July 18, 1975 was not a very good day for the management, customers and shareholders of Westinghouse Corporation. At a press conference scheduled for the release of second quarter operating results, Westinghouse acknowledged for the first time that it would be unable to fulfill long-term supply commitments to provide uranium to some of its utility customers. The amount of potential liability was estimated at as much as $2.5 billion, or about 15 times net income for the year. And, although the commitments leading to that liability had been undertaken during a period of seven years, from 1966 to 1973, the financial statements contained no clue of their existence until 1976, when the litigation that followed the July announcement was duly noted by Westinghouse and its auditors.
That the lack of disclosure in the Westinghouse case was consistent with generally accepted accounting practice points out a problem with the accounting treatment of future commitments, of which long-term supply contracts are one form. That the occurrence of such lawsuits for non-performance under these agreements has become more frequent suggests that these commitments may be the new “albatross” of some companies.