Textron [TXT] on Tuesday said in a regulatory filing that it expects to take upward of $140 million in pre-tax restructuring charges in large part due to a decision to stop production of its Sensor Fuzed Weapon (SFW) system.
The charges are expected to be in the range of $110 million to $140 million, mostly in the third quarter of 2016, Textron said in a filing with the Securities Exchange Commission after the stock markets closed. It expects the restructuring actions to be finished by March 2017.
The cash outlay that is expected from the restructurings is estimated at between $65 million and $85 million, mostly this year, Textron said.
The company said that the SFW program has relied on international sales but it has been “difficult” in the “current political environment” to get the necessary executive branch and congressional approvals.
Capital Alpha Partners defense analyst Byron Callan in a client note on Tuesday evening said that in May the Obama administration suspended sales of the weapon to Saudi Arabia. He also said that there have been reports that the Saudis have used the weapon in Yemen but that some of the submunitions didn’t detonate.
Concerns over unexploded ordnance dropped over a wide area get to the potential for unintended civilian casualties.
Callan said there will still be a need for the United States and allied forces to have a similar weapon to the SFW, adding that the preferred export option would be a single munition system.
“The Raytheon Small Diameter Bomb may be one option,” Callan said.
The air-launched SFW dispenses tactical submunitions designed to penetrate the tops of armored vehicles, where there armor is thinnest.
As a result of lower SFW orders, Textron plans to reduce headcount, consolidate facilities, and take asset impairments within its Textron Systems segment.
In addition to the fallout from discontinuing SFW production, the charges also relate to a restructuring within Textron’s Industrial segment that will combine its Jacobsen and Specialize Vehicles businesses. This restructuring will result in consolidations of facilities and certain general and administrative functions, and headcount reductions.
Textron had $6.7 billion in sales in the first half of 2016, up 6 percent from a year ago. Net income in the first half was $327 million, up 11 percent from a year ago.