Terex Announces New Restatement

The construction-equipment maker dug up the new problems while gauging the tax implications of its first restatement.
Stephen TaubSeptember 9, 2005

After previously reporting that accounting issues were requiring it to restate its results for the four years ended 2003—and later announcing that the Securities and Exchange Commission had opened an investigation into that restatement—Terex Corp. announced Friday that new accounting matters are forcing it to restate its results for the first two quarters of 2004.

The construction-equipment maker stated that it discovered the new problems while computing the tax implications for its first restatement. The company had re-evaluated its U.S. deferred-tax asset to find out if that 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.

The assessment is required to be made without current hindsight, precluding the company from considering the later profitability of Terex’s U.S. operations in 2004 and 2005, according to the company.

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The results of the assessment showed that a valuation allowance was needed to cut Terex’s net U.S. deferred tax asset as of December 31, 2003. Because of the valuation allowance, the company reported, its provision for taxes in the quarters ended March 31, 2004 and June 30, 2004 will be later reversed, thereby increasing net income in those periods by about $2.4 million and $7.4 million, respectively. This led the company’s audit committee to decide that the company would need to revise its results for those two quarters.

In January, the company said that “material weaknesses” existed in its internal control over financial reporting concerning the recording of certain inter-company transactions. In its Friday announcement, Terex said it found added material weaknesses.

For example, the company did not maintain effective controls, including monitoring, over the financial-reporting process because it didn’t have people with the requisite knowledge of U.S. GAAP, or adequate experience and training. Further, the company didn’t maintain sufficient supporting documentation for certain income tax account balances, including periodic reconciliations, which contributed to the failure to file in a timely way.

Terex added that during 2004 and 2005, it has taken and will continue to take many steps toward remediating the material weaknesses. The measure would include, among other things, changing reporting relationships within its financial organization, boosting its accounting staff with the requisite U.S. GAAP background , and implementing certain new accounting practices and controls.

Meanwhile, Terex said it is “working diligently” to file its financial statements for the year ended December 2004 and prior periods with the Securities and Exchange Commission by the September 15, 2005 bank-waiver expiration date.