments was measured based on the net present value of a probability-weighted assessment. At September 29, 2017, the total remaining


payments under the license agreement shall not exceed $140.0 million. At September 29, 2017 and December 30, 2016, the fair value of the MNK-1411 contingent liability was $104.5 million and $124.7 million, respectively.
As part of the Hemostasis Acquisition, the Company provided contingent consideration to The Medicines Company in the formacquisition of sales-based milestones associated with Raplixa and PreveLeak, and acquired contingent liabilities associated with The Medicines Company's prior acquisitions of the aforementioned products. The Company determined the fair value of the contingent consideration and acquired contingent liabilities based on an option pricing model to be $62.2 million and $11.6 million, respectively, at September 29, 2017. The fair value of the contingent consideration and acquired contingent liabilities based on an option pricing model were $58.9 million and $11.2 million, respectively, as of December 30, 2016.
As part of the Stratatech Acquisition,Corporation ("Stratatech"), the Company provided contingent consideration to the prior shareholders of Stratatech, primarily in the form of regulatory filing and approval milestones associated with the deep partial thicknesspartial-thickness and full thicknessfull-thickness indications associated with StrataGraft. For each indication, the StrataGraft product.Company is responsible for a payment upon acceptance of the Company's submission and another upon approval by the FDA. The Company assesses the likelihood of and timing of making such payments.payments at each balance sheet date. The fair value of the contingent payments was measured based on the net present value of a probability-weighted assessment. The Company determined the fair value of the contingent consideration associated with the acquisition of Stratatech Acquisition to be $55.3$27.1 million and $55.7$19.1 million atas of September 29, 201724, 2021 and December 25, 2020, respectively.
30 2016, respectively.

As part of the InfaCare Acquisition,acquisition of Ocera, the Company provided contingent consideration to the prior shareholders of InfaCareOcera in the form of both regulatory approvalpatient enrollment clinical study milestones for full-term and pre-term neonates for stannsoporfin and sales-based milestones associated with stannsoporfin.MNK-6105 and MNK-6106. During the three months ended March 26, 2021, the Company determined it will no longer pursue further development of this asset. The Company determined the fair value of the contingent consideration based on an option pricing model to be $35.0zero and $15.6 million as of September 24, 2021 and December 25, 2017.2020, respectively.

Contingent consideration liabilities were classified as LSTC in the unaudited condensed consolidated balance sheet as of September 24, 2021. The following table provides a summary ofsummarizes the changes in the Company'sactivity for contingent consideration and acquired contingent liabilities:consideration:
Balance as of December 25, 2020$34.7 
Fair value adjustments(7.6)
Balance as of September 24, 2021$27.1 
Balance at December 30, 2016$250.5
Acquisition date fair value of contingent consideration35.0
Payments(25.0)
Accretion expense4.0
Fair value adjustment4.1
Balance at September 29, 2017$268.6


Financial Instruments Not Measured at Fair Value
The following methods and assumptions were used by the Company in estimating fair values for financial instruments not measured at fair value as of September 29, 201724, 2021 and December 30, 2016:25, 2020:
•The carrying amounts of cash and cash equivalents, accounts receivable, notes receivable, accounts payable and the majority of other current assets and liabilities approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of $18.2$59.6 million and $19.1$56.4 million as of September 29, 201724, 2021 and December 30, 2016,25, 2020 (level 1), respectively, whichrespectively. As of September 24, 2021, $23.3 million and $36.3 million of the restricted cash balance was included in prepaid expenses and other current assets and other assets, respectively, on the unaudited condensed consolidated balance sheets.
The Company received a portionsheet. As of consideration for the saleDecember 25, 2020, $20.2 million and $36.2 million of the Intrathecal business in the form of a note receivable. The fair value of the note receivablerestricted cash balance was equivalent to its carrying value of $154.0 million as of September 29, 2017 (level 1).
The Company entered into short-term investment certificates during the three months ended December 30, 2016. These certificates are carried at cost, which approximates fair value, of $1.6 million and $11.1 million at September 29, 2017 and December 30, 2016, respectively (level 2). These certificates are included in prepaid expenses and other current assets and other assets, respectively, on the unaudited condensed consolidated balance sheets.sheet.
•The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest rates and mortality charges. The fair value of these contracts approximates the carrying value of $66.8$51.0 million and $67.6$52.3 million at as of September 29, 201724, 2021 and December 30, 2016,25, 2020, respectively. These contracts are included in other assets on the unaudited condensed consolidated balance sheets.


•The carrying value of the Company's revolving credit facility and variable-rate receivable securitization approximates the fair value due to the short-term nature of these instruments. The carrying value of the 4.00% term loan approximates the fair value of thethis instrument, as calculated using the discounted exit price, whichand is therefore classified as level 3.1. The Company's 4.875%, 5.75%, 4.75%, 5.625%, 5.50% and 10.00% first and second lien senior notes are classified as level 1, as quoted prices are available in an active market for these notes. Since the quoted market prices for the Company's term loans and 8.00%9.50% and 9.50%8.00% debentures are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value. The Company's 3.50%, 4.75%, 4.875%, 5.50%, 5.625% and 5.75% notes are classified as level 1, as quoted prices are available in an active market for these notes. The following table presents the carrying values and estimated fair values of the Company's long-term debt excluding capital leases, as of the end of each period:
September 24, 2021December 25, 2020
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
Level 1:
5.75% senior notes due August 2022$610.3 $353.1 $610.3 $191.2 
4.75% senior notes due April 2023133.7 49.7 133.7 11.1 
5.625% senior notes due October 2023514.7 302.9 514.7 158.9 
5.50% senior notes due April 2025387.2 226.9 387.2 115.4 
10.00% first lien senior notes due April 2025495.0 539.5 495.0 528.4 
10.00% second lien senior notes due April 2025322.9 322.1 322.9 279.0 
Revolving credit facility900.0 900.0 900.0 900.0 
Level 2:
9.50% debentures due May 202210.4 7.7 10.4 4.2 
8.00% debentures due March 20234.4 3.2 4.4 1.3 
Term loan due September 20241,403.9 1,351.5 1,505.2 1,386.9 
Term loan due February 2025372.6 357.7 399.5 367.9 
Total Debt$5,155.1 $4,414.3 $5,283.3 $3,944.3 

31

September 29, 2017
December 30, 2016

Carrying
Value

Fair
Value

Carrying
Value

Fair
Value
Variable-rate receivable securitization due July 2017$—
 $—
 $250.0
 $250.0
3.50% notes due April 2018300.0
 300.2
 300.0
 298.7
4.875% notes due April 2020700.0
 696.7
 700.0
 699.5
Variable-rate receivable securitization due July 2020200.0
 200.0
 —
 —
Term loans due March 2021—
 —
 1,948.5
 1,953.2
4.00% term loan due February 2022—
 —
 6.5
 6.5
9.50% debentures due May 202210.4
 11.5
 10.4
 12.0
5.75% notes due August 2022884.0
 853.3
 884.0
 850.3
8.00% debentures due March 20234.4
 4.7
 4.4
 4.9
4.75% notes due April 2023526.5
 448.5
 600.0
 520.9
5.625% notes due October 2023738.0
 689.5
 738.0
 682.4
Term loan due September 20241,855.7
 1,853.8
 —
 —
5.50% notes due April 2025692.1
 625.4
 695.0
 615.7
Revolving credit facility—
 —
 100.0
 100.0


Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company generally does not typically require collateral from customers. A portion of the Company's accounts receivable outside the U.S. includes sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies.
The following table shows net sales attributable to distributors that accounted for 10%10.0% or more of the Company's total segment net sales:sales. which excludes the one-time charge incurred during the three and nine months ended September 25, 2020 related to the Medicaid lawsuit:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
CuraScript, Inc.27.0 %28.1 %25.2 %27.7 %

Three Months Ended Nine Months Ended

September 29,
2017
September 30,
2016		 September 29,
2017		 September 30,
2016
CuraScript, Inc.41% 40% 40% 37%
McKesson Corporation9% 11% 9% 11%

The following table shows accounts receivable attributable to distributors that accounted for 10%10.0% or more of the Company's gross accounts receivable at the end of each period:
September 24,
2021		December 25,
2020
AmerisourceBergen Corporation37.1 %33.6 %
McKesson Corporation16.2 18.2 

September 29,
2017
December 30,
2016
McKesson Corporation20% 28%
Amerisource Bergen Corporation14% 15%
CuraScript, Inc.14%
15%
Cardinal Health, Inc.11%
10%



The following table shows net sales attributable to products that accounted for 10%10.0% or more of the Company's total segment net sales:sales, which excludes the one-time charge incurred during the three and nine months ended September 25, 2020 related to the Medicaid lawsuit:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Acthar Gel28.3 %27.9 %26.3 %27.9 %
INOmax19.4 20.3 21.0 21.2 
Ofirmev*12.7 *10.5 
Therakos12.3 *12.3 *

Three Months Ended Nine Months Ended

September 29,
2017
September 30,
2016		 September 29,
2017		 September 30,
2016
Acthar39% 37% 37% 34%
Inomax16%
14% 16% 14%
*Net sales attributable to these products were less than 10.0% of total net sales during the respective periods presented above.



18.14.Segment Data
The Company operates in two reportable segments, which are further described below:
•Specialty Brands includes branded medicines;innovative specialty pharmaceutical brands; and
•Specialty Genericsincludes niche specialty generic drugs API and external manufacturing.APIs.
Management measures and evaluates the Company's operating segments based on segment net sales and operating income. Management excludes corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment net sales and operating income because management and the chief operating decision maker evaluate the operating results of the segments excluding such items. These items may include, but are not limited to, depreciation and amortization, share-based compensation, net restructuring charges, non-restructuring impairment charges, separation costs, research and development ("R&D") upfront payments, changes related to the Amended Proposed Opioid-Related Litigation Settlement and the Acthar Gel Medicaid Retrospective Rebate incurred as a result of the Medicaid lawsuit. Although these amounts are excluded from segment net sales and operating income, as applicable, they are included in reported consolidated net sales and operating income (loss) and are reflected in the reconciliations presented below.
32

Selected information by reportable segment was as follows:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Net sales:
Specialty Brands$359.7 $539.6 $1,149.6 $1,553.0 
Specialty Generics147.5 159.4 462.0 512.7 
Segment net sales507.2 699.0 1,611.6 2,065.7 
Medicaid lawsuit (Note 12)— (0.7)— (535.1)
Net sales$507.2 $698.3 $1,611.6 $1,530.6 
Operating income (loss):
Specialty Brands$189.9 $291.8 $588.6 $765.0 
Specialty Generics15.2 43.1 73.8 155.5 
Segment operating income205.1 334.9 662.4 920.5 
Unallocated amounts:
Corporate and unallocated expenses (1)
(20.8)(42.1)(69.1)(152.3)
Depreciation and amortization(168.4)(236.1)(506.1)(675.5)
Share-based compensation(2.4)(4.3)(8.4)(17.6)
Restructuring charges, net(11.0)(3.2)(17.5)(15.8)
Non-restructuring impairment charges— — (64.5)(63.5)
Separation costs (2)
(0.1)(33.0)(1.0)(75.0)
R&D upfront payment (3)
— — — (5.0)
Opioid-related litigation settlement (loss) gain (Note 12)(125.0)25.8 (125.0)34.1 
Medicaid lawsuit (Note 12)— (0.5)— (640.2)
Operating (loss) income$(122.6)$41.5 $(129.2)$(690.3)

Three Months Ended Nine Months Ended

September 29,
2017
September 30,
2016		 September 29,
2017		 September 30,
2016
Net sales:


    
Specialty Brands$591.4

$633.1
 $1,743.1
 $1,757.4
Specialty Generics189.1
 239.8
 643.7
 767.6
Net sales of reportable segments780.5

872.9
 2,386.8
 2,525.0
Other (1)
13.4

14.3
 42.5
 44.6
Net sales$793.9

$887.2
 $2,429.3
 $2,569.6
Operating income:


    
Specialty Brands$316.6

$334.1
 $865.7
 $897.1
Specialty Generics40.4
 63.9
 179.9
 260.9
Segment operating income357.0

398.0
 1,045.6
 1,158.0
Unallocated amounts:




    
Corporate and unallocated expenses (2)          
(47.6)
(65.7) (163.9) (125.2)
Intangible asset amortization(173.2)
(175.9) (523.0) (526.7)
Restructuring and related charges, net (3)
(15.5)
(8.7) (35.7) (34.0)
Non-restructuring impairment charges—
 —
 —
 (16.9)
Operating income$120.7
 $147.7
 $323.0
 $455.2
(1)Represents net sales under an ongoing supply agreement with the acquirer of the CMDS business.
(2)Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segments.
(3)Includes restructuring-related accelerated depreciation.



(1)Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segments.

(2)Represents costs included in SG&A expenses, primarily related to professional fees and costs incurred in preparation for the Chapter 11 proceedings. As of the Petition Date, professional fees directly related to the Chapter 11 proceedings that were previously reflected as separation costs are being classified on a go-forward basis as reorganization items, net.
(3)Represents R&D expense incurred related to an upfront payment made to acquire product rights in Japan for terlipressin.

Net sales by product family within the Company's reportable segments arewere as follows:
Three Months EndedNine Months Ended
September 24,
2021		September 25,
2020		September 24,
2021		September 25,
2020
Acthar Gel$143.4 $195.3 $423.9 $576.6 
INOmax98.4 141.9 338.3 438.5 
Ofirmev4.7 88.7 24.0 216.0 
Therakos62.5 62.6 197.8 174.1 
Amitiza (1)
49.6 47.7 155.8 138.2 
Other1.1 3.4 9.8 9.6 
Specialty Brands359.7 539.6 1,149.6 1,553.0 
Hydrocodone (API) and hydrocodone-containing tablets16.9 20.0 60.7 71.9 
Oxycodone (API) and oxycodone-containing tablets15.2 16.1 49.5 48.0 
Acetaminophen (API)49.6 54.9 146.8 154.5 
Other controlled substances60.8 62.4 187.9 223.8 
Other5.0 6.0 17.1 14.5 
Specialty Generics147.5 159.4 462.0 512.7 
Segment net sales507.2 699.0 1,611.6 2,065.7 
Medicaid lawsuit (Note 12)— (0.7)— (535.1)
Net sales$507.2 $698.3 $1,611.6 $1,530.6 
(1)Amitiza consists of both product net sales and royalties. Refer to Note 2 for further details on Amitiza's revenues.

33

 Three Months Ended Nine Months Ended
 September 29,
2017		 September 30,
2016		 September 29,
2017		 September 30,
2016
Acthar$308.7
 $327.0
 $899.9
 $873.7
Inomax125.7
 126.9
 379.6
 363.5
Ofirmev75.4
 75.6
 224.5
 217.4
Therakos immunotherapy55.3
 54.5
 157.7
 157.2
Hemostasis products16.2
 17.2
 42.8
 42.5
Other10.1
 31.9
 38.6
 103.1
Specialty Brands591.4
 633.1
 1,743.1
 1,757.4
        
Hydrocodone (API) and hydrocodone-containing tablets10.0
 30.8
 63.3
 109.8
Oxycodone (API) and oxycodone-containing tablets13.4
 28.8
 60.6
 97.3
Methylphenidate ER14.3
 23.4
 58.2
 72.3
Other controlled substances103.9
 111.8
 319.0
 358.4
Other products47.5
 45.0
 142.6
 129.8
Specialty Generics189.1
 239.8
 643.7
 767.6
        
Other (1)
13.4
 14.3
 42.5
 44.6
Net sales$793.9
 $887.2
 $2,429.3
 $2,569.6

(1)15.Represents net sales under an ongoing supply agreement with the acquirer of the CMDS business.

19.Condensed Consolidating Financial StatementsSubsequent Events
MIFSA, an indirectly 100%-owned subsidiary of Mallinckrodt plc, is the borrower under the 3.50% notes due April 2018 and the 4.75% notes due April 2023 (collectively, "the Notes"), which are fully and unconditionally guaranteed by Mallinckrodt plc. The following information provides the composition of the Company's comprehensive income, assets, liabilities, equity and cash flows by relevant group within the Company: Mallinckrodt plc as guarantor of the Notes, MIFSA as issuer of the Notes and the other subsidiaries. There are no subsidiary guarantees related to the Notes.Bankruptcy Proceedings
Set forth on the following pages are the condensed consolidating financial statements for the three and nine months ended September 29, 2017 and September 30, 2016, and as of September 29, 2017 and December 30, 2016. Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among Mallinckrodt plc, MIFSA and other subsidiaries. Condensed consolidating financial information for Mallinckrodt plc and MIFSA, on a standalone basis, has been presented using the equity method of accounting for subsidiaries.




MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 29, 2017
(unaudited, in millions)

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Assets         
Current Assets:         
Cash and cash equivalents$0.7
 $37.6
 $333.5
 $—
 $371.8
Accounts receivable, net—
 —
 464.3
 —
 464.3
Inventories—
 —
 341.3
 —
 341.3
Prepaid expenses and other current assets0.3
 0.2
 120.6
 —
 121.1
Notes receivable—
 —
 154.0
 —
 154.0
Current assets held for sale—
 —
 —
 —
 —
Intercompany receivables127.9
 246.8
 694.1
 (1,068.8) —
Total current assets128.9
 284.6
 2,107.8
 (1,068.8) 1,452.5
Property, plant and equipment, net—
 —
 962.4
 —
 962.4
Goodwill—
 —
 3,459.5
 —
 3,459.5
Intangible assets, net—
 —
 8,545.9
 —
 8,545.9
Investment in subsidiaries4,923.4
 21,531.2
 10,654.1
 (37,108.7) —
Intercompany loans receivable744.8
 —
 4,710.0
 (5,454.8) —
Other assets—
 —
 191.6
 —
 191.6
Total Assets$5,797.1
 $21,815.8
 $30,631.3
 $(43,632.3) $14,611.9
          
Liabilities and Shareholders' Equity         
Current Liabilities:         
Current maturities of long-term debt$—
 $318.0
 $0.2
 $—
 $318.2
Accounts payable—
 —
 104.9
 —
 104.9
Accrued payroll and payroll-related costs—
 —
 84.4
 —
 84.4
Accrued interest—
 77.5
 0.6
 —
 78.1
Income taxes payable—
 —
 28.1
 —
 28.1
Accrued and other current liabilities1.3
 0.4
 438.7
 —
 440.4
Current liabilities held for sale—
 —
 —
 —
 —
Intercompany payables682.8
 —
 386.0
 (1,068.8) —
Total current liabilities684.1
 395.9
 1,042.9
 (1,068.8) 1,054.1
Long-term debt—
 5,303.3
 214.1
 —
 5,517.4
Pension and postretirement benefits—
 —
 67.5
 —
 67.5
Environmental liabilities—
 —
 73.1
 —
 73.1
Deferred income taxes—
 —
 2,294.1
 —
 2,294.1
Other income tax liabilities—
 —
 78.5
 —
 78.5
Intercompany loans payable—
 5,454.8
 —
 (5,454.8) —
Other liabilities—
 7.7
 406.5
 —
 414.2
Total Liabilities684.1
 11,161.7
 4,176.7
 (6,523.6) 9,498.9
Shareholders' Equity5,113.0
 10,654.1
 26,454.6
 (37,108.7) 5,113.0
Total Liabilities and Shareholders' Equity$5,797.1
 $21,815.8
 $30,631.3
 $(43,632.3) $14,611.9



MALLINCKRODT PLC
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 30, 2016
(unaudited, in millions)

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Assets         
Current Assets:         
Cash and cash equivalents$0.5
 $44.5
 $297.0
 $—
 $342.0
Accounts receivable, net—
 —
 431.0
 —
 431.0
Inventories—
 —
 350.7
 —
 350.7
Prepaid expenses and other current assets1.0
 —
 130.9
 —
 131.9
Notes receivable—
 —
 —
 —
 —
Current assets held for sale—
 —
 310.9
 —
 310.9
Intercompany receivables59.7
 65.1
 1,081.3
 (1,206.1) —
Total current assets61.2
 109.6
 2,601.8
 (1,206.1) 1,566.5
Property, plant and equipment, net—
 —
 881.5
 —
 881.5
Goodwill—
 —
 3,498.1
 —
 3,498.1
Intangible assets, net—
 —
 9,000.5
 —
 9,000.5
Investment in subsidiaries5,534.1
 20,624.1
 10,988.5
 (37,146.7) —
Intercompany loans receivable3.5
 —
 3,325.9
 (3,329.4) —
Other assets—
 —
 259.7
 —
 259.7
Total Assets$5,598.8
 $20,733.7
 $30,556.0
 $(41,682.2) $15,206.3
          
Liabilities and Shareholders' Equity         
Current Liabilities:         
Current maturities of long-term debt$—
 $19.7
 $251.5
 $—
 $271.2
Accounts payable0.1
 0.1
 111.9
 —
 112.1
Accrued payroll and payroll-related costs—
 —
 76.1
 —
 76.1
Accrued interest—
 53.9
 14.8
 —
 68.7
Income taxes payable—
 —
 101.7
 —
 101.7
Accrued and other current liabilities1.9
 7.5
 547.7
 —
 557.1
Current liabilities held for sale—
 —
 120.3
 —
 120.3
Intercompany payables612.5
 467.1
 126.5
 (1,206.1) —
Total current liabilities614.5
 548.3
 1,350.5
 (1,206.1) 1,307.2
Long-term debt—
 5,860.6
 20.2
 —
 5,880.8
Pension and postretirement benefits—
 —
 136.4
 —
 136.4
Environmental liabilities—
 —
 73.0
 —
 73.0
Deferred income taxes—
 —
 2,398.1
 —
 2,398.1
Other income tax liabilities—
 —
 70.4
 —
 70.4
Intercompany loans payable—
 3,329.4
 —
 (3,329.4) —
Other liabilities—
 7.0
 349.1
 —
 356.1
Total Liabilities614.5
 9,745.3
 4,397.7
 (4,535.5) 10,222.0
Shareholders' Equity4,984.3
 10,988.4
 26,158.3
 (37,146.7) 4,984.3
Total Liabilities and Shareholders' Equity$5,598.8
 $20,733.7
 $30,556.0
 $(41,682.2) $15,206.3



MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 29, 2017
(unaudited, in millions)

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $793.9
 $—
 $793.9
Cost of sales0.9
 —
 392.4
 —
 393.3
Gross profit(0.9) —
 401.5
 —
 400.6
Selling, general and administrative expenses13.4
 0.2
 192.1
 —
 205.7
Research and development expenses1.8
 —
 57.7
 —
 59.5
Restructuring charges, net—
 —
 14.3
 —
 14.3
Non-restructuring impairment charges—
 —
 —
 —
 —
Losses on divestiture and license—
 —
 0.4
 —
 0.4
Operating (loss) income(16.1) (0.2) 137.0
 —
 120.7
          
Interest expense(3.3) (90.9) (19.0) 20.6
 (92.6)
Interest income2.2
 0.4
 19.3
 (20.6) 1.3
Other income, net1.4
 1.7
 0.6
 —
 3.7
Intercompany fees(4.3) —
 4.3
 —
 —
Equity in net income of subsidiaries82.4
 261.8
 174.7
 (518.9) —
Income from continuing operations before income taxes62.3
 172.8
 316.9
 (518.9) 33.1
Income tax benefit(1.4) (2.1) (27.7) —
 (31.2)
Income from continuing operations63.7
 174.9
 344.6
 (518.9) 64.3
Loss from discontinued operations, net of income taxes—
 (0.2) (0.4) —
 (0.6)
Net income63.7
 174.7
 344.2
 (518.9) 63.7
Other comprehensive loss, net of tax(5.1) (5.1) (10.5) 15.6
 (5.1)
Comprehensive income$58.6
 $169.6
 $333.7
 $(503.3) $58.6



MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended September 30, 2016
(unaudited, in millions)

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $887.2
 $—
 $887.2
Cost of sales—
 —
 397.0
 —
 397.0
Gross profit—
 —
 490.2
 —
 490.2
Selling, general and administrative expenses14.7
 0.1
 253.0
 —
 267.8
Research and development expenses—
 —
 67.9
 —
 67.9
Restructuring charges, net—
 —
 6.8
 —
 6.8
Non-restructuring impairment charge—
 —
 —
 —
 —
Losses on divestiture and license—
 —
 —
 —
 —
Operating (loss) income(14.7) (0.1) 162.5
 —
 147.7
          
Interest expense(36.1) (82.0) (19.4) 43.5
 (94.0)
Interest income—
 0.2
 43.8
 (43.5) 0.5
Other income (expense), net7.4
 —
 (8.0) —
 (0.6)
Intercompany fees(5.6) —
 5.6
 —
 —
Equity in net income of subsidiaries157.1
 302.7
 224.5
 (684.3) —
Income from continuing operations before income taxes108.1
 220.8
 409.0
 (684.3) 53.6
Income tax benefit(6.9) (4.1) (45.4) —
 (56.4)
Income from continuing operations115.0
 224.9
 454.4
 (684.3) 110.0
(Loss) income from discontinued operations, net of income taxes—
 (0.4) 5.4
 —
 5.0
Net income115.0
 224.5
 459.8
 (684.3) 115.0
Other comprehensive loss, net of tax(19.9) (19.9) (39.8) 59.7
 (19.9)
Comprehensive income$95.1
 $204.6
 $420.0
 $(624.6) $95.1





























MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
ForCertain bankruptcy proceeding matters occurred during the nine months ended September 29, 201724, 2021 or prior, but had subsequent updates through the issuance of this report. See further discussion in Note 2.
(unaudited, in millions)

Commitments and Contingencies
 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $2,429.3
 $—
 $2,429.3
Cost of sales1.8
 —
 1,192.2
 —
 1,194.0
Gross profit(1.8) —
 1,237.1
 —
 1,235.3
Selling, general and administrative expenses46.7
 0.6
 698.6
 —
 745.9
Research and development expenses3.6
 —
 187.3
 —
 190.9
Restructuring charges, net—
 —
 32.1
 —
 32.1
Non-restructuring impairment charge—
 —
 —
 —
 —
Gains on divestiture and license—
 —
 (56.6) —
 (56.6)
Operating income(52.1) (0.6) 375.7
 —
 323.0
          
Interest expense(10.0) (264.9) (57.9) 53.8
 (279.0)
Interest income5.3
 1.0
 50.3
 (53.8) 2.8
Other income (expense), net19.0
 (1.6) (11.2) —
 6.2
Intercompany fees(13.3) —
 13.3
 —
 —
Equity in net income of subsidiaries572.1
 1,113.5
 848.1
 (2,533.7) —
Income from continuing operations before income taxes521.0
 847.4
 1,218.3
 (2,533.7) 53.0
Income tax benefit(4.7) (2.6) (103.5) —
 (110.8)
Income from continuing operations525.7
 850.0
 1,321.8
 (2,533.7) 163.8
(Loss) income from discontinued operations, net of income taxes—
 (1.9) 363.8
 —
 361.9
Net income525.7
 848.1
 1,685.6
 (2,533.7) 525.7
Other comprehensive income, net of tax59.4
 59.4
 117.9
 (177.3) 59.4
Comprehensive income$585.1
 $907.5
 $1,803.5
 $(2,711.0) $585.1






























MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
ForCertain litigation matters occurred during the nine months ended September 30, 201624, 2021 or prior, but had subsequent updates through the issuance of this report. See further discussion in Note 12.
(unaudited, in millions)


34
 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Net sales$—
 $—
 $2,569.6
 $—
 $2,569.6
Cost of sales—
 —
 1,165.5
 —
 1,165.5
Gross profit—
 —
 1,404.1
 —
 1,404.1
Selling, general and administrative expenses40.9
 0.5
 660.6
 —
 702.0
Research and development expenses—
 —
 200.8
 —
 200.8
Restructuring charges, net—
 —
 29.2
 —
 29.2
Non-restructuring impairment charge—
 —
 16.9
 —
 16.9
Gains on divestiture and license—
 —
 —
 —
 —
Operating income(40.9) (0.5) 496.6
 —
 455.2
          
Interest expense(162.3) (245.1) (61.4) 182.0
 (286.8)
Interest income—
 0.5
 182.6
 (182.0) 1.1
Other income (expense), net22.3
 —
 (24.9) —
 (2.6)
Intercompany fees(12.9) 0.1
 12.8
 —
 —
Equity in net income of subsidiaries609.8
 1,015.2
 786.2
 (2,411.2) —
Income from continuing operations before income taxes416.0
 770.2
 1,391.9
 (2,411.2) 166.9
Income tax benefit(16.6) (18.1) (183.6) —
 (218.3)
Income from continuing operations432.6
 788.3
 1,575.5
 (2,411.2) 385.2
(Loss) income from discontinued operations, net of income taxes—
 (2.1) 49.5
 —
 47.4
Net income432.6
 786.2
 1,625.0
 (2,411.2) 432.6
Other comprehensive loss, net of tax(20.3) (20.3) (41.0) 61.3
 (20.3)
Comprehensive income$412.3
 $765.9
 $1,584.0
 $(2,349.9) $412.3































MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 29, 2017
(unaudited, in millions)


 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Cash Flows From Operating Activities:         
Net cash from operating activities$1,172.0
 $1,233.7
 $1,963.0
 $(3,920.2) $448.5
Cash Flows From Investing Activities:         
Capital expenditures—
 —
 (151.3) —
 (151.3)
Acquisitions and intangibles, net of cash acquired—
 —
 (35.9) —
 (35.9)
Proceeds from divestiture of discontinued operations, net of cash—
 —
 576.9
 —
 576.9
Intercompany loan investment, net(741.3) —
 (920.8) 1,662.1
 —
Investment in subsidiary—
 (1,412.5) —
 1,412.5
 —
Other—
 —
 0.5
 —
 0.5
Net cash from investing activities(741.3) (1,412.5) (530.6) 3,074.6
 390.2
Cash Flows From Financing Activities:         
Issuance of external debt—
 500.0
 40.0
 —
 540.0
Repayment of external debt and capital leases—
 (759.9) (127.6) —
 (887.5)
Debt financing costs—
 (12.7) —
 —
 (12.7)
Proceeds from exercise of share options4.0
 —
 —
 —
 4.0
Repurchase of shares(437.7) —
 —
 —
 (437.7)
Intercompany loan borrowings, net—
 1,614.5
 47.6
 (1,662.1) —
Intercompany dividends—
 (1,170.0) (2,750.2) 3,920.2
 —
Capital contribution—
 —
 1,412.5
 (1,412.5) —
Other3.2
 —
 (21.8) —
 (18.6)
Net cash from financing activities(430.5) 171.9
 (1,399.5) 845.6
 (812.5)
Effect of currency rate changes on cash—
 —
 2.7
 —
 2.7
Net change in cash, cash equivalents and restricted cash0.2
 (6.9) 35.6
 —
 28.9
Cash, cash equivalents and restricted cash at beginning of period0.5
 44.5
 316.1
 —
 361.1
Cash, cash equivalents and restricted cash at end of period$0.7
 $37.6
 $351.7
 $—
 $390.0
          
Cash and cash equivalents at end of period$0.7
 $37.6
 $333.5
 $—
 $371.8
Restricted Cash, current at end of period—
 —
 —
 —
 —
Restricted Cash, noncurrent at end of period—
 —
 18.2
 —
 18.2
Cash, cash equivalents and restricted cash at end of period$0.7
 $37.6
 $351.7
 $—
 $390.0



MALLINCKRODT PLC
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2016
(unaudited, in millions)

 Mallinckrodt plc Mallinckrodt International Finance S.A. Other Subsidiaries Eliminations Consolidated
Cash Flows From Operating Activities:         
Net cash from operating activities$(21.3) $(99.3) $993.8
 $—
 $873.2
Cash Flows From Investing Activities:         
Capital expenditures—
 —
 (133.9) —
 (133.9)
Acquisitions and intangibles, net of cash acquired—
 —
 (245.4) —
 (245.4)
Proceeds from divestiture of discontinued operations, net of cash—
 (1.4) 4.4
 —
 3.0
Intercompany loan investment, net—
 (69.4) (1,587.5) 1,656.9
 —
Investment in subsidiary—
 (815.0) —
 815.0
 —
Proceeds from sale of subsidiary3.4
 —
 —
 (3.4) —
Acquisition of subsidiary—
 —
 (3.4) 3.4
 —
Other—
 —
 5.3
 —
 5.3
Net cash from investing activities3.4
 (885.8) (1,960.5) 2,471.9
 (371.0)
Cash Flows From Financing Activities:         
Issuance of external debt—
 —
 36.3
 —
 36.3
Repayment of external debt and capital leases—
 (420.3) (18.7) —
 (439.0)
Debt financing costs—
 —
 —
 —
 —
Proceeds from exercise of share options10.4
 —
 —
 —
 10.4
Repurchase of shares(377.5) —
 —
 —
 (377.5)
Intercompany loan borrowings, net385.0
 1,271.9
 —
 (1,656.9) —
Capital contribution—
 —
 815.0
 (815.0) —
Other—
 —
 (23.0) —
 (23.0)
Net cash from financing activities17.9
 851.6
 809.6
 (2,471.9) (792.8)
Effect of currency rate changes on cash—
 —
 1.8
 —
 1.8
Net change in cash, cash equivalents and restricted cash—
 (133.5) (155.3) —
 (288.8)
Cash, cash equivalents and restricted cash at beginning of period0.3
 158.5
 429.6
 —
 588.4
Cash, cash equivalents and restricted cash at end of period$0.3
 $25.0
 $274.3
 $—
 $299.6
          
Cash and cash equivalents at end of period$0.3
 $25.0
 $255.2
 $—
 $280.5
Restricted Cash, current at end of period—
 —
 0.1
 —
 0.1
Restricted Cash, noncurrent at end of period—
 —
 19.0
 —
 19.0
Cash, cash equivalents and restricted cash at end of period$0.3
 $25.0
 $274.3
 $—
 $299.6



20.Subsequent Events

Commitments and Contingencies
Putative Class Action Litigation (MSP). On October 30, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation ("UBC") in the U.S. District Court for the Central District of California. The case is captioned MSP Recovery Claims, Series II LLC, et al. v. Mallinckrodt ARD, Inc., et al. The complaint purports to be brought on behalf of two classes: all Medicare Advantage Organizations and related entities in the U.S. who purchased or provided reimbursement for Acthar pursuant to (i) Medicare Part C contracts (Class 1) and (ii) Medicare Part D contracts (Class 2) since January 1, 2011, with certain exclusions. The complaint alleges that the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raise and maintain the price of Acthar. To this end, the complaint alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot and reaching anti-competitive agreements with the other defendants by selling Acthar through an exclusive distribution network. The complaint purports to allege claims under federal and state antitrust laws and state unfair competition and unfair trade practice laws. The Company intends to vigorously defend itself in this matter.
Opioid Related Matters. The Company has been named in several lawsuits filed in federal court brought by various counties and cities, along with other opioid manufacturers and, often, distributors. In general, the lawsuits assert claims of public nuisance, negligence, civil conspiracy, fraud, violations of RICO or similar state laws, consumer fraud, deceptive trade practices, insurance fraud, unjust enrichment and other common law claims arising from defendants’ manufacturing, distribution, marketing and promotion of opioids and seek restitution, damages, injunctive and other relief and attorneys’ fees and costs. These claims have been filed or amended to include the Company in the U.S. District Court for the Southern District of Illinois (October 26, 2017 and October 27, 2017), the U.S. District Court for the Southern District of Ohio (between September 22, 2017 and November 6, 2017), the U.S. District Court for the Northern District of Alabama (October 25, 2017), the U.S. District Court for the Eastern District of Michigan (October 12, 2017), and the U.S. District Courts for the Eastern and Western Districts of Kentucky (between October 3 and October 30, 2017). The Company intends to vigorously defend itself in these matters.

