Item 4.02. NON-RELIANCE ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED AUDIT REPORT OR COMPLETED INTERIM REVIEW. On December 6, 2006, the Audit Committee of the Board of Directors (the "Audit Committee") of WHX Corporation (the "Company") concluded for the matters described below that its previously issued financial statements covering fiscal year 2003 and prior years, as well as the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, should no longer be relied upon. The Audit Committee has discussed with the Company's independent accountant, PricewaterhouseCoopers LLP, the matters described below. FINANCIAL STATEMENTS COVERING FISCAL 2003 As part of its filing of its 2005 Annual Report on Form 10-K, the Company has restated its 2003 and prior years' financial statements to correct its accounting for goodwill impairment, certain tax matters and other corrections, including its accounting for derivative financial instruments (specifically futures contracts on precious metals), and its accounting for an executive life insurance program, as well as its reporting of investment borrowing transactions in its 2003 statement of cash flows. GOODWILL IMPAIRMENT In fiscal 2003 the Company previously recorded a goodwill impairment charge of $89.0 million relating to several of its reporting units. In connection with the preparation of its 2004 financial statements, the Company identified several errors in its assessment of goodwill impairment resulting in the need to restate its 2002 and 2003 consolidated financial statements, including: (1) the reallocation of goodwill, upon the date of adoption of Statement of Financial Accounting Standards ("SFAS") 142, "Goodwill and Other Intangible Assets", to the applicable reporting units of the Company based on a more reasonable and supportable methodology; (2) identification of additional reporting units not previously considered; (3) use of different discount rates that more appropriately considered the different risks associated with the individual reporting units rather than the overall consolidated rate; (4) identification of certain intangible assets that were not previously considered in determining the implied goodwill as of the assessment date; and (5) use of a growth rate in determining the terminal value of a reporting unit, which the Company did not consider in its original valuations. The effect of correcting these errors was to reduce the goodwill impairment charge, loss from continuing operations and net loss by $21.7 million for the year ended December 31, 2003. An adjustment to increase opening accumulated deficit by $15.8 million was recorded in 2003 to record the effects of corrections to previously reported goodwill impairments. Although not part of this restatement, the Company believes it is important to note that an additional goodwill impairment charge of $79.8 million was recorded for the year ended December 31, 2004. TAX MATTERS As of December 31, 2002, the Company had included $5.3 million in its deferred tax assets related to the recording of an additional minimum pension liability. As of December 31, 2003, the Company established a valuation allowance for all deferred tax assets, and incorrectly charged $5.3 million to other comprehensive loss for the valuation allowance related to the deferred tax asset associated with the minimum pension liability. The Company now believes that in accordance with the provisions of SFAS 109, "Accounting for Income Taxes", the charge to other comprehensive loss should have been a charge to income tax expense. Accordingly, the net loss for 2003 has been increased by $5.3 million and accumulated other comprehensive loss and accumulated deficit as of December 31, 2003 were decreased and increased by the same amount, respectively. As a result of the Company's review of deferred taxes, federal taxes, state taxes payable and tax reserves (federal and state), certain errors were identified related to 2003 and prior periods. The effect of these errors on 2003 is an increase in tax expense of $12.0 million, including the $5.3 million adjustment to comprehensive loss discussed above. The Company had established a valuation allowance against its net deferred tax asset as of December 31, 2003. As part of the 2003 restatement, the Company increased its valuation allowance to reflect $1.1 million of deferred tax liabilities that cannot be considered when assessing the realizability of deferred tax assets in certain jurisdictions. These deferred tax liabilities primarily relate to temporary differences for the tax amortization of tax-deductible goodwill. In addition, the Company increased its valuation allowance by $4.6 million for additional federal deferred tax assets that were recorded as part of the restatement for 2002 and prior periods, but required a valuation allowance as of December 31, 2003. The Company also increased its valuation allowance to reflect $0.6 million and $0.1 million of state and foreign deferred tax liabilities, respectively, that it had inappropriately netted against federal deferred tax assets in its previously issued 2003 financial statements. The balance of the restatement for 2003 tax matters relates primarily to state tax issues. Deferred taxes relating to hedge accounting and related inventory accounts, and the executive life restatement were also recorded and are included in the adjustments discussed above. The goodwill restatement items are non-deductible and accordingly have no impact on tax matters. As of December 31, 2003, tax restatement matters resulted in a $3.0 million decrease to accrued liabilities, a $1.9 million increase to net deferred tax liabilities, a $5.3 million decrease to other comprehensive loss, and a $1.7 million decrease to