Special Charges

9 Months Ended

Oct. 03, 2020

Special charges recorded in the third quarter and first nine months of 2020 by segment and type of cost are presented in the table below. There were no special charges recorded in the first nine months of 2019.


							Total 2020
			Contract				COVID-19
	Severance		Terminations		Asset		Restructuring		Other Asset
(In millions)	Costs		and Other		Impairments		Plan		Impairments		Total
Three months ended October 3, 2020
Industrial	$	3	$	—	$	2	$	5	$	—	$	5
Corporate	2		—		—		2		—		2
Total special charges	$	5	$	—	$	2	$	7	$	—	$	7
Nine months ended October 3, 2020
Textron Aviation	$	27	—		$	1	$	28	$	32	$	60
Textron Systems	14		12		14		40		—		40
Industrial	11		—		2		13		7		20
Corporate	4		—		—		4		—		4
Total special charges	$	56	$	12	$	17	$	85	$	39	$	124

2020 COVID-19 Restructuring Plan

In the second quarter of 2020, we initiated a restructuring plan to reduce operating expenses through headcount reductions, facility consolidations and other actions in response to the economic challenges and uncertainty resulting from the COVID-19 pandemic. As a result of ongoing evaluations, this plan has been expanded to include additional headcount reductions and facility consolidations in the Industrial segment beyond what was included in the plan as originally announced. We now expect to incur up to an additional $15 million in costs, and the total pre-tax cost of this plan is expected to be in the range of $125 million to $145 million, of which $85 million has been recorded since the inception of the plan. Under the restructuring plan, we expect to incur total severance costs in the range of $70 million to $80 million, contract termination and other costs in the range of $30 million to

$35 million, and asset impairment charges of $25 million to $30 million. Based on revisions to our original estimate, along with additional actions, we estimate a total reduction of 2,800 positions, representing 8% of our workforce. We expect the plan to be substantially completed in the first half of 2021.

The plan primarily impacts the TRU business within the Textron Systems segment, the Textron Aviation segment, and the Industrial segment. At TRU, there has been a substantial decline in demand and order cancellations for flight simulators in light of the expected long-term impact of the pandemic on the commercial air transportation business. Accordingly, we ceased manufacturing at TRU’s facility in Montreal, Canada, resulting in a production suspension of its commercial air transport simulators, along with workforce reductions, contract terminations, facility closures and asset impairments. As a result of current market conditions and the cessation of manufacturing at this facility, we incurred an inventory valuation charge of $55 million, which was recorded in Cost of Sales, to write-down TRU’s inventory to its net realizable value.

Other Asset Impairments

In the first quarter of 2020, we recognized special charges of $39 million of intangible asset impairment charges at the Textron Aviation and Industrial segments. Due to the impact of the COVID-19 pandemic, we experienced decreased demand for our products and services as our customers delayed or ceased orders due to the environment of economic uncertainty. In light of these conditions, Textron Aviation had temporarily shut down most aircraft production, including the King Air turboprop and Beechcraft piston product lines, and had instituted employee furloughs. Based on these events, we performed an interim impairment test of the indefinite-lived Beechcraft and King Air trade name intangible assets at April 4, 2020. Fair value of these assets was determined utilizing the relief of royalty method assuming an increase in the discount rate based on current market data to 9.7% and revised expectations of future revenues for the products and services associated with the tradenames. This analysis resulted in an impairment charge of $32 million. At October 3, 2020, these intangible assets totaled $169 million. In the Industrial segment, we fully impaired the Arctic Cat trade name intangible asset within the Specialized Vehicles product line and recorded a $7 million impairment charge.

Restructuring Reserve

Restructuring reserve activity related to our 2020 and prior restructuring plans is summarized below:


			Contract
	Severance		Terminations
(In millions)	Costs		and Other		Total
Balance at January 4, 2020	$	46	$	19	$	65
Provision for 2020 COVID-19 restructuring plan	56		12		68
Cash paid	(62)		(8)		(70)
Balance at October 3, 2020	$	40	$	23	$	63

The majority of the remaining cash outlays of $63 million is expected to be paid in 2020. Severance costs generally are paid on a lump-sum basis and include outplacement costs, which are paid in accordance with normal payment terms.