Caterpillar Takes Action to Address Accounting Misconduct at Siwei, its Recently Acquired Company; Misconduct Results in a

PR Newswire/Les Echos/ 
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, III., Jan. 18, 2013 -- 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
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
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
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 
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 
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
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: 
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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. 
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-0- Jan/21/2013 07:45 GMT
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