CATERPILLAR INC. 
By PEORIA, Ill., Jan. 18, 2013 /PRNewswire/ -- Caterpillar Inc. (NYSE: CAT) today announced that an internal investigation of its recently acquired company, ERA Mining Machinery Limited (ERA), including its wholly owned subsidiary Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., Ltd., commonly known as "Siwei," has uncovered deliberate, multi-year, coordinated accounting misconduct concealed at Siwei, located in Zhengzhou, China.
Caterpillar's investigation determined several Siwei senior managers engaged in deliberate misconduct beginning several years prior to Caterpillar's acquisition of Siwei. This deliberate misconduct at Siwei will result in a non-cash goodwill impairment charge of approximately $580 million, or $0.87 per share, in the fourth quarter of 2012.
Caterpillar removed several senior managers at Siwei who were responsible for the misconduct and a new leadership team has been put in place. The responsibilities for Siwei manufacturing operations have been moved to Caterpillar's China Operations Division, led by Vice President Qihua Chen, a long time Caterpillar employee. The sales and support organization at Siwei will report to Kebao Yang, Caterpillar Global Mining General Manager for China and Korea.
"The actions carried out by these individuals are offensive and completely unacceptable. This conduct does not represent, in any way, shape or form, the way Caterpillar does business or how we expect our employees to work, which is spelled out in Caterpillar's Worldwide Code of Conduct," said Caterpillar Chairman and CEO Doug Oberhelman. "Once our investigation confirmed that misconduct had taken place at Siwei, we moved quickly and decisively to hold the responsible leaders directly accountable for the wrongdoing. Accountability is a critical way that we measure leaders at Caterpillar, and it is my expectation that leaders set an example and are accountable for their actions and results."
Caterpillar has advised the Hong Kong Securities and Futures Commission of these issues and has filed a Form 8-K with the United States Securities and Exchange Commission disclosing the impairment charge. Caterpillar's investigation is ongoing.
"Despite these actions we continue to believe that the Siwei acquisition is well aligned with our strategy to expand our role as a leading equipment and solutions provider for the Chinese coal mining industry," said Steve Wunning, Caterpillar group president with responsibility for Resource Industries. "We intend to utilize Siwei roof support products and manufacturing capabilities, combined with Caterpillar's strong commitment to technical innovation and safety, to help our mining customers in China become more efficient and safer within their mines," Wunning added.
Additional background on Siwei acquisition:
In November of 2011, Caterpillar and ERA jointly announced a pre-conditional voluntary offer by Caterpillar, through a wholly owned subsidiary, for all of the issued shares of ERA, which at that time was a publicly traded company on the Hong Kong Stock Exchange. ERA primarily designed, manufactured, sold and supported underground coal mining equipment in China through its wholly owned subsidiary, Siwei.
In June of 2012, Caterpillar announced the completion of its tender offer for ERA, including its wholly owned subsidiary Siwei. The tender offer was completed after approval from the Ministry of Commerce of the People's Republic of China (MOFCOM).
Siwei has a manufacturing base of 600,000 square meters and employs about 4,000 people in Zhengzhou, Henan province, where Caterpillar intends to continue manufacturing roof support equipment to serve underground mining customers in China.
Questions and Answers:
Q1: Does the discovery of this misconduct
at Siwei change Caterpillar's
strategy for China or its view of
the mining industry?
A: No. Caterpillar has 23 existing
manufacturing facilities in China,
four new facilities under
construction, four Research &
Development (R&D) centers and three
logistics and parts centers,
employing more than 15,000 people
across the country. In addition,
China produces and consumes more
coal than any other country in the
world. Our strategy to expand our
coal mining business in China is
unchanged, and we are optimistic
about the underground coal mining
equipment opportunities.
The accounting misconduct that
occurred at Siwei does not reflect
the way Caterpillar does business
and is not in keeping with our
Worldwide Code of Conduct.
The actions of the individuals
involved were clearly wrong and
purposely designed to overstate the
profitability of the company prior
to our acquisition. This does not
change our plans to develop, grow,
and improve the business.
The acquisition is aligned with
Caterpillar's strategy to expand in
the rapidly growing Chinese coal
mining equipment industry utilizing
the Siwei roof support products and
manufacturing capabilities, combined
with Caterpillar's strong commitment
to product innovation and safety, to
help our mining customers in China
become more efficient and safer
within their mines.
Q2: What is Caterpillar's due diligence
process for mergers and
acquisitions?
A: We believe our process is rigorous
and robust and includes Caterpillar
personnel and outside accounting,
legal and financial advisors. It is
important to understand that Siwei
was a publicly traded company with
audited financial statements. What
we discovered at Siwei following the
acquisition was deliberate, multi-
year, coordinated accounting
misconduct that was concealed by the
persons responsible.
Q3: Can you provide more details about
the nature of the accounting
misconduct?
A: Caterpillar first became concerned
about an issue when discrepancies
were identified in November 2012
between the inventory recorded in
Siwei's accounting records and the
company's actual physical inventory.