Inhaled Xenon Gas Licensing Agreement
On October 2, 2017, the Company entered into a licensing agreement ("the Licensing Agreement") for development and commercialization of NeuroproteXeon Inc.'s ("NeuroproteXeon") investigational, pharmaceutical-grade xenon gas for inhalation therapy being evaluated to improve survival and functional outcomes for patients resuscitated after a cardiac arrest. If approved, xenon gas for inhalation will expand the Company's portfolio of hospital drug-device combination products providing therapies for critically ill patients. The Company paid $10.0 million upfront with cash on hand to reimburse NeuroproteXeon for certain product development costs, and gained exclusive rights to commercialize the therapy, if approved, in the U.S., Canada, Japan and Australia. The Licensing Agreement includes additional payments of up to $25.0 million dependent on developmental, regulatory and sales milestones. In addition, NeuroproteXeon will receive tiered royalties on applicable worldwide net sales and a transfer price for commercial product supply. NeuroproteXeon will continue to be responsible for the cost of development and will manage the development of the product in collaboration with the Company.

Reorganization of Legal Entity Ownership
On October 6, 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 is 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. During the three months ending December 29, 2017, the Company expects to record the reduction in its net deferred tax liabilities of $800.0 million to $950.0 million, which will result in the recognition of a net deferred income tax benefit of an equal amount. The reduction to net deferred tax liabilities is expected to be comprised of a $650.0 million to $775.0 million reduction to interest-bearing U.S. deferred tax liabilities and a $150.0 million to $175.0 million reduction to net deferred tax liabilities associated with intangible assets.
During the three months ended September 29, 2017, the Company recognized income tax expense of $36.1 million, with an offset to deferred tax liabilities commensurate with the completion of certain aspects of the Reorganization during the third quarter of 2017.



Ocera Acquisition
On November 2, 2017, the Company entered into an agreement to acquire Ocera Therapeutics, Inc. ("Ocera") through a cash tender offer to purchase all of the outstanding shares of Ocera common stock for upfront consideration of approximately $42.0 million and contingent consideration up to $75.0 million based on the successful completion of certain development and sales milestones. Ocera is a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for orphan and other serious liver diseases with a high unmet medical need. Ocera’s developmental product OCR-002, an ammonia scavenger, is being studied for treatment of hepatic encephalopathy, a neuropsychiatric syndrome associated with hyperammonemia, a complication of acute or chronic liver disease. This transaction is expected to close in the fourth quarter of 2017.

Goodwill and Other Long-Lived Assets Impairment Analysis
Goodwill is tested for impairment on an annual basis or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist. Management relies on a number of qualitative factors when considering a potential impairment such as its operating results, business plans, economic projections, anticipated future cash flows, transactions and market capitalization.
Subsequent to September 29, 2017, the Company's market capitalization has declined, which may be an indicator of impairment should this decrease be more than temporary. The Company will continue to assess the impact of its market capitalization. It is possible that if the Company's market capitalization decline is more than temporary, such decline could result in an impairment of goodwill and other long-lived assets associated with its reporting units.

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016,December 25, 2020, filed with the United States ("U.S.") Securities and Exchange Commission ("the SEC") on November 29, 2016.March 10, 2021 and within Part II, Item 1A of this Quarterly Report on Form 10-Q.
We own or have rights to use the trademarks and trade names that we use in conjunction with the operation of our business. One of the more important trademarks that we own or have rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the U.S. and other jurisdictions. Solely for convenience, we only use the ™ or ® symbols the first time any trademark or trade name is mentioned in the following discussion. Such references are not intended to indicate in any way that we will not assert, to the fullest extent permitted under applicable law, our rights to our trademarks and trade names. Each trademark or trade name of any other company appearing in the following discussion is, to our knowledge, owned by such other company.


Overview
We are a global business consisting of multiple wholly owned subsidiaries that develops, manufactures, marketsdevelop, manufacture, market and distributesdistribute specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; and analgesics and hemostasisgastrointestinal products.
We operate our business in two reportable segments, which are further described below:
•Specialty Brands includes branded medicines;innovative specialty pharmaceutical brands; and
•Specialty Genericsincludes niche specialty generic drugs and active pharmaceutical ingredients ("API"API(s)") and external manufacturing.
.
For further information on our business and products, refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2016,December 25, 2020, filed with the U.S. SEC on November 29, 2016.March 10, 2021.


Significant Events
Acquisitions and License AgreementsVoluntary Petitions for Reorganization


InOn October 2017,12, 2020 (the "Petition Date"), we entered into a licensing agreementvoluntarily initiated Chapter 11 proceedings (the "Licensing Agreement""Chapter 11 Cases") for development and commercializationunder chapter 11 of NeuroproteXeon Inc.'stitle 11 ("NeuroproteXeon"Chapter 11") investigational, pharmaceutical-grade xenon gas for inhalation therapy being evaluated to improve survival and functional outcomes for patients resuscitated after a cardiac arrest. If approved, xenon gas for inhalation will expand our portfolio of hospital drug-device combination products providing therapies for critically ill patients. Under the terms of the Licensing Agreement, we paid $10.0 million upfront with cash on hand to reimburse NeuroproteXeon for certain product development costs, and gained exclusive rights to commercialize the therapy, if approved,United States Code (the "Bankruptcy Code") in the U.S., Canada, Japan and Australia.  The Licensing Agreement includes additional payments of up to $25.0 million dependent on developmental, regulatory and sales milestones. In addition, NeuroproteXeon will receive tiered royalties on applicable worldwide product sales and a transfer price for commercial product supply. NeuroproteXeon will continue to be responsible Bankruptcy Court for the costDistrict of developmentDelaware (the "Bankruptcy Court") to modify our capital structure, including restructuring portions of our debt, and will manageresolve otherwise unmanageable potential legal liabilities. We are continuing to operate and supply customers and patients with products as normal.
We intend to use the developmentChapter 11 process to provide a fair, orderly, efficient and legally binding mechanism to implement a restructuring support agreement ("RSA") pursuant to which, among other things, the parties thereto have agreed to support:
•A financial restructuring that would, among other things, reduce our total debt by approximately $1,300.0 million, improving our financial position and better positioning us for long-term growth;
•A proposed resolution of all opioid-related claims against us (the "Amended Proposed Opioid-Related Litigation Settlement"); and
•A proposed resolution of various Acthar® Gel ("Acthar Gel")-related matters, including the Medicaid lawsuit, an associated False Claims Act ("FCA") lawsuit and an FCA lawsuit relating to Acthar Gel’s previous owner’s interactions with an independent charitable foundation (the "Acthar Gel-Related Settlement").
Taken together, these actions are intended to enable us to move forward with our vision to become an innovation-driven biopharmaceutical company meeting the needs of underserved patients with severe and critical conditions.
For further information, refer to Note 2 of the product in collaboration with us.notes to the unaudited condensed consolidated financial statements.
In September 2017, we acquired InfaCare Pharmaceutical Corporation ("InfaCare") in
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Reorganization items, net
Reorganization items, net, represent amounts incurred after the Petition Date as a transaction valued at approximately $80.4 million, with additional payments of up to $345.0 million dependent on regulatory and sales milestones ("the InfaCare Acquisition"). InfaCare is focused on development and commercialization of proprietary pharmaceuticals for neonatal and pediatric patient populations. InfaCare's developmental product stannsoporfin, a heme oxygenase inhibitor, is under investigation for its potential to reduce the production of bilirubin, the elevation of which can contribute to serious consequences in infants. The acquisition was funded with cash on hand.
In August 2016, we acquired Stratatech Corporation ("Stratatech"), through the acquisition of all outstanding common stock for upfront consideration of $76.0 million and contingent milestone payments, which are primarily regulatory, and royalty obligations that coulddirect result in up to $121.0 million of additional consideration ("the Stratatech Acquisition"). Stratatech is a regenerative medicine company focused on the development of unique, proprietary skin substitute products. Developmental products include StrataGraft® regenerative skin tissue and a technology platform for genetically enhanced skin tissues. The acquisition was funded with cash on hand.
In February 2016, we acquired three commercial stage topical hemostasis drugs from The Medicines Company ("the Hemostasis Acquisition") - RECOTHROM® Thrombin topical (Recombinant), PreveLeakTM Surgical Sealant, and RAPLIXATM (Fibrin Sealant (Human)) - for upfront consideration of $173.5 million, inclusive of existing inventory, and contingent sales-based milestone payments that could result in up to $395.0 million of additional consideration. The acquisition was funded with cash on hand.

Divestitures
On January 27, 2017, we completed the sale of our Nuclear Imaging business to IBA Molecular ("IBAM") for approximately $690.0 million before tax impacts, including up-front consideration of approximately $574.0 million, up to $77.0 million of contingent consideration and the assumption of certain liabilities. We recorded a net of tax gain on the sale of the Nuclear Imaging businessChapter 11 Cases and are comprised of $361.7 million duringbankruptcy-related professional fees and adjustments to reflect the carrying value of liabilities subject to compromise ("LSTC") at their estimated allowed claim amounts, as such adjustments are approved by the Bankruptcy Court. During the three and nine months ended September 29, 2017, which excluded any potential proceeds from the contingent consideration24, 2021, we incurred $126.2 million and reflects a charge$329.2 million of $0.6 million duringreorganization items, net, respectively.
During the three months ended September 29, 2017 primarily as a result of ongoing working capital adjustments. The financial results for the Nuclear Imaging business, including the recast of prior year balances, are presented within discontinued operations.
On March 17, 2017, we completed the sale of our Intrathecal Therapy business to Piramal Enterprises Limited's subsidiary in the United Kingdom ("U.K."), Piramal Critical Care, for approximately $203.0 million, including fixed consideration of $171.0 million and contingent consideration of up to $32.0 million. We recorded a pre-tax gain on the sale of the business of $56.6 million during the nine months ended September 29, 2017,25, 2020, we incurred $13.4 million and $53.1 million in opioid defense costs, respectively, and $33.0 million and $75.0 million in separation costs, respectively, which excluded any potential proceeds fromwere both included within selling general and administrative ("SG&A") expenses. As of the contingent considerationPetition Date, the majority of these costs are being classified on a go-forward basis as reorganization items, net, as they directly relate to the Chapter 11 proceedings.

StrataGraft®
On June 15, 2021, we announced that the U.S. Food and reflects a post-sale adjustmentDrug Administration ("FDA") had approved the StrataGraft biologics license application ("BLA") for the treatment of $0.4 millionadults with deep partial-thickness burns and we expect commercial launch to commence during the three months endedfourth quarter of fiscal 2021.

Terlipressin
During September 29, 2017.2020, the FDA issued a Complete Response Letter ("CRL") regarding our New Drug Application ("NDA") seeking approval for the investigational agent terlipressin to treat adults with hepatorenal syndrome type 1 ("HRS-1"). The financial resultsCRL stated that, based on the available data, the agency cannot approve the terlipressin NDA in its current form and requires more information to support a positive risk-benefit profile for terlipressin for patients with HRS-1.
In response to receipt of the Intrathecal Therapy business are presented within continuing operations asCRL, we had an End of Review Meeting on October 26, 2020 and a Type A Meeting on January 29, 2021 with the FDA where both parties engaged in constructive dialogue in an effort to clarify a viable path to U.S. approval. On August 18, 2021, we resubmitted our NDA for terlipressin to the FDA. The Prescription Drug User Fee Act (PDUFA) date for this divestiture did not meetdevelopment product is February 18, 2022. We will continue to assess the criteria for discontinued operations classification.

Reorganizationimpact of Legal Entity Ownership
On October 6, 2017, we completed a reorganization of our legal entity ownership ("the Reorganization")any changes to align with our 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 us to reallocate our 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 is not recognizedplanned revenue or earnings on the wholly-owned subsidiaryfair value of the associated in-process research and development ("IPR&D") asset of $81.0 million included within intangible assets, net on the unaudited condensed consolidated balance sheets 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. During the three months endingSeptember 24, 2021 and December 29, 2017, we expect to record the reduction in our net deferred tax liabilities of $800.0 million to $950.0 million, which will result in the recognition of a net deferred income tax benefit of an equal amount. The reduction to net deferred tax liabilities is expected to be comprised of a $650.0 million to $775.0 million reduction to interest-bearing U.S. deferred tax liabilities25, 2020.

MNK-6105 and a $150.0 million to $175.0 million reduction to net deferred tax liabilities associated with intangible assets.


MNK-6106
During the three months ended September 29, 2017, weMarch 26, 2021, the Company recognized income tax expensea full impairment on its Specialty Brands IPR&D asset related to MNK-6105 and MNK-6106 of $36.1 million, with an offset to deferred tax liabilities commensurate with the completion$64.5 million. The Company has decided it will no longer pursue further development of certain aspects of the Reorganization during the third quarter of 2017.this asset.



Business Factors Influencing the Results of Operations
ProductsCOVID-19 Business Update
The Specialty Generics segmentnovel coronavirus ("COVID-19") pandemic has presented a substantial public health and economic challenge around the world. As we navigate the unprecedented challenges created by the COVID-19 pandemic, we remain committed to supporting our employees, customers, patients and the broader communities in which we operate.
Since the onset of the COVID-19 pandemic, we have continued to manufacture, supply and deliver our products largely without interruption. At present, we do not anticipate significant COVID-19-related manufacturing or supply chain disruptions, and we continue to evaluate our end-to-end supply chain and assess opportunities to refine our processes going forward.
We expect the coming months to continue to be challenging due to the impact of COVID-19. Our business performance was significantly impacted by COVID-19 during fiscal 2020 and the nine months ended September 24, 2021. The ultimate business impact going forward will largely be determined by the ongoing return to work guidance issued by international, national, and local governments and health officials and organizations. We are monitoring the demand for our products, including the duration and degree to which we may see declines in customer orders or delays in starting new patients on a product, such as Acthar Gel, due to the limited ability of our sales representatives to meet with physicians and patients to visit their doctors and pharmacists to receive prescriptions for certain of our products. In regards to Acthar Gel, we continue to see a reduction in new patients, which may continue to experience customer consolidationimpact results in fiscal 2021. Furthermore, while we are supporting the continuation of ongoing patients in our clinical trials, as much as possible, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials.
36

Given the rapid and increasedevolving nature of the COVID-19 virus, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted. For additional information on the various risks posed by the COVID-19 pandemic, please read Part I, Item 1A. Risk Factors included within our Annual Report filed on Form 10-K for the fiscal year ended December 25, 2020.

Specialty Brands
Net sales of Ofirmev® for the three months ended September 24, 2021 decreased $84.0 million, or 94.7%, to $4.7 million driven primarily by the entrance of generic competition during fiscal 2021.
Net sales of Acthar Gel for the three months ended September 24, 2021 decreased $51.9 million, or 26.6%, to $143.4 million driven primarily by the marketplace impact of the COVID-19 pandemic and continued payer scrutiny on overall specialty pharmaceutical spending. We anticipate that competition will likely intensify in relation to our Acthar Gel product approvals leadingfollowing ANI Pharmaceuticals Inc’s. (“ANI”) expected commercial launch of their purified cortrophin gel product during the first quarter of 2022, which could have an adverse effect on our financial condition, results of operations and cash flows. ANI’s purified cortrophin gel product was recently approved by the FDA for the treatment of certain chronic autoimmune disorders, including acute exacerbations of multiple sclerosis and rheumatoid arthritis, in addition to excess urinary protein due to nephrotic syndrome. We continue our efforts to extend the value of the Acthar Gel product through product enhancements including the ongoing development of the Acthar Gel self-injection device, which will create an easier and more patient-friendly application for single unit dosage indications, as well as through additional studies.
Net sales of INOmax®for the three months ended September 24, 2021 decreased $43.5 million, or 30.7%, to $98.4 million driven primarily by increased competition following the launch of a competitive nitric oxide product before the expiration of the last of the listed patents on May 3, 2036 (November 3, 2026 including pediatric exclusivity), which is expectedcould continue to result in further downward pressureadversely affect our ability to successfully maximize the value of INOmax and have an adverse effect on net sales, operating incomeour financial condition, results of operations and cash flows from operations. flows. We continue to develop and pursue patent protection of next generation nitric oxide delivery systems and additional uses of nitric oxide. We further intend to vigorously enforce our intellectual property rights relating to our nitric oxide products against any additional parties that may seek to market a generic version of our INOmax product and/or next generation delivery systems.

Specialty Generics
Net sales from the Specialty Generics segment excluding Methylphenidate ERdecreased $11.9 million, or 7.5%, to $147.5 million for the three months ended September 24, 2021, compared to $159.4 million for the three months ended September 25, 2020 primarily driven by a decrease in acetaminophen and hydrocodone-related products net sales of $5.3 million and $3.1 million, respectively.

