Caterpillar said it would take a fourth quarter charge of around $580m after discovering 'deliberate, multi-year, coordinated accounting misconduct' at a Chinese company it acquired last summer.

The international manufacturer of construction and mining equipment said an investigation had found several senior managers at Siwei had engaged in deliberate misconduct beginning several years prior to Caterpillar's acquisition.

The charge the company is taking is worth $0.87 per share, around half its expected earnings for the fourth quarter.

The company said it had found discrepancies in November between the inventory in Siwei's books and its actual physical inventory.

This involved inappropriate accounting practices involving improper cost allocation that resulted in overstated profit, the firm said.

It has now fired several senior managers at Siwei who were responsible for the misconduct and replaced them with a new leadership team.

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

"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," added Steve Wunning, Caterpillar group president with responsibility for resource industries.

Siwei is a wholly-owned subsidiary of ERA Mining Machinery, which Caterpillar bought in June 2012.

Caterpillar said its due diligence process for mergers and acquisitions was "rigorous and robust" and included the firm's personnel, as well as outside accounting, legal and financial advisors.

"It is important to understand that Siwei was a publicly traded company with audited financial statements," Caterpillar said in the statement.

"What we discovered at Siwei following the acquisition was deliberate, multi-year, coordinated accounting misconduct that was concealed by the persons responsible."

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