This was determined by a physical
inventory count conducted at Siwei
as part of Caterpillar's integration
process. Caterpillar promptly
launched a comprehensive review and
investigation into the nature and
source of this discrepancy. This
extensive review has identified
inappropriate accounting practices
involving improper cost allocation
that resulted in overstated profit.
The review further identified
improper revenue recognition
practices involving early and, at
times unsupported, revenue
recognition. This review is ongoing.
Q4: Several individuals on Siwei's board
of directors were part of the
ownership structure of ERA. Did the
investigation determine if ERA or
its principals had any knowledge of
this misconduct?
A: Caterpillar's investigation of these
matters is ongoing and any other
comment at this time is not
appropriate.
Q5: How does the announcement about Siwei
change Caterpillar's previously-
stated outlook for 2012 and its
preliminary outlook for 2013?
A: The accounting misconduct described
in today's announcement was
discovered after Caterpillar
released its most recent outlook for
2012. The expected charge of
approximately $580 million, or $0.87
per share will be included in
fourth-quarter 2012 financial
results, but was not anticipated in
the 2012 outlook. We do not expect
these matters related to Siwei to
have a significant impact on
Caterpillar's 2013 sales and
revenues or profit. We will provide
our 2013 outlook with our Earnings
Release on January 28 but are not
updating the outlook today.
Q6: Will there be litigation as a result
of the investigation?
A: Caterpillar is reviewing these
matters very closely and is
considering all of its options to
recover its losses from those
responsible.
Q7: Was the conduct you have described
criminal? Has anyone been arrested
or is this being investigated by the
U.S. or Chinese governments?
A: Caterpillar is not aware of any
arrests or criminal investigations.
If contacted by governmental
authorities, Caterpillar will
cooperate.
Q8: In light of the circumstances, do you
intend to keep the Siwei name or
will the business be rebranded as
Caterpillar?
A: At this point, there are no plans to
remove the Siwei name. The company
maintains a strong reputation in the
marketplace. Caterpillar intends to
build on Siwei's strengths. The
Siwei roof support business is a
good complement to our existing
product line for our mining
customers, and we remain committed
to our continued investment in China
to support our growing base of
customers.
Q9: Did the investigation determine
whether any Caterpillar employees,
beyond those who came over to
Caterpillar as part of the Siwei
acquisition, had any knowledge of,
or participated in, this misconduct?
A: The misconduct at issue commenced at
Siwei well in advance of
Caterpillar's acquisition. We
believe it was perpetrated without
the knowledge of any Caterpillar
employee who did not come over to
Caterpillar as part of the Siwei
acquisition.
About Caterpillar:
For more than 85 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. With 2011 sales and revenues of $60.138 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company also is a leading services provider through Caterpillar Financial Services, Caterpillar Remanufacturing Services and Progress Rail Services. More information is available at: http://www.caterpillar.com.
Forward-Looking Statements
Certain statements in this press release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements.
Caterpillar's actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global economic conditions and economic conditions in the industries and markets we serve; (ii) government monetary or fiscal policies and infrastructure spending; (iii) commodity or component price increases and/or limited availability of raw materials and component products, including steel; (iv) our and our customers', dealers' and suppliers' ability to access and manage liquidity; (v) political and economic risks and instability, including national or international conflicts and civil unrest; (vi) our and Cat Financial's ability to: maintain credit ratings, avoid material increases in borrowing costs, and access capital markets; (vii) the financial condition and credit worthiness of Cat Financial's customers; (viii) inability to realize expected benefits from acquisitions and divestitures, including the acquisition of Bucyrus International, Inc. and ERA Mining Machinery Limited; (ix) international trade and investment policies; (x) challenges related to Tier 4 emissions compliance; (xi) market acceptance of our products and services; (xii) changes in the competitive environment, including market share, pricing and geographic and product mix of sales; (xiii) successful implementation of capacity expansion projects, cost reduction initiatives and efficiency or productivity initiatives, including the Caterpillar Production System; (xiv) sourcing practices of our dealers or original equipment manufacturers; (xv) compliance with environmental laws and regulations; (xvi) alleged or actual violations of trade or anti-corruption laws and regulations; (xvii) additional tax expense or exposure; (xviii) currency fluctuations; (xix) our or Cat Financial's compliance with financial covenants; (xx) increased pension plan funding obligations; (xxi) union disputes or other employee relations issues; (xxii) significant legal proceedings, claims, lawsuits or investigations; (xxiii) compliance requirements imposed if carbon emissions legislation and/or regulations are adopted; (xxiv) changes in accounting standards; (xxv) failure or breach of IT security; (xxvi) adverse effects of natural disasters; and (xxvii) other factors described in more detail under "Item 1A. Risk Factors" in our Form 10-K filed with the SEC on February 21, 2012 for the year ended December 31, 2011. This filing is available on our website at www.caterpillar.com/secfilings.
SOURCE Caterpillar Inc.
