Caterpillar Inc.

This paper is a review of Caterpillar Inc.’s annual report in 2019. The short-term goals in
2019 were austerity measures taken to cushion the organization against the adverse effects of
covid-19. The actions included reducing discretionary expenses, suspending salary increases, and
replacing the salary increases with short-term incentives. The organization also dedicated funds
for the CSR dedicated to COVID-19 (Caterpillar 2020).
The long-term goals are dedicated to increasing shareholder value through responsibility,
integrity, and commitment. Caterpillar works towards increasing its global network of
independent dealers and direct sales (Caterpillar 2020). The organization also aims to reduce
liquidity risk for its operations through increasing access to funds in both capital and financial
markets.
The Impact of Mergers and Acquisitions
In 2019, Caterpillar acquired ECM S.p.A deals with signal solutions and technology for
the safety and enhancement of railway infrastructure (Caterpillar 2020). Caterpillar had in the
previous year acquired Downer Freight Rail, which manages and maintains railways. The
acquisitions affected Caterpillar’s debt position and cost $ 1.19 billion (Caterpillar 2020).
However, the organization cautions that there may be a delay before the full benefits of
the acquisitions can be realized because the actual cash generated may be less than the actual
cash projected (Caterpillar 2020). There could also be a cultural mismatch between Caterpillar
and the acquired businesses (Weber & Menipaz, 2003). Other risks that may cause a delay
include unforeseen expenses to upgrade critical systems and technologies in the acquired
business and the time is taken to implement changes. The acquired businesses had already netted

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goodwill to the tune of $112 million. The organization, therefore, plans to use its increased
liquidity to finance more acquisitions.
As of the end of 2017, Caterpillar reports net goodwill of $ 6.2 billion in its financial
report. While this goodwill is affiliated with the acquisitions before 2017, Caterpillar reports that
ECM S.p.An increased Caterpillar’s international presence, freight capabilities, transit, broad
product offering, and high reputation. The acquisition of Downer Freight Rail enables Caterpillar
to benefit from aftermarket parts and services in Australia. As of the end of 2019, the goodwill
generated from the two acquisitions stood at $18 million after deduction of all costs. The
implication is that because net goodwill isn’t deducted for income tax purposes, it increases the
tax liability in the financials (Caterpillar 2020).
Another implication on business processes is that Caterpillar had to spend more on
restructuring costs. Some costs involve employee separation costs, contract termination costs,
assets impairments, and defined benefit plan curtailment and termination benefits (Caterpillar
2020). Caterpillar also acquired risks from the acquired companies, which means that it has to
evaluate risk mitigation measures. The acquired firms had liabilities worth $48 million.
Caterpillar’s operational plan
The organization’s commitment to global strategies can be seen in its long-term strategy,
operations of its subsidiaries, and acquisitions. Caterpillar is committed to improving supplier
and dealer relations and product offerings. For example, the organization reports that its products
are offered in 46 states United States and 119 locations outside the United States (Caterpillar
2020). Some subsidiaries, such as Perkins Engines Company Ltd, have a global outlook covering
over 178 countries (Caterpillar 2020). Caterpillar Norther Ireland Limited, another subsidiary,

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has operations in 10 countries (Caterpillar 2020). The organization understands the need for a
diversified market and allows the subsidiaries to deal in other products instead of exclusively
caterpillar products.

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References

Caterpillar Inc. (2020). 2019 Annual strategy. Caterpillar.Com. Retrieved March 11, 2022, from
https://s7d2.scene7.com/is/content/Caterpillar/CM20210503-db4c9-8a1a2
Weber, Y., & Menipaz, E. (2003). Measuring cultural fit in mergers and acquisitions.
International Journal of Business Performance Management, 5(1), 54.
https://doi.org/10.1504/ijbpm.2003.002100