Toshiba misses earnings deadline again, faces delisting risk

Toshiba Corp has asked financial regulators to extend its Tuesday (March 14) deadline for submitting official third-quarter earnings until April 11.
Toshiba Corp has asked financial regulators to extend its Tuesday (March 14) deadline for submitting official third-quarter earnings until April 11.PHOTO: AFP

TOKYO (BLOOMBERG) - Toshiba Corp will miss its second deadline to report third-quarter earnings, delivering another blow to investor confidence and moving a step closer to being delisted from the Tokyo Stock Exchange.

The company applied for an extension until April 11 with authorities, citing the need for more time to complete an auditor review of the results for the period ended Dec 31, it said in a statement on Tuesday (March 14). If the application is rejected, the company has an eight-day period until March 27 to submit earnings to the TSE or face delisting.

Toshiba shares fell as much as 5.1 per cent during morning trading.

A key issue is the valuation of its US nuclear unit Westinghouse Electric. Toshiba last month said it will probably book a 712.5 billion yen (S$8.78 billion) writedown in the business and was due to produce the final figures on Tuesday.

The company has also said Westinghouse exerted "inappropriate pressure" to push through the acquisition of a US construction firm specializing in building atomic plants, the deal that sparked the review in the first place. As a result, Toshiba hasn't been able to get its auditors to sign off on the earnings results.

Toshiba said in Tuesday's statement that its auditor doesn't think the probe into Westinghouse would have a major impact, or that it would have to revise its preliminary earnings statement. The company said it will hold a news conference at 4pm in Tokyo later on Tuesday.

In its statement, Toshiba said it has hired two law firms to investigate allegations that senior managers used inappropriate pressure and that had an impact on financial statements. Based on the investigation, Toshiba's audit committee concluded "there were facts evidencing undue management pressure, etc. from certain senior managers, and necessary improvement measures will be implemented."

Toshiba is reeling from the multibillion-dollar writedown of its nuclear power business, with the company considering the sale of a majority stake in its prized memory chip business to help restore its finances. Westinghouse appears to be assembling a team of lawyers and advisers. Westinghouse has hired PJT Partners to help advise the US nuclear plant developer to restructure its business, people with knowledge of the matter have said.

Toshiba has missed financial filing deadlines before. The company pushed back its earnings announcement twice in the wake of an accounting scandal in 2015, delaying the release by about four months. In theory, there is no limit on how many times the company can request an extension.

The Tokyo Stock Exchange 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 is due to file a report detailing plans to improve internal controls to the bourse on March 15. If deemed insufficient, the company will face delisting.

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 can't reverse the situation by the end of the fiscal year in March, it could face demotion to the second section of the Tokyo Stock Exchange. In turn, that would force an automatic selloff by some index funds.

Toshiba has put up for sale a significant stake in its flash memory operations and is considering other ways of raising cash. The company has sent letters soliciting offers for the chip business, seeking bids that value it at about 1.5 trillion yen, and expects replies by the end of the month, people familiar with the matter have said.

The Japanese conglomerate is offering a majority stake in the chip unit and would be willing to sell the entire business. Potential bidders that have expressed interest in the the chip unit include Korea's SK Hynix, Taiwan's Foxconn Technology Group, Western Digital Corp and Micron Technology, the people said. Among the financial bidders are Bain Capital, Silver Lake Partners and KKR & Co, the people said.