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Toshiba sees potential multibillion-dollar charge related to CB&I deal

Toshiba Corp. shares plunged after the company disclosed Dec. 27 it could incur a goodwill impairment of "several billion U.S. dollars" related to Westinghouse Electric Co. LLC's acquisition of CB&I Stone & Webster Inc.'s nuclear construction and integrated services business.

Westinghouse, a Toshiba subsidiary, closed its acquisition of CB&I Stone & Webster in December 2015 from Chicago Bridge & Iron Co. NV, and at that time estimated a goodwill impairment resulting from the transaction of approximately $87 million, with the deadline for determining the final amount Dec. 31, 2016. As that deadline approaches, Toshiba estimates the negative impact of goodwill to be significantly larger.

Shares of Toshiba fell more than 20% on the news, from a closing price of $19.41 on Dec. 27 to trading around $15 per share Dec. 28.

Westinghouse is developing new nuclear reactors with Chicago Bridge & Iron at SCANA Corp.'s V.C. Summer plant and Southern Co.'s Vogtle Nuclear Plant. Both projects have seen construction costs and target dates to begin commercial operation vastly exceed initial estimates.

In its disclosure, Toshiba said Westinghouse has been evaluating the cost to complete the nuclear contracts to assess the value of acquired assets and liabilities.

"Westinghouse has found that the cost to complete the U.S. projects will far surpass the original estimates, mainly due to increases in key project parameters, resulting in far lower asset value than originally determined, leading to a possible recognition of goodwill far exceeding the original December 2015 estimate," Toshiba stated.

The Japanese company has not yet determined the exact amount of the impairment, but described it as calculated to be, "several 100 billion yen or several billion U.S. dollars." The impairment will be recorded in fiscal year 2016 third-quarter results, and Toshiba plans to announce its revised financial forecast, "at the earliest possibility."

In June, Morgan Stanley Research downgraded SCANA, citing V.C. Summer construction delays, and noted that if the financial condition of Toshiba and Westinghouse were to worsen, it could raise concerns about the company's ability to honor the terms of its engineering, procurement and construction contract. In November, South Carolina regulators approved a settlement with several intervenors, including Westinghouse, capping the capital costs for SCANA subsidiary South Carolina Electric & Gas Co. at $7.66 billion.

Georgia regulators on Dec. 20 approved a cost recovery settlement at the Vogtle project deeming $3.3 billion in capital costs and incentives "prudent" for Georgia Power Co. That settlement was made possible, in part, by the resolution in 2015 of a lawsuit between Georgia Power and Westinghouse stemming from disputes over the responsibility for construction delays and increased costs at Vogtle.