Caterpillar Chief Faults China Unit

Caterpillar Inc. CAT +1.07% Chairman and Chief Executive Doug Oberhelman on Monday blamed a $580 million write-down in the value of a Chinese company acquired last year on accounting "misconduct" by several former senior managers there who "fabricated documentation to cover their tracks."

The write-down and lower machinery sales world-wide led to a 55% drop in Caterpillar's profit for the fourth quarter, Caterpillar said. It added that profit is likely to be "significantly lower" than a year earlier in the current quarter as dealers in the company's construction and mining equipment continue shrinking inventories in response to weaker demand.

Caterpillar announced the write-down earlier this month in the value of ERA Mining Machinery Ltd., a Chinese maker of roof supports for coal mines, acquired last June for about $700 million. Peoria, Ill.-based Caterpillar, the world's largest maker of construction and mining equipment, alleges that former ERA managers—whom it hasn't identified—deliberately misled Caterpillar about the value of the business. Caterpillar said it has found problems with inaccurate inventory data and premature recognition of revenue.

Mr. Oberhelman said during a conference call with analysts that he was "accountable" for the botched acquisition because "it happened on my watch." Ann Duignan, an analyst at J.P. Morgan Chase JPM +1.83% & Co., quipped during the call that Mr. Oberhelman could "commiserate" with Jamie Dimon, J.P. Morgan's chief executive, whose annual pay was recently halved after the banking company suffered a trading loss of more than $6 billion. Mr. Oberhelman didn't respond.

Caterpillar's CEO said the acquisition "made sense" as a way to boost sales of mining equipment in China: "China is the world's largest coal producer. Our long-term mining strategy around the world...is exactly the right one for this company."

Emory Williams, ERA's former chairman, said earlier Monday that he and other top executives of ERA were "shocked and dismayed to learn" about Caterpillar's write-down. "We took the company's fiduciary and reporting responsibilities very seriously," said Mr. Williams, a Beijing-based American entrepreneur, in a written statement. "We contacted Caterpillar senior management last week, urgently requesting further details and clarification. To date we have received no response." Caterpillar declined to comment on Mr. Williams's statement.

Caterpillar hasn't accused Mr. Williams of any wrongdoing.

Caterpillar offered a tepid outlook for 2013 based largely on a drop in investment by mining companies and general uncertainty about global economic growth. The company projected profit of $7 a share to $9 a share for 2013, compared with $8.48 for 2012. It forecast revenue of $60 billion to $68 billion this year, compared with $65.88 billion in 2012.

Caterpillar will need to win new mining-equipment orders to meet that forecast, said Mike DeWalt, the company's director of investor relations.

In an interview after the call, Ms. Duignan of J.P. Morgan said one risk is that "it may be 2015 before we start to see orders [for mining equipment] accelerate significantly." First, she said, mining companies will have to regain confidence that mineral prices are back on a long-term rising trend. Caterpillar declined to comment.

For the fourth quarter, Caterpillar posted profit of $697 million, or $1.04 a share, off from $1.55 billion, or $2.32 a share, a year earlier. Total revenue, which includes Caterpillar's finance unit, fell 6.8% to $16.08 billion.

Caterpillar expects a boost this year from the recovery in U.S. housing construction. But Rob Wertheimer, an analyst at Vertical Research Partners in New York, said Caterpillar is much more dependent on demand from other areas, notably global mining and energy production, than on U.S. housing.

The company's sales of mining equipment in the latest quarter rose 14% to $5.78 billion, while sales of construction machinery plunged 25% to $4.03 billion. In North America, which had been Caterpillar best-performing geographic market in recent quarters, machinery sales declined 17% to $1.45 billion.