Accounting probe may pressure Toshiba to write down Westinghouse

Reuters News
Posted: Jul 17, 2015 3:09 AM

By Ritsuko Ando and Reiji Murai

TOKYO (Reuters) - Toshiba Corp is set to overhaul its management after an investigation into its accounting practices concludes early next week, but a more thorough housecleaning, including a writedown on its Westinghouse nuclear business, may be needed to regain confidence amid Japan's biggest corporate scandal in five years.

Toshiba said an independent committee it commissioned to look into accounting irregularities - which a person directly involved in the probe told Reuters were part of Toshiba's "corporate culture" - would submit its report to the company on Monday. The company will hold a news conference the following day, it said.

The report is likely to show irregular book-keeping led to profits being overstated by more than 170 billion yen ($1.37 billion) over the past several years, people familiar with the investigation said this week, more than three times Toshiba's initial estimate.

The findings are likely to lead to 300-400 billion yen ($2.4-$3.2 billion) in charges related to overstated profits and various writedowns, said other individuals familiar with the matter. A Toshiba spokesman said it has not yet compiled any estimates.

One theory investigators were looking into was that executives, worried about the impact of the 2011 Fukushima disaster on its nuclear unit, set overly aggressive targets in new businesses such as smart meters and electronic toll booths, encouraging costs to be understated and revenues overestimated.

The panel will also say that top executives - including CEO Hisao Tanaka, and former company presidents Norio Sasaki and Atsutoshi Nishida - received summary reports from managers on how they were delaying the booking of losses. The executives

pressured divisions in emails and meetings to meet budget targets, exacerbating the accounting improprieties, the person directly involved in the investigation said on Friday.

Improper accounting, which extended across virtually all business areas of the semiconductor-to-nuclear conglomerate, was part of Toshiba's "corporate culture," the person said.

A company spokesman said he could not comment as the panel's report has not been released.


Toshiba's 87 percent stake in Westinghouse has not been among the group's businesses found to have past book-keeping issues, but investors have long held concerns that the value of assets and goodwill related to Westinghouse were overstated.

Toshiba has said it is looking to reduce its stake in the business, though analysts say it could be hard to find a buyer.

Most expect any stake sale to be worth just a fraction of what Toshiba originally paid. It spent $5.4 billion for a majority stake in 2006 at the height of the nuclear industry boom.

"The market's confidence in Toshiba isn't going to recover overnight. They need to come up with a new management structure and show investors that they have it right," said Yoshihiro Okumura, an analyst at Chibagin Asset Management. "At the moment there are various uncertainties, including the Westinghouse shares they hold."

Nuclear power has become less popular, especially in the aftermath of the Fukushima disaster which prompted many countries to freeze nuclear energy expansion plans.

Goldman Sachs analyst Ikuo Matsuhashi suspended coverage of Toshiba this month because of the uncertainties, citing Westinghouse as a concern. "With the outlook for the nuclear power plant market having been lowered, partly due to the fall in crude oil prices, we think it is harder for Toshiba to find a strategic partner," he wrote in a note last week.

Shares in Toshiba have lost more than a fifth of their value since the end of April, to a little over $13 billion. The stock closed more than 2 percent higher on Friday.

($1 = 124.0500 yen)

(Editing by Ryan Woo and Ian Geoghegan)