Caterpillar Takes Action to Address Accounting Misconduct at Siwei, its
Recently Acquired Company; Misconduct Results in a Fourth Quarter Non-Cash
Charge of Approximately $580 Million and the Removal of Several Siwei Senior
Internal investigation revealed deliberate, multi-year, coordinated accounting
misconduct concealed at Siwei.
PEORIA, Ill., Jan. 18, 2013
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
"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
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?
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
A: 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
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
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
A: 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
Q3: Can you provide more details about the nature of the accounting
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.
A: 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.
Several individuals on Siwei's board of directors were part of the
Q4: 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.
How does the announcement about Siwei change Caterpillar's
Q5: previously-stated outlook for 2012 and its preliminary outlook for
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,
A: 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?
Caterpillar is reviewing these matters very closely and is
A: considering all of its options to recover its losses from those
Was the conduct you have described criminal? Has anyone been
Q7: arrested or is this being investigated by the U.S. or Chinese
Caterpillar is not aware of any arrests or criminal investigations.
A: If contacted by governmental authorities, Caterpillar will
Q8: In light of the circumstances, do you intend to keep the Siwei name
or will the business be rebranded as Caterpillar?
At this point, there are no plans to remove the Siwei name. The
company maintains a strong reputation in the marketplace.
A: 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.
Did the investigation determine whether any Caterpillar employees,
Q9: beyond those who came over to Caterpillar as part of the Siwei
acquisition, had any knowledge of, or participated in, this
The misconduct at issue commenced at Siwei well in advance of
A: 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.
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.
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
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without limitation, statements regarding our outlook, projections, forecasts
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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
SOURCE Caterpillar Inc.
Contact: Jim Dugan, Global Government & Corporate Affairs, +1-309-494-4100,
email@example.com, or Penny Wu, Global Government & Corporate Affairs, +86 10
5921 1422, Wu_Penny@cat.com
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