Toshiba Plumbs Six-Year Low After $4.5 Billion Loss Forecast

  • Company to restructure division making PCs, Televisions
  • Moody's cuts Japanese company's credit rating to junk status

Toshiba Corp. fell to the lowest in more than six years in Tokyo after forecasting a record 550 billion yen ($4.5 billion) loss and announcing plans to cut more jobs as it restructures businesses.

The shares finished down 12 percent at 223.5 yen on Tuesday, their lowest since March 2009. Including a decline of 9.8 percent on Monday, the Japanese company had lost about $2 billion of market value over the past two days. After the market closed, Moody’s cut its credit rating two levels to junk.

Toshiba has been dogged by an accounting scandal, prompting the company to consider third-party alliances for some units and a restructure of the business that makes TVs and PCs. President Masashi Muromachi is considering options such as listing the memory chip division or selling a majority stake in a medical equipment unit after restating earnings across seven years.

Tax Reversal

The projected net loss for this fiscal year includes 260 billion yen in taxes because of a reversal of deferred income-tax assets, it said in a statement Monday. The forecast doesn’t include possible impairment of goodwill and fixed assets at the company’s nuclear power systems business because Toshiba is still checking that, it said.

Toshiba was cut to Ba2, two levels below investment grade, from Baa3, Moody’s said.

Moody’s questioned Toshiba’s ability to fund an extensive overhaul and cited uncertainty around its ability to improve its operating performance. The ratings agency also warned that Toshiba’s memory chip business may come under pressure from global competition.

“The announcement indicated that earnings and cash flow generation will be significantly below our previous expectations,” Masako Kuwahara, a Moody’s analyst, said in a statement. Toshiba’s debt levels will stay high with improvements of earnings “very gradual even after the restructuring.”

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New Management

The company plans to sell a majority stake in Toshiba Medical Systems, a maker of diagnostic imaging systems such as MRI, X-ray and ultrasound equipment, to outside investors.

“At least 50 percent and as much as 100 percent,” Muromachi told reporters in Tokyo on Monday. “That will depend on the talk with a buyer, but we already have been approached by several companies.”

Toshiba Medical, Japan’s largest medical equipment company, could fetch “several hundred billion yen,” Yukihiko Shimada, a senior analyst at SMBC Nikko Securities, wrote in a research note on Tuesday without giving a more specific estimate. The health care division, which includes medical equipment and other businesses that it doesn’t plan to sell, had sales of 409.5 billion yen in the 12 months ended March and operating income of 23.9 billion yen, according to data compiled by Bloomberg.

Shareholder Lawsuits

The company is also considering the sale of property and investments after earlier selling its holding in elevator maker Kone Oyj. Other plans include accounting training, corporate governance reviews, management seminars and an evaluation system for the president and chief executive officer.

Muromachi is working with new management after former presidents Hisao Tanaka, Norio Sasaki and Atsutoshi Nishida resigned in July to take responsibility for the accounting irregularities. The company said it would seek damages in a lawsuit against former executives, including the three and two former chief financial officers, over their role in the scandal.

Toshiba itself still faces lawsuits from shareholders, while it has vowed to avoid recurrence by bringing in more outside directors and cut executive pay. Regulators have yet to announce the results of probes seeking evidence for possible criminal prosecutions of former executives.

In addition to workforce cuts in the lifestyle business, the company will reduce its corporate division by 1,000 people and chip operations by 2,800 workers. Toshiba had about 198,700 employees as of March 31, the lowest since at least 2009, according to data compiled by Bloomberg.

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