37

Results of Operations
This report contains certain financial measures, including net sales, gross profit, gross profit margin, SG&A expenses as a percentage of net sales and research and development ("R&D") expenses as a percentage of net sales, which exclude the one-time charge related to the Medicaid lawsuit that is discussed further below,included as a component of net sales for the three and nine months ended September 29, 2017 were $174.8 million25, 2020.
We have provided these measures because they are used by management to evaluate our operating performance. In addition, we believe that they will be used by certain investors to measure Mallinckrodt's operating results. Management believes that presenting these measures provides useful information about our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These measures should be considered supplemental to and $585.5 million, respectively, comparednot a substitute for financial information prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP").
Because these measures exclude the effect of items that will increase or decrease our reported results of operations, management strongly encourages investors to $216.4 millionreview our unaudited condensed consolidated financial statements and $695.3 million for the three and nine months ended September 30, 2016, respectively.

In November 2014, we were informed by the FDA that it believes our Methylphenidate ER products may not be therapeutically equivalentthis report in its entirety. A reconciliation of certain of these financial measures to the category reference listed drug and the FDA reclassified our Methylphenidate ER from freely substitutable at the pharmacy level (class AB) to presumed to be therapeutically inequivalent (class BX). The FDA has indicated that it has not identified any serious safety concerns with the products. We continue to market our Methylphenidate ER products as a class BX-rated drug. The FDA's action to reclassify our Methylphenidate ER products had, andmost directly comparable GAAP financial measures is expected to continue to have, a negative impact on net sales and operating income. Net sales of our Methylphenidate ER products during the three and nine months ended September 29, 2017 were $14.3 million and $58.2 million, respectively, compared to $23.4 million and $72.3 million for the three and nine months ended September 30, 2016, respectively.included herein.


On October 18, 2016, the FDA initiated proceedings, proposing to withdraw approval of Mallinckrodt’s ANDA for Methylphenidate ER. We have requested a hearing in the withdrawal proceedings, which has been indefinitely deferred by the FDA. We plan to vigorously set forth our position in the withdrawal proceedings. A potential outcome of the withdrawal proceedings is that our Methylphenidate ER products may lose their FDA approval, which could have a material, negative impact to our Specialty Generics segment.

The FDA recently approved new products that are expected to compete with our Methylphenidate ER products, and one competitor recently launched their products. Additional products expected to compete with our Methylphenidate ER products may be launched over the next several quarters. All of these products have a class AB rating compared with the class BX rating on our Methylphenidate ER products. It is uncertain how these product approvals may impact the FDA's withdrawal proceedings associated with our Methylphenidate ER products.

Restructuring Initiatives
We continue to realign our cost structure due to the changing nature of our business and look for opportunities to achieve operating efficiencies.
In July 2016, our Board of Directors approved a $100.0 million to $125.0 million restructuring program ("the 2016 Mallinckrodt Program") designed to further improve our cost structure, as we continue to transform our business. The 2016 Mallinckrodt Program is expected to include actions across both the Specialty Brands and Specialty Generics segments, as well as within corporate functions. There is no specified time period associated with the 2016 Mallinckrodt Program. Through September 29, 2017, we incurred restructuring charges of $49.2 million under the 2016 Mallinckrodt Program, which are expected to generate savings, primarily within our selling, general and administrative ("SG&A") expenses. In addition to the 2016 Mallinckrodt Program, we take certain restructuring actions to generate synergies from our acquisitions.

Research and Development Investment
We expect to continue to pursue targeted investments in research and development ("R&D") activities, both for existing products and the development of new portfolio assets. We intend to focus our R&D investments in the specialty pharmaceuticals areas, specifically investments to support our Specialty Brands, where we believe there is the greatest opportunity for growth and profitability. Our Specialty Brands include medicines for pain management, acute and critical care, and autoimmune and rare diseases (“ARD”). Our primary focus for the latter includes the therapeutic areas of neurology, rheumatology, nephrology, pulmonology and ophthalmology.
Specialty Brands. We devote significant R&D resources to our branded products. Our R&D investments center on building a diverse, durable portfolio of innovative therapies that provide value to patients, physicians and payers. We are leveraging both organic development and acquiring late stage development assets through the execution of our “acquire to invest” strategy to facilitate organic


growth. Under this strategy, we look to acquire durable, but currently under-resourced assets for which we believe we can accelerate growth and expand reach to patients with unmet medical needs.
Data generation is an important strategic driver for our key products in development as they extend evidence in approved uses, label enhancements and new indications. Our strategy is realized through investments in both clinical and health economic activities. We are committed to supporting research that helps advance the understanding and treatment of a variety of different disease states that will further the understanding and development of our currently marketed products, including Acthar®, Inomax, Ofirmev®, and Therakos immunotherapy.
Our "acquire to invest" strategy also includes the acquisition and licensing of early and late stage development products to meet the needs of underserved patient populations. Under our strategy we continue the development process and perform clinical trials to support FDA approval of new products. The most significant development products in our pipeline are:
•
Terlipressin is being investigated for the treatment of Hepatorenal Syndrome ("HRS") type 1, an acute, rare and life-threatening condition requiring hospitalization, with no currently approved therapy in the U.S. or Canada. In July 2016, we enrolled the first patient in our Phase 3 clinical study to evaluate the efficacy and safety of terlipressin (for injection) in subjects with HRS type 1. In July 2017, we announced the enrollment of the 75th subject in our ongoing Phase 3 clinical study, achieving one quarter of our target enrollment for this trial.
StrataGraft is an investigational product in Phase 3 development for treatment of severe, deep partial thickness burns and Phase 2 development for treatment of severe, full thickness burns. In 2012, the FDA granted StrataGraft orphan product status, and the product is being developed as a biologic to be filed under a biologic license application that would confer regulatory protection until 2032. In June 2017, we announced the enrollment of the first patient in our Phase 3 clinical study to evaluate the efficacy and safety of StrataGraft regenerative skin tissue in the promotion of autologous skin regeneration of complex skin defects due to thermal burns that contain intact dermal elements. In July 2017, we announced that StrataGraft is among the first products to be designated as a Regenerative Medicine Advanced Therapy ("RMAT") by the FDA under the provisions of the 21st Century Cures Act. The RMAT designation allows for earlier and increased interactions with the FDA, including discussions of whether priority review and/or accelerated approval would be appropriate based on surrogate or intermediate endpoints that would be reasonably likely to predict long-term clinical benefit; or reliance upon data obtained from a meaningful number of sites.
MNK-1411 (the product formerly described as Synacthen Depot®) is a depot formulation of Synacthen (tetracosactide), a synthetic 24 amino acid melanocortin receptor agonist. In August 2016, we announced that the FDA has granted our request for fast track designation for its Investigational New Drug ("IND") application for MNK-1411 in the treatment of Duchenne muscular dystrophy ("DMD"). The FDA's fast track designation is a process designed to facilitate the development, and expedite the review of drugs to treat serious conditions that fill an unmet medical need. We completed a Phase 1 study for MNK-1411 in healthy volunteers, and are using the information that was derived to determine optimal dosing in our Phase 2 trial, which is expected to commence during the next six months. In July 2017, we announced that the FDA had granted orphan drug designation to MNK-1411 for the treatment of DMD.
Stannsoporfin, a heme oxygenase inhibitor, is under investigation for its potential to reduce the production of bilirubin. If approved, stannsoporfin is expected to be a highly effective therapy used for near- and full-term infants at risk of developing complications associated with severe jaundice. This new treatment option may reduce the number of newborns advancing to bilirubin levels requiring more intrusive, less specific therapies, most often blood exchange transfusion and less frequently intravenous immunoglobululin infusions ("IVIG"), both of which have a more complex and lengthy administration than stannsoporfin's single injection. Stannsoporfin, if approved, may also decrease the risks associated with other treatments (e.g., bilirubin rebound) and the risk of prolonged and/or severe bilirubin elevation, which can impact central nervous system development. In December 2016, stannsoporfin was granted fast track designation by the FDA. After our recent acquisition of this product through the InfaCare Acquisition, we expect to submit our new drug application ("NDA") to the FDA by the end of fiscal 2017.
Xenon is a noble gas that has been used safely as an inhaled therapy in several studies to date. Following cardiac arrest, calcium channels in the brain can get over-activated, causing neuronal damage and cell death. When inhaled, xenon binds to N-methyl-D-aspartate receptors through a unique glycine-binding mechanism and can help regulate the flow of ions through the calcium channels. By mitigating neuronal damage and cell death following a cardiac arrest, inhaled xenon may be able to reduce time in coma, lower mortality rates and improve cognitive and motor functions. The Phase 3 trial, being conducted under an FDA Special Protocol Agreement, or SPA, is currently expected to begin in early 2018.
Specialty Generics. Specialty Generics development is focused on hard-to-manufacture pharmaceuticals with difficult-to-replicate pharmacokinetic profiles. Our Specialty Generics pipeline consists of several products in various stages of development. We currently perform most of our development work at our Specialty Generics headquarters and technical development center in Webster Groves, Missouri.



Results of Operations
Three Months Ended September 29, 201724, 2021 Compared with Three Months Ended September 30, 201625, 2020

Net Sales
Net sales by geographic area were as follows (dollars in millions): 
Three Months Ended
September 24,
2021		September 25,
2020		Percentage
Change
U.S.$459.8$632.3(27.3)%
Europe, Middle East and Africa40.253.3(24.6)
Other geographic areas7.213.4(46.3)
Geographic area net sales507.2699.0(27.4)
Medicaid lawsuit—(0.7)*
Net sales$507.2$698.3(27.4)%
*Not meaningful

Net sales for the three months ended September 24, 2021 decreased $191.1 million, or 27.4%, to $507.2 million, compared with $698.3 million for the three months ended September 25, 2020. This decrease was primarily driven by a decrease in our Specialty Brands segment including a significant decrease in net sales of Ofirmev, Acthar Gel and INOmax, as previously mentioned. For further information on changes in our net sales, refer to "Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating (Loss) Income
Gross profit. Gross profit for the three months ended September 24, 2021 decreased $107.3 million, or 36.3%, to $188.0 million, compared with $295.3 million for the three months ended September 25, 2020. Gross profit margin was 37.1% for the three months ended September 24, 2021, compared with 42.3% for the three months ended September 25, 2020. These decreases were primarily driven by the $191.1 million decrease in net sales and a change in product mix.
Selling, general and administrative expenses. SG&A expenses for the three months ended September 24, 2021 were $127.3 million, compared with $220.8 million for the three months ended September 25, 2020, a decrease of $93.5 million, or 42.3%. As a percentage of net sales, SG&A expenses were 25.1% and 31.6% for the three months ended September 24, 2021 and September 25, 2020, respectively. These decreases were primarily driven by the bankruptcy-related professional fees being classified as reorganization items, net, subsequent to the Petition Date. Comparatively, during the three months ended September 25, 2020, we incurred $13.4 million and $33.0 million in opioid defense costs and separation costs, respectively, that were reflected in SG&A. These decreases were also driven by cost containment initiatives and lower employee compensation costs, coupled with a $2.1 million decrease in the fair value of our contingent consideration liabilities during three months ended September 24, 2021, compared to a $8.1 million increase during the three months ended September 25, 2020.
Research and development expenses. R&D expenses decreased $18.2 million, or 27.8%, to $47.3 million for the three months ended September 24, 2021, compared with $65.5 million for the three months ended September 25, 2020. The decrease was driven by the completion of certain development programs during fiscal 2020. We continue to focus current R&D activities on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient
38

outcomes. As a percentage of net sales, R&D expenses were 9.3% and 9.4% for the three months ended September 24, 2021 and September 25, 2020, respectively.
Restructuring charges, net. During the three months ended September 24, 2021 and September 25, 2020, we incurred $11.0 million and $3.2 million of restructuring charges, net, respectively, primarily related to employee severance and benefits.
Gains on divestiture. During the three months ended September 25, 2020, we incurred a gain of $9.7 million primarily driven by a gain of $10.0 million related to the achievement of a milestone related to the sale of a portion of our Hemostasis business in fiscal 2018 to Baxter International, Inc. ("Baxter").
Opioid-related litigation settlement. During the three months ended September 24, 2021, we recorded a charge of $125.0 million as a result of an additional payment expected to be made on the eighth anniversary of the effective date of the Amended Proposed Opioid-Related Litigation Settlement, in accordance with the agreement in principle reached on September 2, 2021. For further information, refer to Note 2 of the notes to the unaudited condensed consolidated financial statements. During the three months ended September 25, 2020, we recorded a non-cash gain of $25.8 million as a result of the change in the settlement warrants' fair value driven by the decreased value of our share price. Consistent with the determination at December 25, 2020, the settlement warrants continue to have no value as of September 24, 2021 given we cannot reasonably estimate the equity value at emergence. For further information, refer to Note 12 of the notes to the unaudited condensed consolidated financial statements.

Non-Operating Items
Interest expense and interest income. During the three months ended September 24, 2021 and September 25, 2020, net interest expense was $48.7 million and $61.3 million, respectively. The $13.5 million decrease in interest expense was primarily attributable to a $23.1 million decrease resulting from the cessation of interest accruals as of the Petition Date on outstanding unsecured pre-petition debt classified as LSTC in connection with the Chapter 11 Cases, partially offset by $15.8 million of expense related to adequate protection payments. Additionally, the three months ended September 24, 2021 and September 25, 2020 included the recognition of a $9.6 million and $8.4 million benefit to interest expense, respectively, due to a lapse of certain statute of limitations. Interest income decreased to zero for the three months ended September 24, 2021, compared with $0.9 million for the three months ended September 25, 2020.
Other (expense) income, net. During the three months ended September 24, 2021, we recorded other expense, net, of $3.5 million, compared with zero for the three months ended September 25, 2020. The three months ended September 24, 2021 included an $8.3 million unrealized loss on equity securities, inclusive of foreign currency loss, related to our investment in Silence Therapeutics plc ("Silence"), compared to a $0.1 million unrealized loss during the three months ended September 25, 2020. The three months ended September 24, 2021 also included a $5.0 million one-time milestone receivable.
Reorganization items, net. During the three months ended September 24, 2021, we recorded $126.2 million of reorganization items, net driven by advisor and legal fees directly related to our Chapter 11 proceedings. These charges included $119.4 million of advisor and legal fees directly related to the Chapter 11 Cases and $6.8 million of deferred financing fee write-offs related to the 10.00% second lien senior secured notes due 2025 ("Second Lien Notes") in order to reflect the carrying value within LSTC on the unaudited condensed consolidated balance sheet as of September 24, 2021 at the estimated allowed claim amount.
Income tax benefit. We recognized an income tax benefit of $32.0 million on a loss from continuing operations before income taxes of $301.0 million for the three months ended September 24, 2021, and an income tax benefit of $211.6 million on a loss from continuing operations before income taxes of $19.8 million for the three months ended September 25, 2020. This resulted in effective tax rates of 10.6% and 1,068.7% for the three months ended September 24, 2021 and September 25, 2020, respectively. The income tax benefit for the three months ended September 24, 2021 was comprised of $26.2 million of current tax benefit and $5.8 million of deferred tax benefit. The current tax benefit was predominantly related to an increase to prepaid taxes and a decrease to uncertain tax positions. The deferred tax benefit was predominantly related to intangible asset amortization partially offset by utilization of loss carryforwards in non-valuation allowance jurisdictions. The income tax benefit for the three months ended September 25, 2020 was comprised of $201.4 million of current tax benefit and $10.2 million of deferred tax benefit. The current tax benefit was primarily the result of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and unrecognized tax benefits, partially offset by the fiscal 2020 reorganization of our intercompany financing and associated legal entity ownership. The deferred tax benefit was predominately related to the fiscal 2020 reorganization of our intercompany financing and associated legal entity ownership.
The income tax benefit was $32.0 million for the three months ended September 24, 2021, compared with an income tax benefit of $211.6 million for the three months ended September 25, 2020. The $179.6 million net decrease in the tax benefit included a decrease of $236.8 million attributed to the CARES Act, partially offset by an increase of $32.0 million attributed to the fiscal 2020 reorganization of our intercompany financing and associated legal entity ownership, an increase of $12.6 million attributed to changes in the timing, amount and jurisdictional mix of income, an increase of $7.9 million attributed to uncertain tax positions and an increase of $4.7 million attributed to separation costs, reorganization items, net and restructuring charges, net.
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Income (loss) from discontinued operations, net of income taxes. We recorded income from discontinued operations of $5.3 million during the three months ended September 24, 2021 and a loss from discontinued operations of $0.2 million during the three months ended September 25, 2020, respectively. The income during the three months ended September 24, 2021 primarily related to the recognition of a tax benefit related to a release of tax and interest on unrecognized tax benefits due to a lapse of certain statute of limitations related to the Nuclear Imaging business. The remaining activity in both periods related to various post-sale adjustments associated with our previous divestitures.

