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China Deal Takes Sour Turn For Cat

Posted on January 21, 2013

Caterpillar 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. (Siwei), has uncovered deliberate, multi-year, coordinated accounting misconduct concealed at Siwei, located in Zhengzhou, China.

Caterpillar said its 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.

"The actions carried out by these individuals are offensive and completely unacceptable," said Caterpillar Chairman and CEO Doug Oberhelman. "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.

"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 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 longtime Caterpillar employee. The sales and support organization at Siwei will report to Kebao Yang, Caterpillar Global Mining General Manager for China and Korea.

Caterpillar said its investigation is ongoing and more actions may be taken.

"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."

 

 

 

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