TOKYO • Toshiba, the 142-year-old conglomerate, warned yesterday that it may not be able to continue as a going concern as it grapples with billions of dollars in losses from its Westinghouse Electric nuclear business.
The disclosure came as the Japanese company reported earnings for the third quarter after missing two previous deadlines for financial results.
Toshiba posted an operating loss of 576.3 billion yen (S$7.3 billion) for the nine months ended Dec 31, and said it had negative shareholders equity of 225.6 billion yen. But, significantly, it was not able to get auditor PricewaterhouseCoopers Aarata to approve those figures.
Toshiba has been at odds with its auditors over Westinghouse, which filed for bankruptcy in the United States last month. The auditing firm submitted an independent review with Toshiba's results that emphasised the risks to its future because of losses in the Westinghouse unit responsible for atomic projects and breach of covenants on 284 billion yen in loans.
Toshiba's inability to report earnings has also raised speculation of a possible delisting from the Tokyo Stock Exchange (TSE). "Toshiba has done everything in its power to gain the understanding of the auditors," chief executive officer Satoshi Tsunakawa said at a briefing with reporters. "Without clear prospects for auditor approval, we could no longer inconvenience and worry our investors and other stakeholders and decided on this very unusual way of releasing results."
The TSE kept Toshiba on its list of securities on alert in a December announcement, after originally being included for overstating profits from 2008 through 2014. The company last month submitted a report detailing plans to improve internal controls. If deemed insufficient, the company will face delisting.
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What's ailing firm
•The struggling industrial giant reported a loss of US$4.8 billion (S$6.7 billion) in long-overdue financial results released yesterday.
•It had twice delayed its earnings and faced the possibility of an embarrassing delisting from the Tokyo stock exchange if it missed yesterday's deadline for reporting.
•Shares have been hammered this year, losing more than half their value since late December, when it first warned of multi-billion- dollar losses at its Westinghouse nuclear deal in the United States.
•The conglomerate - which has 188,000 employees globally - once touted its overseas nuclear business as a future growth driver, but delays and cost overruns have hit Westinghouse's finances hard.
•Toshiba has sold a number of assets, including a medical devices unit and most of its home appliance business, to cover the losses.
•The current crisis comes less than two years after the firm's reputation was damaged by revelations that top executives had pressured underlings to cover up weak results for years after the 2008 global financial meltdown.
"The disclaimer of opinion by the auditor is an additional item that we must evaluate and consider," said spokesman Miwa Aonuma of the Japan Exchange Group, which runs the TSE.
Even if Toshiba clears these hurdles, there is a longer-term threat to stakeholders. The nuclear business writedown has pushed Toshiba's liabilities beyond its level of assets. If the company cannot reverse the situation in the fiscal year just ended, it could face demotion to the second section of the TSE. That would in turn force an automatic sell-off by some index funds. If the situation persists for two straight years, it will be delisted.
"The situation at Toshiba continues to make a mockery of TSE listing rules, as the authorities have done their best to allow it as much time as possible for its auditors to approve its (third-quarter results)," Mr Amir Anvarzadeh, head of Japanese equity sales at BGC Partners in Singapore, wrote in a note prior to the announcement. "We think TSE will continue to remain supportive."
Toshiba has responded by putting its prized memory chip unit up for sale. In the meantime, it has sought additional financial support from banks, offering stock holdings and real estate as collateral to lenders.
"Toshiba could move back into solvency depending on how it proceeds with the Toshiba memory sale," Credit Suisse Group's analysts Hideyuki Maekawa and Yoshiyasu Takemura wrote in a report. "We think the only major risk remaining is a possible delisting."
BLOOMBERG
