Toshiba Corp. announced April 26 that it was taking a significant write-down on the goodwill value of its U.S. nuclear affiliate, Westinghouse Electric Co.
The Wall Street Journal said that Toshiba’s move came after much criticism that Toshiba’s outlook on the business was too optimistic.
Toshiba (TYO:6502) expects to announce a loss for FY 2015 of 260 billion yen or roughly $2.3bn in U.S. dollars.
Toshiba acquired Westinghouse in 2006. Toshiba will write-down the value of Westinghouse and its group companies for the FY 2015 period, which ran from April 1 2015 through March 31, 2016.
The April 26 announcement changes an earlier forecast made in February.
When Toshiba bought Westinghouse’s shares in 2006, $2.93bn or 350bn yen at the then-prevailing wage rate, the difference between the purchase price and the fair value (net assets) of Westinghouse was recorded as “goodwill” an intangible fixed asset on Toshiba’s consolidated balance sheet, Toshiba said.
Each fiscal year, in accordance with United States Generally Accepted Accounting Principles (GAAP), Toshiba has calculated the fair value of its nuclear power business, including Westinghouse, and conducted impairment testing.
The recent “forecast for Toshiba’s financial condition has deteriorated significantly.” Toshiba said, citing a ratings downgrade. Therefore, Toshiba elected to do a “Step 1 impairment testing” in late February.
“There is no essential change in the status of the nuclear power business, including Westinghouse Electric Company L.L.C. However, the Company forecasts an increased operating loss in FY2015 of 260 billion yen against the previous forecast, resulting from goodwill impairment in the nuclear power business, primarily due to an increase in financing costs following downgrading of credit ratings,” Toshiba said.
The Westinghouse AP 1000 nuclear reactor design is being constructed at four new nuclear units in Georgia and South Carolina.