UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 6, 2006
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WHX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 1-2394 13-3768097
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
555 Theodore Fremd Avenue
Rye, New York 10580
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 925-4413
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N/A
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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".
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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.
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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.
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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
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Robert K. Hynes
Chief Financial Officer