Nine Months Ended September 24, 2021 Compared with Nine Months Ended September 25, 2020
Net Sales
Net sales by geographic area were as follows (dollars in millions): 
Nine Months Ended
September 24,
2021		September 25,
2020		Percentage
Change
U.S.$1,466.0$1,836.0(20.2)%
Europe, Middle East and Africa120.7185.0(34.8)
Other geographic areas24.944.7(44.3)
Geographic area net sales1,611.62,065.7(22.0)
Medicaid lawsuit (Note 12)—(535.1)*
Net sales$1,611.6$1,530.65.3 
 Three Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage
Change
U.S.$711.0
 $814.1
 (12.7)%
Europe, Middle East and Africa60.3
 54.4
 10.8
Other22.6
 18.7
 20.9
Net sales$793.9
 $887.2
 (10.5)
*Not meaningful


Net sales for the threenine months ended September 29, 2017 decreased $93.324, 2021 increased $81.0 million, or 10.5%5.3%, to $793.9$1,611.6 million, compared with $887.2$1,530.6 million for the threenine months ended September 30, 2016.25, 2020. This increase was primarily driven by a retrospective one-time charge of $535.1 million reflected as a component of net sales related to the Medicaid lawsuit during the nine months ended September 25, 2020. For further information on the Medicaid lawsuit, refer to Note 12 of the notes to the unaudited condensed consolidated financial statements.
Net sales (excluding the one-time charge related to the Medicaid lawsuit) for the nine months ended September 24, 2021 decreased $454.1 million, or 22.0%, to $1,611.6 million, compared with $2,065.7 million for the nine months ended September 25, 2020. This decrease was due to decreased net sales from both ofprimarily driven by a decrease in our segments as overall net sales growth was impacted by the extra selling week during the three months ended September 30, 2016. Our Specialty GenericsBrands segment continues to experienceincluding a significant decrease in net sales due to increased competitionof Ofirmev, Acthar Gel and customer consolidation, which has resulted in downward pricing pressure. Our Specialty Brands segment experienced a decrease in net sales in Other branded products primarily driven by the sale of our Intrathecal Therapy business in the first quarter of 2017. Net sales related to Acthar also experienced a decrease, impacted by the extra selling week during the comparable period in 2016 and volume declines. We believe these lower volumes of Acthar resulted from an increasing number of written prescriptions going unfilled due to the challenging reimbursement environment.INOmax. For further information on changes in our net sales, refer to "Business Segment"Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.


Operating IncomeLoss
Gross profit.profit. Gross profit for the threenine months ended September 29, 2017 decreased $89.624, 2021 increased $294.3 million, or 18.3%82.0%, to $400.6$653.2 million, compared with $490.2$358.9 million for the threenine months ended September 30, 2016.25, 2020. Gross profit margin was 50.5%40.5% for the threenine months ended September 29, 2017,24, 2021, compared with 55.3%to 23.4% for the threenine months ended September 30, 2016. The decrease in gross profit and gross profit margin was partially attributable to channel consolidation and increased price competition in25, 2020. These increases were primarily driven by the Specialty Generics business, contributing toretrospective one-time charge of $535.1 million reflected as a $46.2 million decline in that segment's gross profit. Also negatively impacting gross profit this quarter was the lowercomponent of net sales inrelated to the higher margin Specialty Brands business and a $10.6 million increase in royalty expense attributable to our Specialty Brands segment.
Selling, general and administrative expenses. SG&A expenses for the three months ended September 29, 2017 were $205.7 million, compared with $267.8 million for the three months ended September 30, 2016, a decrease of $62.1 million, or 23.2%. The decrease was attributable to various factors, including a smaller unfavorable adjustment to contingent consideration liabilities, lower employee compensation costs, professional fees, acquisition related expenses and pension expense following the settlement of our defined benefit pension plans; all of which were partially offset by a loss from the effects of our foreign currency hedges, which was entered intoMedicaid lawsuit during the nine months ended September 29, 2017, charitable contributions25, 2020.
Gross profit (excluding the one-time charge related to the Medicaid lawsuit, as discussed above) for the nine months ended September 24, 2021 decreased $240.8 million, or 26.9%, to $653.2 million, compared with $894.0 million for the nine months ended September 25, 2020, due in part to the $454.1 million decrease in net sales and legala change in product mix. Gross profit margin was 40.5% for the nine months ended September 24, 2021, compared to 43.3% for the nine months ended September 25, 2020 when excluding the one-time charge related to the Medicaid lawsuit. The decrease in gross profit margin was primarily attributable to the decrease in net sales, as well as a change in product mix.
Selling, general and administrative expenses. SG&A expenses for the nine months ended September 24, 2021 were $408.3 million, compared with $683.2 million for the nine months ended September 25, 2020, a decrease of $274.9 million, or 40.2%. As a percentage of net sales, SG&A expenses were 25.9%25.3% for the nine months ended September 24, 2021, compared to 44.6%, or 33.1% when excluding the one-time charge related to the Medicaid lawsuit, for the nine months ended September 25, 2020. These decreases were primarily driven by the bankruptcy-related professional fees being classified as reorganization items, net, subsequent to the Petition Date. Comparatively, during the nine months ended September 25, 2020, we incurred $53.1 million and $75.0 million in opioid defense costs and separation costs, respectively, that were reflected in SG&A. These decreases were also driven by cost containment initiatives and lower employee compensation costs, coupled with a $7.6 million decrease in the fair value of net sales forour
40

contingent consideration liabilities during nine months ended September 24, 2021, compared to a $2.4 million increase during the three months ended September 29, 201725, 2020.
Research and 30.2% of net salesdevelopment expenses. R&D expenses decreased $59.5 million, or 26.4%, to $166.3 million for the threenine months ended September 30, 2016.
Research and development expenses. R&D expenses decreased $8.4 million, or 12.4%, to $59.524, 2021, compared with $225.8 million for the threenine months ended September 29, 2017, compared with $67.9 million for the three months ended September 30, 2016.25, 2020. The decrease was attributabledriven by the completion of certain development programs during fiscal 2020. We continue to lower spend in the Specialty Generics segment and the sale of our Intrathecal Therapy business in the first quarter of 2017. These decreases were partially offset by increased R&D expenses in our Specialty Brands segment, where our pipeline products are concentrated. Currentfocus current R&D activities focus on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient outcomes. As a percentage of net sales, R&D expenses were 7.5% and 7.7%10.3% for the threenine months ended September 29, 2017 and24, 2021, compared to 14.8%, or 10.9% when excluding the one-time charge related to the Medicaid lawsuit, for the nine months ended September 30, 2016, respectively.25, 2020.
Restructuring charges, net. During the threenine months ended September 29, 2017,24, 2021 and September 25, 2020, we recorded $15.5incurred $17.5 million and $15.8 million of restructuring and related charges, net, including $1.2 million of accelerated depreciation in SG&A and cost of sales, primarily related to exiting certain facilities. During the three months ended September 30, 2016, we recorded restructuring and related charges, net, of $8.7


million, including $1.9 million of accelerated depreciation in SG&A and cost of sales,respectively, primarily related to employee severance benefits across both of our segments and corporate functions.benefits.
Losses on divestiture and license. Non-restructuring impairment charges.During the threenine months ended September 29, 2017,24, 2021 we recordedrecognized a $0.4full impairment on our Specialty Brands IPR&D asset related to MNK-6105 and MNK-6106 of $64.5 million. We decided we will no longer pursue further development of this asset. During the nine months ended September 25, 2020, we recognized a partial impairment charge on our Ofirmev intangible asset of $63.5 million pre-tax loss associateddue to the revision of its useful life to end December 2020, commensurate with the final working capital adjustmentperiod of market exclusivity.
(Gains) and losses on divestiture. During the nine months ended September 24, 2021 and September 25, 2020, we incurred a loss of $0.8 million and a gain of $10.1 million, respectively. The nine months ended September 25, 2020 included a gain of $10.0 million related to the achievement of a milestone related to the sale of a portion of our Intrathecal Therapy business.Hemostasis business in fiscal 2018 to Baxter.

Opioid-related litigation settlement. During the nine months ended September 24, 2021, we recorded a charge of $125.0 million as a result of an additional payment expected to be made on the eighth anniversary of the effective date of the Amended Proposed Opioid-Related Litigation Settlement, in accordance with the agreement in principle reached on September 2, 2021. For further information, refer to Note 2 of the notes to the unaudited condensed consolidated financial statements. During the nine months ended September 25, 2020, we recorded a non-cash gain of $34.1 million as a result of the change in the settlement warrants' fair value. Consistent with the determination at December 25, 2020, the New Opioid Warrants continue to have no value as of September 24, 2021 given we cannot reasonably estimate the equity value at emergence. For further information, refer to Note 12 of the notes to the unaudited condensed consolidated financial statements.
Medicaid lawsuit. During the nine months ended September 25, 2020, we incurred a retrospective one-time charge of $105.1 million, which represents a pre-acquisition contingency related to the portion of the liability that arose from sales of Acthar Gel prior to our acquisition of Questcor Pharmaceuticals Inc. ("Questcor") in August 2014. For further information, refer to Note 12 of the notes to the unaudited condensed consolidated financial statements.

Non-Operating Items
Interest expense and interest income. During the threenine months ended September 29, 201724, 2021 and September 30, 2016,25, 2020, net interest expense was $91.3$158.8 million and $93.5$195.5 million, respectively. InterestThe $40.2 million decrease in interest expense duringwas primarily attributable to a $69.6 million decrease resulting from the threecessation of interest accruals as of the Petition Date on outstanding unsecured pre-petition debt classified as LSTC in connection with the Chapter 11 Cases coupled with a lower average outstanding debt balance, partially offset by $46.1 million of expense related to adequate protection payments. Additionally, the nine months ended September 29, 201724, 2021 and September 30, 201625, 2020 included $5.3the recognition of a $15.8 million and $6.3$19.2 million benefit to interest expense, respectively, due to a lapse of non-cash interest expense. In addition,certain statute of limitations. The Company recognized interest income increased to $1.3of $1.9 million forand $5.4 million during the threenine months ended September 29, 2017, compared with $0.5 million for24, 2021 and September 25, 2020, respectively. The decrease in interest income was primarily driven by lower interest rates during the threenine months ended September 30, 2016.
Other income (expense), net. During24, 2021 and interest earned on our preferred equity certificates that were received as contingent consideration related to the threesale of the Nuclear Imaging business during the nine months ended September 29, 2017,25, 2020.
Other income, net. During the nine months ended September 24, 2021 and September 25, 2020, we recorded other income, net, of $3.7$15.9 million and during the three$1.1 million, respectively. The nine months ended September 30, 2016, we recorded other expense, net,24, 2021 included a $6.2 million unrealized gain on equity securities, inclusive of $0.6 million. The threeforeign currency gain, related to our investment in Silence, compared to $1.8 million for the nine months ended September 29, 201725, 2020. The nine months ended September 24, 2021 also included a $1.7$9.0 million gainrelated to one-time milestone receivables.
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Reorganization items, net. During the nine months ended September 24, 2021, we recorded $329.2 million of reorganization items, net in conjunction with our Chapter 11 proceedings. These charges included $306.6 million of advisor and legal fees directly related to the Chapter 11 Cases and $23.1 million of deferred financing fee write-offs related to the senior secured term loan due September 2024 (the "2017 Term Loan") and senior secured term loan due February 2025 (the "2018 Term Loan") and Second Lien Notes in order to reflect their respective carrying values within LSTC on certain debt repurchases, that aggregated to a total principal amountthe unaudited condensed consolidated balance sheet as of $13.0 million. The remaining amounts in both fiscal years represented items including gains and losses on intercompany financing, foreign currency transactions and related hedging instruments.September 24, 2021 at their estimated allowed claim amounts.
Income tax expense (benefit). Incomebenefit. We recognized an income tax benefit was $31.2of $81.9 million on incomea loss from continuing operations before income taxes of $33.1$601.3 million for the threenine months ended September 29, 201724, 2021, and an income tax benefit of $56.4$69.2 million on incomea loss from continuing operations before income taxes of $53.6$884.7 million for the threenine months ended September 30, 2016.25, 2020. This resulted in effective tax rates of negative 94.3% and negative 105.2% for the three months ended September 29, 2017 and September 30, 2016, respectively. The income tax benefit for the three months ended September 29, 2017 is comprised of $60.0 million of current tax benefit and $28.8 million of deferred tax expense. The net deferred tax expense of $28.8 million includes $45.5 million of deferred tax benefit which is predominantly related to acquired intangible assets offset by $74.3 million of deferred tax expense related to utilization of tax attributes. The income tax benefit for the three months ended September 30, 2016 is comprised of $37.9 million of current tax expense and $94.3 million of deferred tax benefit which is predominantly related to acquired intangible assets.
The effective tax rate for the three months ended September 29, 2017, as compared with the three months ended September 30, 2016 increased by 10.9 percentage points. Included within this net increase was a 109.4 percentage point increase related to the completion of certain aspects of the reorganization of our legal entity ownership, which occurred during the three months ended September 29, 2017. Also within this increase was a 36.7 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred during the three months ended September 30, 2016. The remaining 135.2 percentage point decrease was primarily attributable to differing levels of income from continuing operations before taxes for the three months ended September 29, 2017 as compared with the three months ended September 30, 2016.
(Loss) income from discontinued operations, net of income taxes. We recorded a loss from discontinued operations of $0.6 million during the three months ended September 29, 2017 compared to income from discontinued operations of $5.0 million during the three months ended September 30, 2016. The loss from discontinued operations for the three months ended September 29, 2017 consists of various post-sale adjustments associated with our previous divestitures. The income from discontinued operations for the three months ended September 30, 2016 included $8.4 million of income from operating results associated with the Nuclear Imaging business and a $4.4 million loss on the disposal of the CMDS business.

Results of Operations
Nine Months Ended September 29, 2017 Compared with Nine Months Ended September 30, 2016
Net Sales
Net sales by geographic area were as follows (dollars in millions): 
 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage
Change
U.S.$2,197.7
 $2,355.2
 (6.7)%
Europe, Middle East and Africa176.2
 162.5
 8.4
Other55.4
 51.9
 6.7
Net sales$2,429.3
 $2,569.6
 (5.5)



Net sales for the nine months ended September 29, 2017 decreased $140.3 million, or 5.5%, to $2,429.3 million, compared with $2,569.6 million for the nine months ended September 30, 2016. This decrease was due to decreased net sales from both of our segments, with the largest decrease in our Specialty Generics segment due to increased competition and customer consolidation, which has resulted in downward pricing pressure. Our Specialty Brands segment experienced a decrease in net sales in Other branded products primarily driven by the sale of our Intrathecal Therapy business in the first quarter of 2017 and favorable adjustments to returns reserves in the prior year, both of which were partially offset by favorable pricing for Acthar, in addition to the benefits of Inomax contracting and growth from Ofirmev. In addition, overall net sales growth during the nine months ended September 29, 2017 was negatively impacted by the extra selling week during the nine months ended September 30, 2016. For further information on changes in our net sales, refer to "Business Segment Results" within Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating Income
Gross profit. Gross profit for the nine months ended September 29, 2017 decreased $168.8 million, or 12.0%, to $1,235.3 million, compared with $1,404.1 million for the nine months ended September 30, 2016. Gross profit margin was 50.9% for the nine months ended September 29, 2017, compared with 54.6% for the nine months ended September 30, 2016. The decrease in gross profit and gross profit margin was primarily attributable to channel consolidation and increased price competition in the Specialty Generics business, contributing to a $129.5 million decline in that segment's gross profit. Also negatively impacting gross profit this quarter was the lower net sales in the higher margin Specialty Brands business and increases of $11.0 million in royalty expense and $8.2 million in inventory provision expense, both of which were attributable to our Specialty Brands segment.
Selling, general and administrative expenses. SG&A expenses for the nine months ended September 29, 2017 were $745.9 million, compared with $702.0 million for the nine months ended September 30, 2016, an increase of $43.9 million, or 6.3%. The increase was primarily attributable to a $69.7 million charge from the recognition of previously deferred losses on the settlement of obligations associated with the termination of six defined benefit pension plans. The remaining change consisted of various factors, including higher stock compensation expense and charitable contributions, partially offset by lower advertising and promotion expenses, professional fees, employee compensation costs, legal fees and pension expense following the settlement of our defined benefit pension plans. SG&A expenses were 30.7% of net sales for the nine months ended September 29, 2017 and 27.3% of net sales for the nine months ended September 30, 2016. The higher percentage of net sales is attributable to the aforementioned pension settlement charge, which represented 2.9% of net sales for the nine months ended September 29, 2017, and the various other aforementioned factors.
Research and development expenses. R&D expenses decreased $9.9 million, or 4.9%, to $190.9 million for the nine months ended September 29, 2017, compared with $200.8 million for the nine months ended September 30, 2016. The decrease was attributable to lower spend in the Specialty Generics segment and the sale of our Intrathecal Therapy business in the first quarter of 2017. These decreases were partially offset by increased R&D expenses from our Specialty Brands segment, where our most pipeline products are concentrated. Current R&D activities focus on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic and patient outcomes. As a percentage of net sales, R&D expenses were 7.9%13.6% and 7.8% for the nine months ended September 29, 201724, 2021 and September 30, 2016, respectively.
Restructuring charges, net. During the nine months ended September 29, 2017, we recorded $35.7 million of restructuring and related charges, net, including $3.6 million of accelerated depreciation in SG&A and cost of sales, primarily related to exiting certain facilities and employee severance and benefits across both our segments and corporate functions. During the nine months ended September 30, 2016, we recorded restructuring and related charges, net, of $34.0 million, including $4.8 million of accelerated depreciation in SG&A and cost of sales, primarily related to employee severance benefits across both of our segments and corporate functions.
Non-restructuring impairment charges. During the nine months ended September 30, 2016, we recorded $16.9 million in charges related to in-process research and development intangible assets associated with the CNS Therapeutics acquisition in fiscal 2013. The impairments resulted from delays in anticipated FDA approval, higher than expected development costs and lower than previously anticipated commercial opportunities.
Gains on divestiture and license. During the nine months ended September 29, 2017, we recorded a $56.6 million pre-tax gain associated with the sale of our Intrathecal Therapy business.

