Toshiba Said to Face Biggest Fine by Japan's Financial Regulator

  • Japan commission says company falsified annual profit reports
  • President vows to prevent further accounting scandals

Toshiba Corp. plans to restructure its operations and sell additional assets after Japan’s securities regulator recommended fining the company about 7.37 billion yen ($60 million) for falsifying earnings, the largest financial penalty ever sought by the watchdog.

Toshiba misled investors by filing false financial statements for several periods including 2012 and 2013, according to Japan’s Securities and Exchange Surveillance Commission. The commission is still considering whether to recommend penalties against former top company executives, people familiar with the matter have said.

President Masashi Muromachi, who took over as the scandal unfolded this year, apologized at a press conference in Tokyo, promising to take steps to overhaul operations and prevent future wrongdoing. He said the company will detail a restructuring plan by Dec. 31 and is considering selling its personal computer and appliance businesses.

“I will implement no-holds-barred structural reforms,” Muromachi said. “The company will do its utmost to prevent this from happening again.”

Toshiba, which makes nuclear power plants, semiconductors, washing machines, TVs and laptop computers, is embroiled in Japan’s biggest accounting scandal since Olympus Corp., a camera maker that admitted in 2011 to irregularities that totaled about $1.7 billion. Toshiba has lost about 40 percent of its value since disclosing an internal probe on April 3 and has set aside 8.4 billion yen to cover possible fines in the case.

The shares fell 0.4 percent as of 9:01 a.m. in Tokyo trading. The stock is down 41 percent this year, the third-worst performance on the Nikkei 225 Stock Average.

Former Presidents

Former presidents Hisao Tanaka, Norio Sasaki and Atsutoshi Nishida resigned in July and the company has cut executive pay, trimmed its workforce and revamped its board amid a scandal that widened repeatedly as more irregularities were uncovered. Toshiba also faces lawsuits from shareholders.

The company has said it is suing the three former chief executive officers and two former chief financial officers, seeking 300 million yen of damages. It said Oct. 1 it had identified 30 more executives involved in the accounting scandal and would punish them, while allowing them to keep their jobs.

“Changing CEOs doesn’t mean Toshiba has improved,” said Mitsushige Akino, executive officer at Ichiyoshi Asset Management Co. in Tokyo, which doesn’t hold the company’s shares. “It could take five to 10 years to regain trust from investors.”

Regulators have yet to announce results of probes seeking evidence for possible criminal prosecutions of former executives, including the three ex-presidents who quit the company after investigators concluded they caused subordinates to falsify results.

This case is “extremely regrettable,” a government spokesman, Yoshihide Suga, said in Tokyo. “It’s important that Toshiba rebuilds its corporate structure and makes proper efforts to prevent a recurrence.”

Asset Sales

Toshiba has been selling assets to raise cash. It announced the sale of its image-sensor chip operations to Sony Corp. last week and sold stakes in Finnish escalator maker Kone Oyj and Japanese medical equipment manufacturer Topcon Corp.

Toshiba is considering combining its PC operations with those of Fujitsu Ltd. and Sony Corp. spinoff Vaio, Muromachi said Monday. Toshiba got about 7 percent of its revenue, or about 128 billion yen, from PCs in the September quarter, according to data compiled by Bloomberg.

Worldwide PC industry shipments are on course to shrink 4.9 percent to below 300 million units this year after peaking at 364 million in 2011, according to IDC Corp.

Sharp Deal

The company is also considering a deal with struggling display maker Sharp Corp. to combine washing machine and refrigerator operations, Muromachi said. Sharp issued a statement earlier Monday saying it wasn’t in talks with Toshiba to merge its so-called white goods business.

In September, Muromachi won shareholder approval to lead the company at an extraordinary meeting that included calls for his resignation. Investors angered by damage done to the company interrupted proceedings several times, shouting over the president.

Muromachi in September pledged to prune underperforming businesses, including workforce reductions in appliances, PCs, TVs and semiconductors. Toshiba had about 198,700 employees as of March 31, the lowest since at least 2009, according to data compiled by Bloomberg.

Toshiba net income probably fell in the current quarter by about 96 percent to 2.3 billion yen, the average of five analyst estimates compiled by Bloomberg. Sales probably fell 12 percent in the three months ending Dec. 31, the fourth quarterly drop.

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