WESTPORT, Conn.--(BUSINESS WIRE)--Sept. 9, 2005--Terex Corporation
(NYSE: TEX) has previously disclosed in Current Reports on Form 8-K
furnished to the Securities and Exchange Commission that the Company
concluded that the financial statements of Terex for the years ended
December 31, 2000, 2001, 2002 and 2003 need to be restated to correct
certain errors. As Terex is in the final stages of the restatement
process and computing the tax implications thereof, Terex has
re-evaluated its U.S. deferred tax asset to determine if the deferred
tax asset would "more likely than not" be realized based on the
restated results of Terex's U.S. operations for the three years ended
December 31, 2003. This assessment is required to be made without
current hindsight, which precluded the Company from considering the
subsequent profitability of Terex's U.S. operations in 2004 and 2005.
The results of the assessment indicated that a valuation allowance was
required to reduce Terex's net U.S. deferred tax asset as of December
31, 2003, which materially affects total stockholders' equity as of
December 31, 2003. However, this valuation allowance is then reversed
as of December 31, 2004 due to the profitability of Terex in that
period as well as future profit expectations, including year to date
2005 results. The 2004 reversal of the valuation allowance offsets the
reduction in total stockholders' equity resulting from the
establishment of the valuation allowance in 2003.
Due to the valuation allowance established as of December 31,
2003, Terex's provision for U.S. taxes in the quarters ended March 31,
2004 and June 30, 2004 will be substantially reversed, thereby
increasing net income in those periods by approximately $2.4 million
and $7.4 million, respectively, which are material to those quarters.
Accordingly, the management of Terex and the Audit Committee of
Terex's Board of Directors concluded on September 8, 2005 that the
financial statements for the quarters ended March 31, 2004 and June
30, 2004 need to be restated to reflect such increase and, therefore,
such financial statements should no longer be relied upon and have
informed PricewaterhouseCoopers LLP, the Company's independent
registered accounting firm of this determination.
As part of its prior disclosure Terex stated that it was
management's opinion that, although adjustments in any one year's
financial statements might be material, the cumulative adjustments
required to be made to stockholders' equity as of December 31, 2003
resulting from all items identified were not expected to be material
to total stockholders' equity. Terex's previously published
stockholders' equity balance as of December 31, 2003 was $877 million.
The December 31, 2003 stockholders' equity balance is now anticipated
to be approximately $690 million. However, virtually all of the change
in the stockholders' equity from the originally filed amount is
related to the establishment of the valuation allowance. With the
reversal of the valuation allowance in 2004, net income and changes in
accumulated other comprehensive income for 2004, stockholders' equity
as of December 31, 2004 is expected to be approximately $1.1 billion.
A brief description of the accounting guidelines, as they relate to
accounting for the realization of deferred tax assets is included in
the section entitled "U.S. Valuation Allowance for Deferred Tax
Assets."
Additionally, pursuant to Section 404 of the Sarbanes-Oxley Act of
2002, Terex was required to evaluate the effectiveness of its internal
control over financial reporting as of December 31, 2004. Based on
this current evaluation, it was determined that "material weaknesses"
existed, which resulted in ineffective internal control over financial
reporting. As announced on January 13, 2005, Terex had determined that
a "material weakness" existed in Terex's internal control over
financial reporting as it relates to the recording of certain
intercompany transactions. On September 8, 2005, the management of
Terex and the Audit Committee of Terex's Board of Directors concluded
that material weaknesses also existed as follows a) the Company did
not maintain effective controls, including monitoring, over the
financial reporting process as a result of an insufficient complement
of personnel with requisite U.S. GAAP knowledge, experience and
training, and b) the Company did not maintain sufficient supporting
documentation for certain income tax account balances, including
periodic reconciliations, which contributed to the failure to timely
file. During 2004 and 2005, Terex has taken and will continue to take
numerous steps toward the remediation of these material weaknesses
including, among other things, changes in reporting relationships
within its financial organization, hiring additional accounting staff
with the requisite U.S. GAAP background and implementing certain new
accounting practices and controls.
Terex is working diligently to file the financial statements for
the year ended December 31, 2004 and prior periods with the SEC by the
September 15, 2005 bank waiver expiration date.
U.S. Valuation Allowance for Deferred Tax Assets
A valuation allowance is required when the weight of available
evidence indicates that it is not more likely than not that a deferred
tax asset will be realized. The assessment of the realizability of
Terex's U.S. deferred tax assets began with an analysis of Terex's
cumulative three-year historical U.S. pre-tax earnings. As of December
31, 2003, Terex had a cumulative three-year historical U.S. pre-tax
loss which is considered significant objective evidence that a
valuation allowance may be required unless there existed objective
evidence of a significant magnitude that would indicate that it is
more likely than not that the U.S. deferred tax assets would be
realized. Despite the timing of this release, it was determined that
only the evidence that was available as of the time of the filing of
the original financial statements could be used in this assessment.
During our evaluation of other evidence, several items were considered
including the cyclical nature of Terex's industry, the impact of its
restructuring activities, the goodwill impairment in Terex's
Roadbuilding, Utility Products and Other segment, profitable U.S.
acquisitions (mainly Genie and Advance Mixer) made during the three
year period but not available for the whole period, the timeframe of
expiration of the Net Operating Loss carry-forwards, favorable impact
of Terex's debt reduction activities and the indication of an industry
recovery based on trends in non-residential construction spending and
rental channel capital expenditure projections. Terex concluded that
the weight of the objective negative evidence, available at the time
of the original financial statement filing in early 2004 (without the
benefit of current hindsight), could not be overcome, therefore a full
valuation allowance is required as of December 31, 2003. Terex
performed a similar assessment at December 31, 2004 and concluded that
the available evidence including the positive 2004 U.S. performance
and significant increase in backlog provided sufficient evidence of
the future earnings potential to conclude that the U.S. deferred tax
assets would "more likely than not" be realized. Therefore, the
valuation allowance established as of December 31, 2003 was reversed
in fiscal year ended December 31, 2004.
Safe Harbor Statement
The press release contains forward-looking information based on
Terex's current expectations. Because forward-looking statements
involve risks and uncertainties, actual results could differ
materially. Such risks and uncertainties, many of which are beyond
Terex's control, include among others: until the SEC investigation and
the previously announced review by Terex of its accounts is concluded,
no assurance can be given with respect to the financial statement
adjustments, impacts and periods resulting from such reviews; and
other factors, risks, uncertainties more specifically set forth in
Terex's public filings with the SEC. Actual events or the actual
future results of Terex may differ materially from any forward looking
statement due to those and other risks, uncertainties and significant
factors. The forward-looking statements speak only as of the date of
this release. Terex expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-looking
statement included in this release to reflect any changes in Terex's
expectations with regard thereto or any changes in events, conditions,
or circumstances on which any such statement is based.
Terex Corporation is a diversified global manufacturer with 2004
net sales of approximately $5 billion. Terex operates in five business
segments: Terex Construction, Terex Cranes, Terex Aerial Work
Platforms, Terex Materials Processing & Mining, and Terex
Roadbuilding, Utility Products and Other. Terex manufactures a broad
range of equipment for use in various industries, including the
construction, infrastructure, quarrying, recycling, surface mining,
shipping, transportation, refining, utility and maintenance
industries. Terex offers a complete line of financial products and
services to assist in the acquisition of Terex equipment through Terex
Financial Services. More information on Terex can be found at
www.terex.com.
CONTACT: Terex Corporation
Tom Gelston, Director - Investor Relations
203-222-5943
SOURCE: Terex Corporation