Non-Operating Items
Interest expense and interest income. During the nine months ended September 29, 2017 and September 30, 2016, net interest expense was $276.2 million and $285.7 million, respectively. This decrease was primarily driven by a lower average outstanding


debt balance that contributed $1.1 million to the decrease. In addition, interest expense during the nine months ended September 29, 2017 and September 30, 2016 included $16.9 million and $19.7 million, respectively, of non-cash interest expense. Lastly, there was a $1.2 million decrease in interest accrued on deferred tax liabilities associated with outstanding installment notes due to payments that reduced the deferred tax liability balance.
Other income (expense), net. During the nine months ended September 29, 2017, we recorded other income, net, of $6.2 million and during the nine months ended September 30, 2016, we recorded other expense, net, of $2.6 million. The nine months ended September 29, 2017 included a $10.0 million charge associated with the refinancing of our term loan, partially offset by an $8.3 million gain on debt repurchases, that aggregated to a total principal amount of $66.9 million. The remaining amounts in both fiscal years represented items including gains and losses on intercompany financing, foreign currency transactions and related hedging instruments.
Income tax expense (benefit). Income tax benefit was $110.8 million on income from continuing operations before income taxes of $53.0 million for the nine months ended September 29, 2017 and an income tax benefit of $218.3 million on income from continuing operations before income taxes of $166.9 million for the nine months ended September 30, 2016. This resulted in effective tax rates of negative 209.1% and negative 130.8% for the nine months ended September 29, 2017 and September 30, 2016,25, 2020, respectively. The income tax benefit for the nine months ended September 29, 2017 is24, 2021 was comprised of $20.5$62.8 million of current tax expensebenefit and $131.3$19.1 million of deferred tax benefit. The netcurrent tax benefit was predominantly related to an increase to prepaid taxes and a decrease to uncertain tax positions. The deferred tax benefit of $131.3 million includes $232.8 million of deferred tax benefit which iswas predominantly related to acquired intangible assetsasset amortization, partially offset by $101.5 million of deferred tax expense related to utilization of tax attributes.loss carryforwards in non-valuation allowance jurisdictions. The income tax benefit for the nine months ended September 30, 2016 is25, 2020 was comprised of $85.9$370.3 million of current tax expensebenefit and $304.2$301.1 million of deferred tax expense. The current tax benefit which is predominantlywas primarily the result of the CARES Act and unrecognized tax benefits, partially offset by the fiscal 2020 reorganization of our intercompany financing and associated legal entity ownership. The deferred tax expense was predominately related to acquired intangible assets.the valuation allowance recorded against our net deferred tax assets and unrecognized tax benefits, partially offset by a tax benefit predominately related to the fiscal 2020 reorganization of our intercompany financing and associated legal entity ownership.
The effectiveincome tax ratebenefit was $81.9 million for the nine months ended September 29, 2017, as24, 2021, compared with the nine months ended September 30, 2016 decreased by 78.3 percentage points. Included within this net decrease was a 183.5 percentage point decrease primarily attributable to differing levelsan income tax benefit of income from continuing operations before taxes$69.2 million for the nine months ended September 29, 2017 as compared with the nine months ended September 30, 2016. Of the remaining 105.2 percentage point25, 2020. The $12.7 million net increase a 16.5 percentage point increase is related toin the tax benefit included an increase of $202.7 million attributed to a U.K.valuation allowance recorded against our net deferred tax credit on a dividend between affiliates, which occurred duringassets, an increase of $56.2 million attributed to changes in the nine months ended September 30, 2016, a 5.0 percentage pointtiming, amount and jurisdictional mix of income, an increase relatedof $25.7 million predominately attributed to the divestiture of the Intrathecal Therapy Business, which occurred during the nine months ended September 29, 2017, a 15.5 percentage point increase attributable to the recognition of previously unrecognized tax benefits, which occurred within the nine months ended September 30, 2016, and a 68.2 percentage point increase related to the completion of certain aspects of thefiscal 2020 reorganization of our intercompany financing and associated legal entity ownership, which occurred duringan increase of $10.8 million attributed to separation costs, reorganization items, net and restructuring charges, net and an increase of $2.8 million attributed to uncertain tax positions, partially offset by a decrease of $285.5 million attributed to the nine months ended September 29, 2017.CARES Act.
Income from discontinued operations, net of income taxes. We recorded income from discontinued operations of $361.9$6.0 million and $47.4$23.8 million during the nine months ended September 29, 201724, 2021 and September 30, 2016,25, 2020, respectively. Income from discontinued operations forThe income during both periods were primarily related to the nine months ended September 29, 2017 includes a $361.7 million gain on divestiture and $4.1 million of income from operating results, both netrecognition of tax associated withbenefits related to releases of tax and interest on unrecognized tax benefits due to lapses of certain statute of limitations related to the Nuclear Imaging business. These were partially offset by various post-sale adjustments associated with our previous divestitures. The income from discontinued operations for the nine months ended September 30, 2016 included $49.2 million of income from operating results associated with the Nuclear Imaging business and a $4.4 million loss on the disposal of the CMDS business.



Segment Results
Our reportable segments consist of Specialty Brands and Specialty Generics. Management measures and evaluates our operating segments based on segment net sales and operating income. Management excludes certain corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from segment net sales and operating income because management evaluatesand the chief operating decision maker evaluate the operating results of the segments excluding such items. These items include, but are not limited to, depreciation and amortization, share-based compensation, net sales and expenses associated with sales of productsrestructuring charges, non-restructuring impairment charges, separation costs, R&D upfront payment, changes related to the acquirerOpioid-Related Litigation Settlement and the Acthar Gel Medicaid Retrospective Rebate (as defined within Note 12 of the CMDS business under an ongoing supply agreement, intangible asset amortization, impairments and net restructuring and related charges.notes to the unaudited condensed consolidated financial statements) incurred as a result of the Medicaid lawsuit. Although these amounts are excluded from segment net sales and segment operating income, as applicable, they are included in reported consolidated net sales and operating (loss) income and in the reconciliations presented below. Selected information by business segment is as follows:


42

Three Months Ended September 29, 201724, 2021 Compared with Three Months Ended September 30, 2016

25, 2020
Net Sales


Net sales by segment are shown in the following table (dollars(dollars in millions): 
Three Months Ended
September 24,
2021		September 25,
2020
Percentage
Change
Specialty Brands$359.7 $539.6 (33.3)%
Specialty Generics147.5 159.4 (7.5)
Segment net sales507.2 699.0 (27.4)
Medicaid lawsuit (Note 12)—(0.7)*
Net sales$507.2$698.3(27.4)
 Three Months Ended  
 September 29,
2017		 September 30,
2016		 
Percentage
Change
Specialty Brands$591.4
 $633.1
 (6.6)%
Specialty Generics189.1
 239.8
 (21.1)
Net sales of operating segments780.5
 872.9
 (10.6)
Other (1)
13.4
 14.3
 (6.3)
Net sales$793.9
 $887.2
 (10.5)
(1)Represents net sales from an ongoing, post-divestiture supply agreement with the acquirer of the CMDS business.

*Not meaningful

Specialty Brands.Net sales for the three months ended September 29, 201724, 2021 decreased $41.7$179.9 million to $591.4$359.7 million, compared with $633.1$539.6 million for the three months ended September 30, 2016. Overall net sales growth during the three months ended September 29, 2017 was negatively impacted by the extra selling week during the three months ended September 30, 2016. Our Other products experienced a $21.8 million or 68.3% decrease in net sales compared with the three months ended September 30, 2016, primarily due to the sale of our Intrathecal Therapy business in the first quarter of 2017, which contributed $12.3 million of net sales during the comparable period in 2016.25, 2020. The decrease in net sales related to our Other products was alsoprimarily driven by a $4.6an $84.0 million, or 94.7%, decrease in Ofirmev driven by the loss of exclusivity at the end of fiscal 2020 and the entrance of generic competition during fiscal 2021, a $51.9 million, or 26.6%, decrease in Acthar Gel net sales driven by the marketplace impact of Exalgo (hydromorphone HCI) extended-release tablets, CII ("Exalgo"). Net sales related to Acthar decreased by $18.3the COVID-19 pandemic and continued payer scrutiny on overall specialty pharmaceutical spending and a $43.5 million, or 5.6% compared with the three months ended September 30, 2016, impacted30.7%, decrease in INOmax driven by the extra selling week during the comparable period in 2016 and volume declines. We believe these lower volumes of Acthar resulted from an increasing number of written prescriptions going unfilled due to the challenging reimbursement environment.increased competition, as previously discussed.

Net sales for Specialty Brands by geography were as follows (dollars(dollars in millions):
Three Months Ended
September 24,
2021		September 25,
2020		Percentage
Change
U.S.$337.5$504.7(33.1)%
Europe, Middle East and Africa18.424.9(26.1)
Other3.810.0(62.0)
Net sales$359.7$539.6(33.3)
 Three Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage
Change
U.S.$570.3
 $613.9
 (7.1)%
Europe, Middle East and Africa19.1
 17.7
 7.9
Other2.0
 1.5
 33.3
Net sales$591.4
 $633.1
 (6.6)


Net sales for Specialty Brands by key products were as follows (dollars(dollars in millions):
Three Months Ended
September 24,
2021		September 25,
2020		Percentage Change
Acthar Gel$143.4$195.3(26.6)%
INOmax98.4141.9(30.7)
Ofirmev4.788.7(94.7)
Therakos62.562.6(0.2)
Amitiza49.647.74.0 
Other1.13.4(67.6)
Specialty Brands$359.7$539.6(33.3)
 Three Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage Change
Acthar$308.7
 $327.0
 (5.6)%
Inomax125.7
 126.9
 (0.9)
Ofirmev75.4
 75.6
 (0.3)
Therakos immunotherapy55.3
 54.5
 1.5
Hemostasis products16.2
 17.2
 (5.8)
Other10.1
 31.9
 (68.3)
Specialty Brands$591.4
 $633.1
 (6.6)


Specialty Generics. Net sales for the three months ended September 29, 201724, 2021 decreased $50.7$11.9 million, or 21.1%7.5%, to $189.1$147.5 million, compared with $239.8$159.4 million for the three months ended September 30, 2016.25, 2020. The decrease in net sales was driven by decreasesdue to a decrease in acetaminophen and hydrocodone-related products net sales of $20.8 million, $15.4$5.3 million and $9.1$3.1 million, in hydrocodone related products, oxycodone related products and methylphenidate ER, respectively. These decreases were due to increased competition and customer consolidation, which has resulted in downward pricing pressure. In addition, overall net sales growth during the three months ended September 29, 2017 was negatively impacted by the extra selling week during the three months ended September 30, 2016.

43



Net sales for Specialty Generics by geography were as follows (dollars(dollars in millions):
Three Months Ended
September 24,
2021		September 25,
2020
Percentage
Change
U.S.$122.3$127.6(4.2)%
Europe, Middle East and Africa21.828.4(23.2)
Other3.43.4— 
Net sales$147.5$159.4(7.5)
 Three Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage
Change
U.S.$140.7
 $200.3
 (29.8)%
Europe, Middle East and Africa27.8
 22.2
 25.2
Other20.6
 17.3
 19.1
Net sales$189.1
 $239.8
 (21.1)


Net sales for Specialty Generics by key products were as follows (dollars(dollars in millions):
Three Months Ended
September 24,
2021		September 25,
2020		Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets$16.9$20.0(15.5)%
Oxycodone (API) and oxycodone-containing tablets15.216.1(5.6)
Acetaminophen (API)49.654.9(9.7)
Other controlled substances60.862.4(2.6)
Other5.06.0(16.7)
Specialty Generics$147.5$159.4(7.5)
 Three Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets$10.0
 $30.8
 (67.5)%
Oxycodone (API) and oxycodone-containing tablets13.4
 28.8
 (53.5)
Methylphenidate ER14.3
 23.4
 (38.9)
Other controlled substances103.9
 111.8
 (7.1)
Other products47.5
 45.0
 5.6
Specialty Generics$189.1
 $239.8
 (21.1)


Operating (Loss) Income
Operating income by segment and as a percentage of segment net sales for the three months ended September 29, 201724, 2021 and September 30, 201625, 2020 is shown in the following table (dollars(dollars in millions):
Three Months Ended
September 24, 2021September 25, 2020
Specialty Brands$189.9 52.8 %$291.8 54.1 %
Specialty Generics15.2 10.343.1 27.0 
Segment operating income205.1 40.4334.9 47.9 
Unallocated amounts:
Corporate and unallocated expenses (1)
(20.8)(42.1)
Depreciation and amortization(168.4)(236.1)
Share-based compensation(2.4)(4.3)
Restructuring charges, net(11.0)(3.2)
Separation costs (2)
(0.1)(33.0)
Opioid-related litigation settlement (loss) gain (Note 12)(125.0)25.8 
Medicaid lawsuit (Note 12)— (0.5)
Total operating (loss) income$(122.6)$41.5 
 Three Months Ended
 September 29, 2017 September 30, 2016
Specialty Brands$316.6
 53.5% $334.1
 52.8%
Specialty Generics40.4
 21.4
 63.9
 26.6
Segment operating income357.0
 45.7
 398.0
 45.6
Unallocated amounts:       
Corporate and allocated expenses(47.6)   (65.7)  
Intangible asset amortization(173.2)   (175.9)  
Restructuring and related charges, net (1)
(15.5)   (8.7)  
Total operating income$120.7
   $147.7
  
(1)Includes restructuring-related accelerated depreciation.

(1)Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segments.
(2)Represents costs included in SG&A expenses, primarily related to professional fees and costs incurred in preparation for the Chapter 11 proceedings. As of the Petition Date, professional fees directly related to the Chapter 11 proceedings that were previously reflected as separation costs are being classified on a go-forward basis as reorganization items, net.

Specialty Brands. Operating income for the three months ended September 29, 201724, 2021 decreased $17.5$101.9 million, to $316.6$189.9 million, compared with $334.1$291.8 million for the three months ended September 30, 2016.25, 2020. Operating margin increaseddecreased to 53.5% for the three months ended September 29, 2017 compared with 52.8% for the three months ended September 30, 2016.24, 2021, compared with 54.1% for the three months ended September 25, 2020. The decrease in operating income and margin was impactedprimarily driven by a $41.7$144.4 million decrease to gross profit as a result of the decrease in net sales and a change in product mix as previously mentioned, in addition to increased royalty expense of $10.6 million. R&D expenses also increased by $2.9 million. These changes werediscussed above, partially offset by a decrease of $32.0$26.2 million, or 24.2%, in SG&A expenses, compared with the three months ended September 30, 201625, 2020. The decrease in SG&A was primarily driven by the bankruptcy-related legal fees being classified as a result ofreorganization items, net, subsequent to the Petition Date, in addition to cost benefits gained from restructuring actions.containment initiatives and lower employee compensation costs. Additionally, R&D expenses decreased $16.4 million, or 30.2%, compared with the three months ended September 25, 2020, as previously discussed above.
44

Specialty Generics. Operating income for the three months ended September 29, 201724, 2021 decreased $23.5$27.9 million, to $40.4$15.2 million, compared with $63.9$43.1 million for the three months ended September 30, 2016.25, 2020. Operating margin decreased to 21.4%10.3% for the three months ended September 29, 2017,24, 2021, compared with 26.6%27.0% for the three months ended September 30, 2016.25, 2020. The decrease in operating income and margin was impacted by the $50.7primarily attributable to a $30.2 million decrease in net sales due to customer consolidation and additional competitors that has led to price decreases, which resulted in a $46.2 million unfavorable gross profit, impact.primarily driven by an increased competitive environment with respect to Other controlled substances, partially offset by decreases in R&D and SG&A expenses.


expenses decreased by $11.0 million as a result of cost benefits gained from restructuring actions. R&D expenses also decreased by $11.8 million compared with the three months ended September 30, 2016.
Corporate and allocatedunallocated expenses. Corporate and allocatedunallocated expenses were $47.6$20.8 million and $65.7$42.1 million for the three months ended September 29, 201724, 2021 and September 30, 2016,25, 2020, respectively. TheThis decrease reflects an $11.2 million favorable variancewas primarily driven by the bankruptcy-related professional fees being classified as reorganization items, net, subsequent to the Petition Date, in adjustmentsaddition to contingent consideration liabilities, primarily due to a larger unfavorable adjustment incost containment initiatives and lower employee compensation costs. Comparatively, during the three months ended September 30, 2016.25, 2020, we incurred $13.4 million of opioid defense costs that were reflected in SG&A. The remaining decrease of $6.9 million consisted of various factors, including lower employee compensation costs, acquisition related expenses, advertising and promotions expense and pension expense following the settlement of our six defined benefit pension plans; all of which werewas partially offset by higher facility expenses and stock compensation expense.the change in the fair value of our contingent consideration liabilities with a $2.1 million gain during three months ended September 24, 2021, compared to a $8.1 million charge during the three months ended September 25, 2020.


