(Adds detail on ERA directors, background)
* Outstanding price cut by $135 million
* Investigation found accounting irregularities
* Probe found ex-ERA director engaged in misconduct
May 17 Caterpillar Inc has reached a
deal to cut $135 million from the price owed for a Chinese
mining equipment maker, after accounting irregularities were
discovered at the acquired company that forced Caterpillar to
take a $580 million impairment charge.
The agreement with China-based Mining Machinery Ltd, which
sold ERA Mining Machinery Ltd to Caterpillar last year, will
reduce outstanding payment obligations to Mining Machinery
(MML), former ERA directors Emory Williams and John Lee, and MML
shareholder James Thompson to $29.5 million.
Caterpillar reported in January that it had discovered
"deliberate, multi-year, coordinated accounting misconduct" at
Siwei, a subsidiary that handled ERA's principal business, as it
announced the impairment charge for the fourth quarter.
Caterpillar's investigation has since found that some senior
managers at Siwei, one of whom was an ERA director, had engaged
in the accounting misconduct and they have now been removed, the
company said on Thursday as it announced the deal with MML. It
did not name the ERA director.
The probe was triggered late last year after discrepancies
were found in Siwei's inventory figures.
The case rekindled concerns about accounting standards and
corporate governance at Chinese companies, many of which have
listed overseas or have become targets for foreign companies
keen on Chinese acquisitions.
Caterpillar added that it had found no evidence of
involvement in accounting misconduct by other former ERA
directors or MML shareholder James Thompson.
"We are pleased to resolve these issues with the MML
parties, which, as we move forward, will position Caterpillar to
put greater focus on improving the Siwei operation," said Steve
Wunning, Caterpillar's group president for resource industries.
The world's largest maker of construction equipment had
acquired ERA for $653.4 million (HK$5.06 billion) from Mining
Machinery last June.
It has said that the episode with Siwei, China's
fourth-largest maker of hydraulic roof supports used in the coal
mining sector, would not alter its expansion strategy in China.
(Reporting by Pallavi Ail in Bangalore and Rachel Armstrong in
Singapore; Editing by Stephen Coates and Edmund Klamann)