goodwill. The reduction in accrued liabilities includes the reversal of a $1.7 million tax reserve attributable to Handy & Harman prior to its acquisition by the Company. The reversal of this reserve reduced goodwill by the same amount. Additionally, an adjustment to decrease accumulated deficit was recorded at January 1, 2003 for a tax benefit of $6.3 million for corrections to periods prior to 2003. INVESTMENT BORROWINGS During fiscal 2003 and 2002, the Company frequently traded in U.S. Treasury securities which were classified as short-term investments and were considered trading securities under SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Accordingly, the Company recorded the activity in these trading investments as operating cash flows. As of December 31, 2002, the Company had short-term margin borrowings, aggregating $107.9 million, which were borrowed to fund these short-term investments. The Company has determined that it incorrectly recorded changes in such borrowings as cash flows from operating activities when such borrowings should have been reported as cash flows from financing activities in accordance with SFAS 95, "Statement of Cash Flows". 2 The effect of correcting these errors in 2003 was an increase in cash flows provided by operating activities of $107.9 million, and an increase in cash flows used in financing activities for the same amount. This restatement had no effect on the 2003 net change in cash for the period. OTHER CORRECTIONS HEDGE ACCOUNTING/INVENTORY In order to produce certain of its products, the Company purchases, maintains and utilizes precious metals inventory. The Company maintains policies consistent with economically hedging its precious metals inventory against price fluctuations. Hedge accounting under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", requires contemporaneous documentation at the inception of the applicable hedging relationship, including the method for assessing the hedging instrument's effectiveness as well as the method that will be used to measure hedge ineffectiveness. The Company did not meet the documentation criteria necessary to apply hedge accounting. Accordingly, the Company has restated its financial statements to mark to market the derivative instruments related to precious metals. Such mark to market adjustments are recorded in current period earnings as other income or expense in the Company's consolidated statement of operations. In addition, the Company has restated its financial statements to record its precious metal inventory at LIFO cost, subject to lower of cost or market with any adjustments recorded through cost of goods sold. The correction of this error results in an increase to fiscal 2003 cost of goods sold of $0.3 million and other expense of $0.2 million for an aggregate increase to loss from continuing operations before taxes of $0.5 million. There is no impact on the 2003 balance sheet as all precious metal and hedges were liquidated during 2003. However, as of December 31, 2002 inventory was reduced by $5.8 million, other current assets increased by $0.5 million and accounts payable decreased by $5.8 million. Accordingly, these 2002 balance sheet changes resulted in equivalent changes in the 2003 statement of cash flows. An adjustment to decrease opening accumulated deficit by $0.5 million was recorded in 2003 for the effects of errors prior to 2003. LIFE INSURANCE ACCRUAL The Company has an Executive Post-Retirement Life Insurance Program which provides for life insurance benefits for certain Company executives upon their retirement. The insurance premium is paid by the Company. The Company accounted for the cost of this program since its inception in 1998 on a pay as you go basis and did not follow the guidance as required by SFAS 106 "Employers' Accounting for Post-Retirement Benefits Other Than Pensions." Under SFAS 106, the Company is required to recognize in its financial statements an annual cost and benefit obligation related to estimated future benefit payments to be made to its current and retired executives. Accordingly, the Company recorded an increase to the 2003 opening accumulated deficit of $0.7 million for the effects of errors prior to 2003 and a decrease in operating expenses in the year ended December 31, 2003 of $0.1 million to reflect a partial curtailment with respect to this plan. 3 THE FINANCIAL STATEMENTS COVERING THE QUARTERS ENDED MARCH 31, 2004, JUNE 30, 2004 AND SEPTEMBER 30, 2004 The Company is also restating its previously issued unaudited consolidated financial statements for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004 (the "Quarter Restatement"). The Quarter Restatement will be given full effect in the financial statements to be included in the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005, when they are filed. In addition to the details of the corrections described above, the 2004 quarters ended June 30 and September 30 have been corrected for an error in the timing of and amount recognized with respect to certain long-lived assets impairments under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". MATERIAL WEAKNESSES The Company has reported in its 2005 Annual Report on Form 10-K that there are material weaknesses for the fiscal years ended December 31, 2004 and 2005, which continued through December 2006 with respect to its controls over the accounting for goodwill impairment, income taxes, environmental remediation liability reserves, impairment of long-lived assets, derivatives and hedging activity, and investment borrowings. 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 27, 2006 WHX CORPORATION By: /s/ Robert K. Hynes ------------------------------- Robert K. Hynes Chief Financial Officer