Nine Months Ended September 29, 201724, 2021 Compared with Nine Months Ended September 30, 2016

25, 2020
Net Sales
Net sales by segment are shown in the following table (dollars(dollars in millions): 
Nine Months Ended
September 24,
2021		September 25,
2020
Percentage
Change
Specialty Brands$1,149.6 $1,553.0 (26.0)%
Specialty Generics462.0 512.7 (9.9)
Segment net sales1,611.6 2,065.7 (22.0)
Medicaid lawsuit (Note 12)—(535.1)*
Net sales$1,611.6$1,530.65.3 
 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 
Percentage
Change
Specialty Brands$1,743.1
 $1,757.4
 (0.8)%
Specialty Generics643.7
 767.6
 (16.1)
Net sales of operating segments2,386.8
 2,525.0
 (5.5)
Other (1)
42.5
 44.6
 (4.7)
Net sales$2,429.3
 $2,569.6
 (5.5)
(1)Represents net sales from an ongoing, post-divestiture supply agreement with the acquirer of the CMDS business.

*Not meaningful

Specialty Brands. Net sales for the nine months ended September 29, 201724, 2021 decreased $14.3$403.4 million to $1,743.1$1,149.6 million, compared with $1,757.4$1,553.0 million for the nine months ended September 30, 2016.25, 2020. The decrease in net sales was primarily driven by a $64.5$192.0 million, or 62.6%88.9%, decrease in Other products compared withOfirmev driven by the loss of exclusivity at the end of fiscal 2020 and the entrance of generic competition during the nine months ended September 30, 2016.24, 2021. The decrease is primarily attributable toin net sales was also impacted by a $22.8$152.7 million, or 26.5%, decrease in ExalgoActhar Gel net sales driven by lower volumes, an $8.3the marketplace impact of the COVID-19 pandemic and continued payer scrutiny on overall specialty pharmaceutical spending and a $100.2 million, prior year benefitor 22.9%, decrease in INOmax due to lower than expected product returns and the sale of our Intrathecal Therapy business in the first quarter of 2017. Net sales of the Intrathecal Therapy business through the March 17, 2017 divestiture date were $8.0 million compared to $34.2 million for the nine months ended September 30, 2016.increased competition. These decreases were partially offset by a $26.2$23.7 million, or 3.0%13.6%, increase in ActharTherakos net sales driven by increased demand as the product begun to see a recovery from the impact of the COVID-19 pandemic during the first half of fiscal 2021 and a $16.1$17.6 million, or 4.4%12.7%, increase in Inomax net sales compared withAmitiza, primarily as a result of the nine months ended September 30, 2016. The Acthar net sales increase was primarily driven by favorable pricing. Inomax net sales continued to benefitroyalty from a favorable 2016 contracting cycle. In addition, overall net sales growth during the nine months ended September 29, 2017 was negatively impacted by the extra selling week during the nine months ended September 30, 2016.Par Pharmaceutical, Inc., et al. (collectively Par) beginning in fiscal 2021.

Net sales for Specialty Brands by geography were as follows (dollars(dollars in millions):
Nine Months Ended
September 24,
2021		September 25,
2020		Percentage
Change
U.S.$1,078.8$1,421.6(24.1)%
Europe, Middle East and Africa55.797.2(42.7)
Other15.134.2(55.8)
Net sales$1,149.6$1,553.0(26.0)
45

 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage
Change
U.S.$1,684.0
 $1,700.1
 (0.9)%
Europe, Middle East and Africa53.6
 52.8
 1.5
Other5.5
 4.5
 22.2
Net sales$1,743.1
 $1,757.4
 (0.8)

Net sales for Specialty Brands by key products were as follows (dollars(dollars in millions):

Nine Months Ended
September 24,
2021		September 25,
2020		Percentage Change
Acthar Gel$423.9$576.6(26.5)%
INOmax338.3438.5(22.9)
Ofirmev24.0216.0(88.9)
Therakos197.8174.113.6 
Amitiza155.8138.212.7 
Other9.89.62.1 
Specialty Brands$1,149.6$1,553.0(26.0)


 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage Change
Acthar$899.9
 $873.7
 3.0 %
Inomax379.6
 363.5
 4.4
Ofirmev224.5
 217.4
 3.3
Therakos immunotherapy157.7
 157.2
 0.3
Hemostasis products42.8
 42.5
 0.7
Other38.6
 103.1
 (62.6)
Specialty Brands$1,743.1
 $1,757.4
 (0.8)


Specialty Generics. Net sales for the nine months ended September 29, 201724, 2021 decreased $123.9$50.7 million, or 16.1%9.9%, to $643.7$462.0 million, compared with $767.6$512.7 million for the nine months ended September 30, 2016.25, 2020. The decrease in net sales was primarily driven by decreases of $46.5 million, $39.4 million and $36.7 milliona decrease in hydrocodone related products, Other controlled substances of $35.9 million, driven by an increased competitive environment, in addition to decreases in hydrocodone-related products and oxycodone related products,acetaminophen of $11.2 million and $7.7 million, respectively. These decreases were due to increased competition and customer consolidation, which has resulted in downward pricing pressure. Other products increased by $12.8 million primarily attributable to a discrete shipment of peptides that generated net sales of $12.9 million in the first nine months of 2017. In addition, overall net sales growth during the nine months ended September 29, 2017 was negatively impacted by the extra selling week during the nine months ended September 30, 2016.

Net sales for Specialty Generics by geography were as follows (dollars(dollars in millions):
Nine Months Ended
September 24,
2021		September 25,
2020
Percentage
Change
U.S.$387.2$414.4(6.6)%
Europe, Middle East and Africa65.087.8(26.0)
Other9.810.5(6.7)
Net sales$462.0$512.7(9.9)
 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage
Change
U.S.$513.7
 $655.2
 (21.6)%
Europe, Middle East and Africa80.1
 64.9
 23.4
Other49.9
 47.5
 5.1
Net sales$643.7
 $767.6
 (16.1)


Net sales for Specialty Generics by key products were as follows (dollars(dollars in millions):
Nine Months Ended
September 24,
2021		September 25,
2020		Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets$60.7$71.9(15.6)%
Oxycodone (API) and oxycodone-containing tablets49.548.03.1 
Acetaminophen (API)146.8154.5(5.0)
Other controlled substances187.9223.8(16.0)
Other17.114.517.9 
Specialty Generics$462.0$512.7(9.9)
46

 Nine Months Ended  
 September 29,
2017		 September 30,
2016		 Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets$63.3
 $109.8
 (42.3)%
Oxycodone (API) and oxycodone-containing tablets60.6
 97.3
 (37.7)
Methylphenidate ER58.2
 72.3
 (19.5)
Other controlled substances319.0
 358.4
 (11.0)
Other products142.6
 129.8
 9.9
Specialty Generics$643.7
 $767.6
 (16.1)




Operating IncomeLoss
Operating income by segment and as a percentage of segment net sales for the nine months ended September 29, 2017 and September 30, 2016 is shown in the following tablewere as follows (dollars in millions):
Nine Months Ended
September 24,
2021		September 25,
2020
Specialty Brands$588.6 51.2 %$765.0 49.3 %
Specialty Generics73.8 16.0155.5 30.3
Segment operating income662.4 41.1920.5 44.6
Unallocated amounts:
Corporate and unallocated expenses (1)
(69.1)(152.3)
Depreciation and amortization(506.1)(675.5)
Share-based compensation(8.4)(17.6)
Restructuring charges, net(17.5)(15.8)
Non-restructuring impairment charges(64.5)(63.5)
Separation costs (2)
(1.0)(75.0)
R&D upfront payment (3)
— (5.0)
Opioid-related litigation settlement (loss) gain (Note 12)(125.0)34.1 
Medicaid lawsuit (Note 12)— (640.2)
Total operating loss$(129.2)$(690.3)
 Nine Months Ended
 September 29, 2017 September 30, 2016
Specialty Brands$865.7
 49.7% $897.1
 51.0%
Specialty Generics179.9
 27.9
 260.9
 34.0
Segment operating income1,045.6
 43.8
 1,158.0
 45.9
Unallocated amounts:       
Corporate and allocated expenses(163.9)   (125.2)  
Intangible asset amortization(523.0)   (526.7)  
Restructuring and related charges, net (1)
(35.7)   (34.0)  
Non-restructuring impairment—
   (16.9)  
Total operating income$323.0
   $455.2
  
(1)Includes restructuring-related accelerated depreciation.

(1)Includes administration expenses and certain compensation, legal, environmental and other costs not charged to our reportable segments.
(2)Represents costs included in SG&A expenses, primarily related to professional fees and costs incurred in preparation for the Chapter 11 proceedings. As of the Petition Date, professional fees directly related to the Chapter 11 proceedings that were previously reflected as separation costs are being classified on a go-forward basis as reorganization items, net.
(3)Represents R&D expense incurred related to an upfront payment made to acquire product rights in Japan for terlipressin.
Specialty Brands. Operating income for the nine months ended September 29, 201724, 2021 decreased $31.4$176.4 million to $865.7$588.6 million, compared with $897.1$765.0 million for the nine months ended September 30, 2016.25, 2020. Operating margin decreasedincreased to 49.7%51.2% for the nine months ended September 29, 2017, compared with 51.0%24, 2021 from 49.3% for the nine months ended September 30, 2016.25, 2020. The decrease in operating income and margin was impactedprimarily driven by increases of $11.0the $403.4 million, in royalty expense, $8.7 million in R&D expense and $8.2 million in inventory provision expense compared with the nine months ended September 30, 2016. Partially offsetting these increases was the $14.3 million increaseor 26.0%, decrease in net sales and a change in product mix over the same period, which resulted in a $331.3 million decrease in gross profit. Partially offsetting the decrease in operating income and serving to increase operating margin was a $97.2 million, or 27.0%, decrease in SG&A expenses primarily attributabledriven by the bankruptcy-related legal fees being classified as reorganization items, net, subsequent to Acthar which experienced favorable pricingthe Petition Date, in addition to cost containment initiatives and lower rebateemployee compensation costs and a $57.6 million, or 30.3%, decrease in R&D expenses. In addition, SG&A expenses decreased by $21.8 million as a result of cost benefits gained from restructuring actions.
Specialty Generics. Operating income for the nine months ended September 29, 201724, 2021 decreased $81.0$81.7 million to $179.9$73.8 million, compared with $260.9$155.5 million for the nine months ended September 30, 2016.25, 2020. Operating margin decreased to 27.9%16.0% for the nine months ended September 29, 2017,24, 2021, compared with 34.0%30.3% for the nine months ended September 30, 2016.25, 2020. The decrease in operating income and operating margin was impacted by the $123.9primarily attributable to a $76.7 million decrease in net sales due to customer consolidation and additional competitors that has led to price decreases, which resulted in a $129.5 million unfavorable gross profit, impact. In addition, SG&A expenses decreasedprimarily driven by $26.8 million as a resultan increased competitive environment with respect to Other controlled substances, coupled with an increase in R&D expense of cost benefits gained from restructuring actions.$5.2 million.
Corporate and allocatedunallocated expenses. Corporate and allocatedunallocated expenses were $163.9$69.1 million and $125.2$152.3 million for the nine months ended September 29, 201724, 2021 and September 30, 2016,25, 2020, respectively. TheThis decrease was primarily driven by the bankruptcy-related professional fees being classified as reorganization items, net, subsequent to the Petition Date, in addition to cost containment initiatives and lower employee compensation costs. Comparatively, during the nine months ended September 29, 201725, 2020, we incurred $53.1 million of opioid defense costs that were reflected in SG&A. The decrease also included the change in the fair value of our contingent consideration liabilities with a $69.7$7.6 million gain during nine months ended September 24, 2021, compared to a $2.4 million charge fromduring the recognition of previously deferred losses on the settlement of obligations associated with the termination of six defined benefit pension plans and a $56.6 million pre-tax gain associated with the sale of our Intrathecal Therapy business. The remaining decrease of $25.6 million consisted of various factors, including higher facility expenses, stock compensation expense and professional fees; all of which were partially offset by lower employee compensation costs, advertising and promotions expenses, legal fees and pension expense following the settlement of our six defined benefit pension plans.nine months ended September 25, 2020.


Liquidity and Capital Resources
Significant factors driving our liquidity position include cash flows generated from operating activities, financing transactions, capital expenditures, cash paid in connection with acquisitions and licenselicensing agreements and cash received as a result of our divestitures. We believehave historically generated and expect to continue to generate positive cash flows from operations. Our ability to fund our capital needs is impacted by our ongoing ability to generate cash from operations and access to capital markets.
On October 12, 2020, we voluntarily initiated the Chapter 11 Cases in the Bankruptcy Court to modify our capital structure, including restructuring portions of our debt, and resolve potential legal liabilities, including but not limited to those in connection with the Amended Proposed Opioid-Related Litigation Settlement and the Proposed Acthar Gel-Related Settlement. We intend to use the
47

Chapter 11 process to provide a fair, orderly, efficient and legally binding mechanism to implement a plan of reorganization, that provides for a financial restructuring designed to strengthen our balance sheet and reduce our total debt by approximately $1,300.0 million, improving our financial position and allowing us to continue driving our strategic priorities and investing in the business to develop and commercialize therapies to improve health outcomes.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern. The transactions contemplated by the plan of reorganization are subject to approval by the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated. As a result, we have concluded that management’s plans at this stage do not alleviate substantial doubt about our ability to continue as a going concern. Consequently, our future cash from operations borrowing capacity under our revolving credit facility and access to capital markets willmay not provide adequate resources to fund our working capital needs, capital expenditures and strategic investments for the foreseeable future.
Under our credit agreement, we are required to prepay our term loans in an amount equal to a specified percentage of excess cash flow. After receiving Bankruptcy Court approval, we made a mandatory prepayment in an amount equal to $114.0 million during the nine months ended September 24, 2021.
A summary of our cash flows from operating, investing and financing activities is provided in the following table (dollars in millions):

Nine Months Ended
September 24,
2021		September 25,
2020
Net cash from:
Operating activities$406.4 $294.7 
Investing activities(22.1)(36.4)
Financing activities(128.2)(180.6)
Effect of currency exchange rate changes on cash and cash equivalents(0.9)0.2 
Net increase in cash and cash equivalents$255.2 $77.9 


 Nine Months Ended
 September 29,
2017		 September 30,
2016
Net cash from:   
Operating activities$448.5
 $873.2
Investing activities390.2
 (371.0)
Financing activities(812.5) (792.8)
Effect of currency exchange rate changes on cash and cash equivalents2.7
 1.8
Net decrease in cash and cash equivalents$28.9
 $(288.8)

Operating Activities
Net cash provided by operating activities of $448.5$406.4 million for the nine months ended September 29, 2017,24, 2021 was primarily attributable to income from continuing operations, asa net loss of $513.4 million, adjusted for non-cash items of $577.2 million, driven by depreciation and amortization of $506.1 million and a non-cash impairment charge of $64.5 million. This net loss was also offset by cash provided from a $223.8 million outflow from net investment in working capital. Included within this change in working capital were cash payments of $102.0$342.6 million, forwhich was primarily driven by an increase to the FTCopioid-related litigation settlement liability of $125.0 million, a $61.3 million contribution to terminated pension plans that were settled during the period, a $34.7 million increase in accounts receivable, a $30.2$105.7 million decrease in accounts payable,receivable primarily due to lower net sales, a $92.5 million decrease in net tax receivables driven by the receipt of CARES Act income tax refunds, partially offset by an increase in prepaid income taxes, and a $68.1$40.4 million net cash outflowinflow related to income taxes. The divestiture of the Nuclear Imaging businessother assets and increased competitionliabilities primarily driven by an increase in Specialty Generics also contributed to the decrease compared with the nine months ended September 30, 2016.accrued professional fees. These inflows were partially offset by a $30.9 million increase in inventory.
Net cash provided by operating activities of $873.2$294.7 million for the nine months ended September 30, 2016,25, 2020 was primarily attributable to income from continuing operations, asa net loss of $791.7 million, adjusted for non-cash items of $1,028.9 million driven by depreciation and amortization of $675.5 million and a $304.0 reduction in addition toour deferred income tax assets and a $28.4 million inflownon-cash impairment charge of $63.5 million. This net loss was offset by cash provided from net investment in working capital. The working capital inflow was primarily driven by a $11.6of $57.5 million, net cash inflow related to income taxes and a $53.5 million increase in cash provided by other assets and liabilities, partially offset by a $37.2 million increase in accounts receivable. The increase in other assets and liabilitieswhich was primarily driven by the timingrecognition of the payroll cycle and restructuring payments.
The aforementioned cash flows from operating activities include cash flows$640.2 million retrospective one-time charge related to the Medicaid lawsuit. Also included within this change in working capital was an $61.1 million decrease in accounts receivable, offset by a $431.2 million increase in net receivables related to income taxes driven by tax benefits from the ongoing operations of the Nuclear Imaging business that are included within discontinued operations. SubsequentCARES Act, a $116.3 million net cash outflow related to the completion of this transaction, we no longer generate cash flows from this business. See further discussion of our discontinued operationsother assets and liabilities primarily driven by decreases in Note 3 of the notes toaccrued payroll and accrued restructuring, a $52.4 million decrease in accounts payable and a $43.9 million increase in inventory.
the unaudited condensed consolidated financial statements included within Item 1. Financial Statements of this Quarterly Report on Form 10-Q.
Investing Activities
Net cash provided byused in investing activities was $390.2$22.1 million for the nine months ended September 29, 2017,24, 2021, compared with a $371.0$36.4 million net cash outflow for the nine months ended September 30, 2016.25, 2020. The $761.2$14.3 million changedecrease was primarily resulted from the receipt of $576.9attributable to $16.5 million in proceeds related to divestituresreceived during the nine months ended September 29, 2017, with $559.624, 2021 related to the sale of a portion of our Hemostasis business in fiscal 2018 and a $3.2 million and $17.3decrease in capital expenditures, partially offset by a $6.4 million associated with the sales of the Nuclear Imaging and Intrathecal businesses, respectively. This is compared with $3.0 million of proceeds received from the divestiture of discontinued operationscash receipt during the nine months ended September 30, 2016. Additionally, there were $35.9 million cash outflows25, 2020 related to the InfaCare Acquisition during the nine months ended September 29, 2017, compared with $245.4 million during the nine months ended September 30, 2016 primarily associated with the Hemostasis Acquisition. These aforementioned increases in cash inflows were partially offset by a $21.5 million cash outflow related to the investment in Mesoblast that was made during the nine months ended September 29, 2017 coupled with a $17.4 million increase in capital expenditures, compared to the nine months ended September 30, 2016.
certain rabbi trust settlements. Under our term loan credit agreement, the proceeds from the sale of assets and businesses must be either reinvested into capital expenditures or business development activities within one year of the respective transaction or we are required to make repayments on our term loan. For further information, refer to "Debt and Capitalization" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
48


Financing Activities
Net cash used in financing activities was $812.5$128.2 million for the nine months ended September 29, 2017,24, 2021, compared with $792.8$180.6 million for the nine months ended September 30, 2016.25, 2020. The $19.7$52.4 million increase in cash outflowsdecrease was attributableprimarily impacted by payments of contingent consideration related to a $60.2 million increase in shares repurchasedthe acquisitions of Questcor and $12.7 million of debt financing costs offset by a decrease of $55.2 million in repayments of debt, net of issuances. Included in the repayments of debtStratatech Corporation during the nine months ended September 29, 2017, was the repayment25, 2020 of $30.0$25.0 million of assumedand $20.0 million, respectively, $9.3 million in debt from the InfaCare Acquisition, which was repaid upon close of the acquisition. In addition,issuance costs incurred during the threenine months ended September 29, 2017, we drew $500.025, 2020 and a $6.4 million on our revolving credit facility and repaid the balancedecrease in full, which is reported on a gross basis in our unaudited condensed consolidated statements of cash flows.debt repayments.
Under Irish law, we can only pay dividends and repurchase shares out of distributable reserves. In March 2017, the Irish High Court approved our petition to reduce share capital and increase distributable reserves. The petition requires us to complete certain administrative matters, which were completed prior to September 29, 2017.



