In the Matter of Caterpillar, Inc.

Caterpillar Brasil (CBSA), a Caterpillar Inc. (defendant) subsidiary, generated 23% of Caterpillar's 1989 net profits through unusual factors like currency gains, export subsidies, interest income, and Brazilian tax loss carryovers. Weeks before filing its 1989 Form 10-K, Caterpillar's management already knew CBSA's future performance was hard to predict and might not repeat 1989's results, and its board was specifically briefed on how significant CBSA's impact on the 1990 forecast was. After a new Brazilian administration instituted sweeping economic changes in March 1990, management told the board in April that CBSA's sales and profits would likely suffer substantially, and by reviewing April-May results concluded CBSA would post significant 1990 losses. Yet Caterpillar's 1989 Form 10-K and Q1 1990 Form 10-Q never disclosed CBSA's outsized contribution to 1989 results or the known risk of a sharp 1990 decline and its effect on Caterpillar overall. The SEC opened proceedings on whether this violated the MD&A disclosure requirements.