Emory Williams, former chairman of ERA Mining Machinery Ltd., was “shocked and dismayed” to learn of Caterpillar Inc.’s writedown at its China unit, according to an e-mailed statement today.
Caterpillar, the world’s largest maker of construction and mining equipment, said on Jan. 18 it will take a $580 million writedown after discovering accounting misconduct at Zhengzhou Siwei Mechanical & Electrical Manufacturing Co., a company bought as part of Caterpillar’s $793 million acquisition of ERA Mining in November 2011.
The non-cash goodwill impairment charge will reduce fourth-quarter earnings by about 87 cents a share, Peoria, Illinois-based Caterpillar said in a statement. Senior managers at Siwei who were found to be responsible for the “deliberate, multi-year, coordinated accounting misconduct” were removed and a new leadership team put in place, the company said.
Caterpillar acquired ERA Mining, Siwei’s parent company, to gain factories that make underground coal-mining equipment in China, the world’s largest coal producer. The irregularities found at Siwei are the latest setback for Caterpillar in China, after it said in April that it was moving unsold excavators to other countries amid excess inventory.
“We were especially surprised by this situation as we cooperated very closely with the Caterpillar team during their extensive due diligence,” Williams said in the statement. “Our surprise is compounded by the fact that, as directors of ERA prior to the acquisition by Caterpillar, when it was a Hong Kong listed company, we took the company’s fiduciary and reporting responsibilities very seriously.”
Caterpillar hasn’t responded to a request last week for more information, Williams said in the statement.