Debt and Capitalization
AtAs of September 29, 2017,24, 2021, the total debt principal amountwas $5,155.1 million, of debtwhich $3,760.1 million was $5,911.3 million as compared with $6,237.6 million at December 30, 2016.classified within LSTC on the unaudited condensed consolidated balance sheet. The total debt principal amountas of debt at September 29, 201724, 2021 was comprised of $3,855.4 million of fixed-rate instruments, $1,855.7 million of variable-rate term loans, $200.0 million of borrowings under a variable-rate securitization program and $0.2 million of capital lease obligations. the following:
Variable-rate instruments:
Term loan due September 2024$1,403.9 
Term loan due February 2025372.6 
Revolving credit facility900.0 
Fixed-rate instruments2,478.6 
Debt principal$5,155.1 

The variable-rate term loan interest rates are based on LIBOR,the London Inter-bank Offered Rate ("LIBOR"), subject to a minimum LIBOR level of 0.75% with interest payments generally expected to be payable every 90 days, and requires quarterly principal payments equal to 0.25% of the original principal amount. As of September 29, 2017,24, 2021, our fixed-rate instruments have a weighted-average interest rate of 5.29%7.15% and pay interest at various dates throughout the fiscal year. Our receivable securitization program bears interest basedAs of September 24, 2021, we were fully drawn on one-month LIBOR plus a margin of 0.90% and has a capacity of $250.0our $900.0 million that may, subject to certain conditions, be increased to $300.0 million.revolving credit facility.
In November 2015, our Board of Directors authorized us to reduce our outstanding debt at our discretion. As market conditions warrant, and subject to limitations under Chapter 11, we may from time to time repurchase debt securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise. Such repurchases, if any, will depend
The commencement of the Chapter 11 Cases on prevailing market conditions, our liquidity requirements and other factors. The amounts involved may be material. During the nine months ended September 29, 2017, we repurchased debt that aggregated to a total principal amountOctober 12, 2020 constituted an event of $66.9 million.
At September 29, 2017, $318.8 milliondefault under certain of our debt principal was classified as current, as these payments are expected to be made within the next twelve months.
In addition to the borrowing capacity under our receivable securitization program, we have a $900.0 million revolving credit facility. At September 29, 2017, we had no outstanding borrowings under our revolving credit facility. As such, there was $900.0 million of additional borrowing capacity under our revolving credit facility.
agreements. As of September 29, 2017,24, 2021, other than any defaults relating to the Chapter 11 Cases, we were and expect to remain, in full compliance with the provisions and covenants associated with our debt agreements.
On July 28, 2017, we entered into a $250.0 million variable-rate securitization program with a three-year term to replace the $250.0 million variable-rate securitization program that expired in July 2017 and Accordingly, all long-term debt was therefore classified as long-term debt incurrent on the unaudited condensed consolidated balance sheet atas of September 29, 2017.

Commitments and Contingencies
Legal Proceedings
We24, 2021. However, any efforts to enforce payment obligations under the debt instruments are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, environmental matters, employment disputes, contractual disputes and other commercial disputes, including those described in Note 16automatically stayed as a result of the notes to the unaudited condensed consolidated financial statements. We believe that these legal proceedingsChapter 11 Cases. See Note 2 and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these matters, we believe, unless indicated in Note 1610 of the notes to the unaudited condensed consolidated financial statements givenfor further information.

Commitments and Contingencies
Legal Proceedings
See Note 12 of the information currently available, that their ultimate resolutions will not havenotes to the unaudited condensed consolidated financial statements for a material adverse effect on our financial condition, resultsdescription of operationsthe legal proceedings and cash flows.claims as of September 24, 2021.


Guarantees
In disposing of assets or businesses, we have historically provided representations, warranties and indemnities to cover various risks and liabilities, including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities related to periods prior to disposition. We assess the probability of potential liabilities related to such representations, warranties and indemnities and adjust potential liabilities as a result of changes in facts and circumstances. We believe, given the information currently available, that their ultimate resolutions will not have a material adverse effect on our financial condition, results of operations and cash flows.
In connection with the sale of the Specialty Chemicals business (formerly known as Mallinckrodt Baker) in fiscal 2010, we agreed to indemnify the purchaser with respect to various matters, including certain environmental, health, safety, tax These representations, warranties and other matters. The indemnification obligations relating to certain environmental, health and safety matters have a term of 17 years from the date of sale, while some of the other indemnification obligations have an indefinite term. The amount of the liability relating to all of these indemnification obligations included in other liabilities on our unaudited condensed consolidated balance sheet as of September 29, 2017 was $14.9 million, of which $12.2 million related to environmental, health and safety matters. The value of the environmental, health and safety indemnity was measured based on the probability-weighted present value of the costs expected to be


incurred to address environmental, health and safety claims made under the indemnity. The aggregate fair value of these indemnification obligations did not differ significantly from their aggregate carrying value at September 29, 2017. As of September 29, 2017, the maximum future payments we could be required to make under these indemnification obligations was $70.2 million. We were required to pay $30.0 million into an escrow account as collateral to the purchaser, of which $18.2 million remained in other assets on our unaudited condensed consolidated balance sheet at September 29, 2017.
We have recorded liabilities for known indemnification obligations included as part of environmental liabilities, whichindemnities are discussed in Note 1611 of the unaudited notes to the unaudited condensed consolidated financial statements.
In addition, we are also liable for product performance, and have established accruals as necessary; however, we believe, given the information currently available, that the ultimate resolution of these obligations will not have a material adverse effect on our financial condition, results of operations and cash flows.

49

Off-Balance Sheet Arrangements
We were previously required to provide the U.S. Nuclear Regulatory Commission financial assurance demonstrating our ability to fund the decommissioning of our Maryland Heights, Missouri radiopharmaceuticals production facility upon closure. Following the sale of the Nuclear Imaging business, the surety bond was canceled in April 2017 and the Company is no longer required to provide financial assurance to the U.S. Nuclear Regulatory Commission. As of September 29, 2017,24, 2021, we had various other letters of credit, guarantees and surety bonds totaling $29.1$34.2 million. There has been no change in our off-balance sheet arrangements during the nine months ended September 24, 2021.
We exchanged title to $16.0 million of our plant assets in return for an equal amount of Industrial Revenue Bonds ("IRB") issued by Saint Louis County. We also simultaneously leased such assets back from Saint Louis County under a capital lease expiring in December 2025, the terms of which provide us with the right of offset against the IRBs. The lease also provides an option for us to repurchase the assets at the end of the lease for nominal consideration. These transactions collectively result in a property tax abatement for ten years from the date the property was placed in service. Due to the right of offset, the capital lease obligations and IRB assets are recorded net, and therefore do not appear in the unaudited condensed consolidated balance sheets. We expect that the right of offset will be applied to payments required under these arrangements.
In addition, the separation and distribution agreement entered into with Covidien provides for cross-indemnities principally designed to place financial responsibility of the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of Covidien's remaining business with Covidien, among other indemnities.

Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.
We believe that our accounting policies for revenue recognition, goodwill and other intangible assets, acquisitions, contingencies and income taxes are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. During the nine months ended September 29, 2017,24, 2021, there were no significant changes to these policies or in the underlying accounting assumptions and estimates used in the above critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended September 30, 2016.December 25, 2020.


Forward-Looking Statements
We have made forward-looking statements in this Quarterly Report on Form 10-Q that are based on management's beliefs and assumptions and on information currently available to management. Forward-looking statements include, but are not limited to, information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition, and the effects of future legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believe," "expect," "plan," "intend," "project," "anticipate," "estimate," "predict," "potential," "continue," "may," "should,"could," “will,” “would,” “could”"should" or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements.
The risk factors included within Item 1A. of our Annual Report on Form 10-K for the fiscal year ended September 30, 2016December 25, 2020 and within Part II, Item 1A of this Quarterly Report on Form 10-Q could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.


These forward-looking statements are made as of the filing date of this Quarterly Report on Form 10-Q. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.
Our operations include activities in the U.S. and countries outside of the U.S. These operations expose us to a variety of market risks, including the effects of changes in interest rates and currency exchange rates. We monitor and manage these financial exposures as an integral part of our overall risk management program. We do not utilize derivative instruments for trading or speculative purposes.


Interest Rate Risk
Our exposure to interest rate risk relates primarily to our variable-rate debt instruments, which bear interest based on LIBOR plus margin. As of September 29, 2017,24, 2021, our outstanding debt included $1,855.7$1,776.5 million variable-rate debt on our senior secured term loans noand $900.0 million outstanding borrowings on our senior unsecuredsecured revolving credit facility and $200.0 million variable-rate debt on our receivables securitization program.facility. Assuming a one percent increase in the applicable interest rates, in excess of applicable minimum floors, quarterly interest expense would increase by approximately $5.1$6.7 million.
The remaining outstanding debt as of September 29, 201724, 2021 is fixed-rate debt. Changes in market interest rates generally affect the fair value of fixed-rate debt, but do not impact earnings or cash flows.



Currency Risk
Certain net sales and costs of our non-U.S.international operations are denominated in the local currency of the respective countries. As such, profits from these subsidiaries may be impacted by fluctuations in the value of these local currencies relative to the U.S. Dollar. dollar.
50

We also have significant intercompany financing arrangements that may result in gains and losses in our results of operations. In an effort to mitigate the impact of currency exchange rate effects we may hedge certain operational and intercompany transactions; however, our hedging strategies may not fully offset gains and losses recognized in our results of operations.
The unaudited condensed consolidated statement of incomeoperations is significantly exposed to currency risk from intercompany financing arrangements, which primarily consist of intercompany debt and intercompany cash pooling, where the denominated currency of the transaction differs from the functional currency of one or more of our subsidiaries. We performed a sensitivity analysis for these arrangements as of September 29, 201724, 2021 that measuresmeasured the potential unfavorable impact to income from continuing operations before income taxes from a hypothetical 10.0% adverse movement in foreign exchange rates relative to the U.S. Dollar,dollar, with all other variables held constant. There is an $0.8 millionThe aggregate potential unfavorable impact from a hypothetical 10.0% adverse change in foreign exchange rates was $0.7 million aggregate potential as of September 29, 2017.24, 2021. This hypothetical loss does not reflect any hypothetical benefits that would be derived from hedging activities, including cash holdings in similar foreign currencies that we have historically utilized to mitigate our exposure to movements in foreign exchange rates.
The financial results of our non-U.S. operations are translated into U.S. Dollars, further exposing us to currency exchange rate fluctuations. We have performed a sensitivity analysis as of September 29, 2017 that measures the change in the net financial position arising from a hypothetical 10.0% adverse movement in the exchange rates of the Euro and the Canadian Dollar, our most widely used foreign currencies, relative to the U.S. Dollar, with all other variables held constant. The aggregate potential change in net financial position from a hypothetical 10.0% adverse change in the above currencies was $13.4 million as of September 29, 2017. The change in the net financial position associated with the translation of these currencies is generally recorded as an unrealized gain or loss on foreign currency translation within accumulated other comprehensive income in shareholders' equity of our unaudited condensed consolidated balance sheets.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended ("the Exchange Act"), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly


Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures were effective.


Changes in Internal Control over Financial Reporting
There hashave been no changechanges in our internal control over financial reporting during the most recent fiscal quarter ended September 24, 2021 that hashave materially affected, or is reasonablyare likely to materially affect, our internal control over financial reporting.




51


PART II. OTHER INFORMATION
 
Item 1.Legal Proceedings.
We are subject to various legal proceedings and claims, including patent infringement claims, product liability matters, environmental matters, employment disputes, contractual disputes and other commercial disputes, including those described inSee Note 16 of the unaudited notes to condensed consolidated financial statements. We believe that these legal proceedings and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these matters, we believe, unless indicated in Note 16 of the unaudited notes to condensed consolidated financial statements, given the information currently available, that their ultimate resolutions will not have a material adverse effect on our financial condition, results of operations and cash flows. For further information on pending legal proceedings, refer to Note 1612 of the notes to the unaudited condensed consolidated financial statements.statements for further description of the litigation, legal and administrative proceedings as of September 24, 2021.

Item 1A.Risk Factors.
There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. “Risk Factors”"Risk Factors" in our Annual Report on Form 10-K for the year ended September 30, 2016,December 25, 2020, filed with the SEC on November 29, 2016.March 10, 2021.


Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Issuer Purchases of Securities
The following table summarizes the repurchase activity of our ordinary shares during the three months ended September 29, 2017.24, 2021. The repurchase activity presented below includes both market repurchases of shares andis limited to deemed repurchases in connection with the vesting of restricted share units under employee benefit plans to satisfy minimum statutory tax withholding obligations.
On November 19, 2015, the Company's Board of Directors authorized a $500.0 million share repurchase program (the “November 2015 Program”), which was completed in the three months ended December 30, 2016. On March 16, 2016, the Company's Board of Directors authorized an additional $350.0 million share repurchase program (the “March 2016 Program”) which was completedobligations as there were no market repurchases during the three months ended March 31, 2017. September 24, 2021.
On March 1, 2017, the Company's Board of Directors authorized an additionala $1.0 billion share repurchase program (the "March 2017 Program") which commenced upon the completion of the March 2016 Program. The March 2017 Program has no time limit or expiration date, and the Company currently expects to fully utilize the program.date.
Total Number of
Shares Purchased		Average Price
Paid
Per Share		Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs		Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Plans or Programs
(in millions)
June 26, 2021 to July 23, 20211,006 $0.35 — $564.2 
July 24, 2021 to August 27, 20212,013 0.25 — 564.2 
August 28, 2021 to September 24, 2021690 0.21 — 564.2 
June 26, 2021 to September 24, 20213,709 0.27 


52
 Total Number of
Shares Purchased		 
Average Price
Paid
Per Share
 Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs		 Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Plans or Programs
July 1, 2017 to July 28, 20174,100
 $44.83
 —
 $889.7
July 29, 2017 to August 25, 2017731,836
 37.82
 731,707
 862.0
August 26, 2017 to September 29, 2017785,312
 36.97
 785,312
 833.0


Item 3.Defaults Upon Senior Securities.
 None.
Item 4.Mine Safety Disclosures.
 Not applicable.

Item 5.Other Information.
 None.



Item 6.Exhibits.
Exhibit
Number
Exhibit
3.110.1
Certificate of Incorporation of Mallinckrodt plc (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed July 1, 2013).Pharmaceuticals Severance Plans for U.S. Officers and Executives, Amended September 8, 2021.
3.210.2
AmendedForm of First Amendment to Employment Agreement by and Restated Memorandumbetween ST Shared Services LLC and Constitution of Mallinckrodt plc (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed March 1, 2017).Executive Officers.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Interactive Data File (Form 10-Q for the quarterly period ended September 29, 201724, 2021 filed in XBRL). The financial information contained in the XBRL-related documents is "unaudited" and "unreviewed." The instance document does not appear in the interactive file because its XBRL tags are embedded within the inline XBRL document.
104Cover Page Interactive Data File (embedded within the inline XBRL document).












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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
MALLINCKRODT PLC
MALLINCKRODT PUBLIC LIMITED COMPANY
By:/s/ Matthew K. HarbaughBryan M. Reasons
Matthew K. HarbaughBryan M. Reasons
Executive Vice President and Chief Financial Officer
(principal financial officer)






Date: November 7, 20172, 2021





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