Caterpillar writes off most of China deal after fraud

By Ernest Scheyder

(Reuters) – Caterpillar Inc uncovered "deliberate, multi-year, coordinated accounting misconduct" at a subsidiary of a Chinese company it acquired last summer, leading it to write off most of the value of the deal and wiping out more than half its expected earnings for the fourth quarter of 2012.

Shares of Caterpillar fell 1.5 percent in afterhours trading following news of the fraud, which was discovered after problems were found with the Chinese company's inventory.

Caterpillar, the world's largest maker of tractors and excavators, said on Friday it would take a non-cash goodwill impairment charge of $580 million, or 87 cents per share, in the quarter.

Analysts had expected the company to report $1.70 per share when it reports its results on January 28, according to Thomson Reuters I/B/E/S.

Caterpillar closed the purchase of ERA Mining Machinery Ltd and its subsidiary Siwei, China's fourth-largest maker of hydraulic roof supports, last June, paying HK$5.06 billion, or $653.4 million. ERA had been publicly traded in Hong Kong, doing business through Siwei, which is known for making equipment to support roofs in mines.

A member of the Caterpillar board during the course of the Siwei deal told Reuters the board was distracted at the time by a larger transaction and paid relatively little attention to the Siwei acquisition.

Keep reading: Caterpillar writes off most of China deal after fraud – Yahoo! Finance.