Toshiba Corp. missed its own deadline for announcing earnings and detailing losses in its nuclear business, shaking investor confidence that the Japanese company has control over its finances.
Toshiba’s shares dropped the most in almost a month after it failed to release earnings for the nine months through December at noon Tokyo time, as it had previously pledged. Instead, it issued a statement saying that it needed another month to complete an auditor review of the results.
The Tokyo-based company has been trying to get its hands around losses in the nuclear business stemming from cost overruns at U.S. reactors and diminishing prospects for its atomic-energy operations. The conglomerate has said it may take a writedown of as much as 700 billion yen ($6.1 billion) and has seen its market value slump by more than $7 billion. But two and a half hours after the planned time, Toshiba said it wouldn’t be able to produce the final writedown figures after all, citing issues related to the evaluation of its U.S. nuclear unit, Westinghouse Electric. The company also said it’s asking lawyers to review its information.
“In a normal uncontentious situation, the board signs off on something that’s already been prepared weeks ago,” said Damian Thong an analyst at Macquarie Group Ltd. “In Toshiba’s case, they’re doing it all in a moving airplane, everything is in motion.”
The cost to insure Toshiba’s bonds against default jumped to over 500 basis points on Tuesday, from 334 basis points the previous day, according to credit default swaps traders, who declined to be identified.
Toshiba has missed financial filing deadlines before. The company pushed back the earnings announcement twice in the wake of an accounting scandal in 2015, delaying the release by about four months. The company is obligated to publish results within 45 days after the end of previous accounting period, which is today. Toshiba said it filed for a one-month extension with the authorities. The company may still release a partial earnings announcement on Tuesday, according to people familiar with the matter.
The issue centers on the amount Westinghouse paid for CB&I Stone & Webster Inc., a U.S. construction firm specializing in building nuclear plants. Toshiba said it has learned on Jan. 28 that top management at Westinghouse exerted “inappropriate pressure” to advance the acquisition process. As a result, Toshiba’s auditors need more time to determine whether a lapse in internal controls has affected quarterly earnings numbers compiled by Toshiba for today’s release.
The Nikkei newspaper said earlier on Tuesday that the company will warn it may not be able to continue as a going concern when it reports earnings. Toshiba will report a net loss in the high 400 billion yen range for the nine-month period, which will probably wipe out shareholder equity, the Japanese newspaper reported. A spokeswoman for Toshiba said the company didn’t have a comment on the Nikkei report.
Toshiba’s $5.4 billion acquisition of Westinghouse in 2006 was a bet on the future of nuclear power and a way to balance volatility of chip operations with steady long-term revenues. The vision soured after the 2011 Fukushima meltdown damped demand and the company’s next-generation AP1000 modular reactor technology proved difficult to implement. Toshiba is now under pressure to come up with a plan for shoring up its balance sheet, which was already under strain from a profit-padding scandal in 2015 that led to restructuring, record losses and asset sales. Toshiba has put up for sale a significant stake in its flash memory operations and is considering other ways of raising cash.