Growth Companies

Toshiba to Take Writedown on Nuclear Deal

The potential hit of several billion dollars "may further undermine confidence in company management" after its accounting scandal.
Matthew HellerDecember 27, 2016

On the heels of a $1.3 billion accounting scandal, Toshiba said Tuesday it may have to book a charge of “several billion U.S. dollars” related to its acquisition of a nuclear power plant construction company.

The Japanese conglomerate attributed the writedown to higher-than-expected cost overruns at U.S. power projects handled by Stone & Webster, which it acquired last December from Chicago Bridge & Iron Co.

The cost overruns will result in “far lower asset value than originally determined, leading to a possible recognition of goodwill far exceeding” the December 2015 estimate of $87 million, Toshiba said in a news release.

The announcement sent Toshiba’s stock tumbling 12% in Tokyo trading amid renewed concern over its accounting practices.

“This will come as an additional shock to Toshiba’s institutional investors that may further undermine confidence in company management, as well as significantly weakening its international nuclear credentials,” Tom O’Sullivan, founder of energy consultancy Mathyos Japan, told Reuters.

The potential size of the writedown is particularly notable given that Toshiba’s Westinghouse unit acquired Stone & Webster for $229 million. Company executives said it was possible Westinghouse would fall into negative net worth as a result of the charge.

The accounting scandal involved overstatements of revenue at a number of Toshiba divisions, including nuclear power. As part of its post-scandal turnaround plan, Toshiba has been focusing on its nuclear and semiconductors businesses while scaling down less profitable consumer electronics units such as personal computers and TVs.

But the company took a $2.3 billion charge last year on its acquisition of Westinghouse and, as The New York Times reports, the Stone & Webster deal “was a gamble from the start.”

“The Toshiba subsidiary was paying relatively little to buy the business, but its ultimate costs could end up being many times higher if things went badly,” The Times said. “That outcome now looks likely.”

Westinghouse is working on several nuclear-reactor projects including two in Georgia for power utility Southern Co. “Tuesday’s disclosure is likely to raise discussion among investors about whether it makes sense to have two volatile and capital-intensive units — semiconductors and nuclear reactors — in the same company,” The Wall Street Journal said.