Braj Aggarwal, CPA, P.C. Certified Public Accountant 115 North Broadway Hicksville, NY Phone Fax:

Transcription

1 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY STANDALONE FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2017 Braj Aggarwal, CPA, P.C. Certified Public Accountant 115 North Broadway Hicksville, NY Phone Fax:

2 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY TABLE OF CONTENTS Report of independent Auditor 1-2 Financial Statements: Balance Sheets 4-5 Statements of Operations 6 Statements of Changes in Stockholders Equity 7 Statements of Cash Flows 8 Notes to Financial Statements 9-17

3 Braj Aggarwal, CPA, P.C. Certified Public Accountant REPORT OF INDEPENDENT AUDITOR To the Board of Managers Periama Holdings, LLC Baytown Texas We have audited the financial statements of Periama Holdings, LLC (a Delaware Corporation) which comprise the balance sheets as of March 31, 2017, and related statements of operations, changes in member s capital and cash flows for the periods then ended and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidences we have obtained are sufficient and appropriate to provide a basis for our audit opinion.

4 Basis for Qualified Opinion 1. As discussed in Note A to these financial statements, which are for Periama Holdings, LLC a Delaware entity stand alone financial statements, the Company reports its investment in JSW Steel (USA), Inc., a 90 percent owned subsidiary, and Periama Holdings, Inc., a 100 percent owned subsidiaries on the cost method of accounting. These financial statements do not consolidate the financial position or results of operations from its subsidiaries in accordance with Generally Accepted Accounting Principles accepted in the United States of America and are not intended to be a full presentation under generally accepted accounting principles. In our opinion, disclosure of this information is required by accounting principles generally accepted in the United States of America. 2. Paragraph as per US GAAP which reflects accounting for restructuring establishes that the assets and liabilities transferred between entities under common control are to be initially recognized by the receiving entity at the transfer date. The financial statements of the receiving entity shall report results of operations for the period in which the transfer occurs as though the transfer of net assets or exchange of equity interests had occurred at the beginning of the period. Financial statements and financial information presented for prior years also shall be retrospectively adjusted to furnish comparative information. The special purpose financial statements of Periama Holdings LLC a Delaware entity has been prepared without giving effect of para under US GAAP. Opinion In our opinion, except for point number 1 and 2 as discussed in the Basis for Qualified Opinion paragraph, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Periama Holdings, LLC as of March 31, 2017, and the results of its operations and its cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America. Braj Aggarwal, CPA, P.C. Hicksville, New York May 30, North Broadway Hicksville, NY Phone: Fax:

5 FINANCIAL STATEMENTS

6 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY BALANCE SHEETS March 31, 2017 Assets Current Cash and cash equivalents $ 41,177 Accounts receivables: Intercompany receivable 559,980 Intercompany interest receivable 44,089,897 Others 23,265 Deferred tax assets 20,055,858 Total current assets 64,770,176 Intercompany loans receivable from subsidiaries 391,942,808 Deferred tax assets noncurrent 46,362,543 Capitalized loan cost, net of amortization 4,126,195 Investment in JSW Steel (USA) 165,235,473 Investment in WV operations 86,807, ,042,747 Total assets 759,244,468 See notes to financial statements 4

7 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY BALANCE SHEETS March 31, 2017 Liabilities and Stockholders' Equity Current liabilities Accounts payable trade $ 26,275 Interest payable financial institutions 8,035,953 Interest payable related party and affiliates 183,204 Interest payable intercompany 57,217,436 Loans payable intercompany 239,164,400 Current portion of Long Term notes payable to banks 240,000,000 Current portion of notes payable other 3,350,716 Total current liabilities 547,977,983 Long term debt, net of current portions: Notes payable bank 200,000,000 Total long term debt 200,000,000 Total liabilities 747,977,983 Stockholders' Equity Membership Interest 14,350,100 Accumulated Deficit (3,083,615) Total Stockholders' Equity 11,266,485 Total liabilities and stockholders' equity (deficit) 759,244,468 See notes to financial statements 5

8 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY STATEMENTS OF OPERATIONS March 31, 2017 Revenue $ Selling, general and administrative expenses 102,800 Operating loss (102,800) Other income (expenses): Interest income 185,561 Interest expense (357,881) Total other income/(expenses), net (172,320) Loss before income taxes (275,120) Income taxes Deferred income tax expense Total income taxes Net loss $ (275,120) See notes to financial statements 6

9 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY STATEMENT OF RETAINED EARNINGS PERIOD ENDED MARCH 31, 2017 JSW Steel Holding (USA) Incorporated Periama Holdings LLC (WEST VIRGINIA) Periama Holdings LLC (DELAWARE) Balances at March 31, ,778,819 9,802, ,581,755 Adjustments to Balance March 31, 2016: Common Stock (10) (10) Addi onal Paid incapital Common Stock (190,058,090) (190,058,090) Loan to Periama Holding LLC (WV) impairment reversed (10,991,716) (10,991,716) Investment in Periama Holdings LLC (DE) written back Adjusted Balance at 3/31/16 544,729,103 9,802, ,532,039 (Profit) / loss from April 1, 2016 to March 28, 2017 (549,481,915) (2,241,629) (551,723,544) Adjusted opening balance at March 28, 2017 (4,752,812) 7,561,307 2,808,495 (Profit) / loss from March, to March 31, ,120 Retained Earnings at March 31, ,083,615 See notes to financial statements 7

10 PERIAMA HOLDINGS, LLC A DELAWARE ENTITY STATEMENTS OF CASH FLOWS PERIOD ENDED March 31, 2017 Cash Flows From Operating Activities: Net loss (275,120) Adjustments to reconcile net loss to net cash used in operating activites: Provision for deferred income taxes (66,418,401) Owner's Interest on loans written back Owner's Loans written back Changes in operating assets and liabilities: Intercompany receivables (559,980) Intercompany interest receivables (44,089,897) Other current assets (23,265) Accounts payable 26,275 Interest payable- financial institutions 8,035,953 Interest payable- related party 183,204 Interest payable- intercompany 57,217,436 Net cash used by operating activities (45,903,795) Cash Flows From Financing Activities: Proceeds from notes payable banks 440,000,000 Proceeds from other Long Term Payables - St. James 3,350,716 Proceeds from intercompany loans - JSW Steel Ltd. India 239,164,400 Interco Loans to Subsidiaries (391,942,808) Investments in JSW Steel (USA) and WV Operations (252,042,747) Capitalized loan cost (4,126,195) Membership Interest funded by owners 11,541,605 Net cash provided by financing activities 45,944,971 Net decrease in cash and cash equivalents 41,177 Cash and cash equivalents at beginning of year - Cash and cash equivalents at end of year 41,177 See notes to financial statements 8

11 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 A. Organization Organization and Operations During the year, Periama Holdings, LLC (the Company ) has been incorporated in the state of Delaware. The Company is 99.9 percent owned by JSW Steel Netherlands B.V and 0.1 percent owned by JSW Steel Ltd., India. On March , Periama Holdings, LLC (a West Virginia entity) merged with the Company. On March 28, 2017, JSW Steel Holding (USA), Inc., a Delaware corporation, 99.9 percent owned by JSW Steel Netherlands B.V and 0.1 percent owned by JSW Steel Ltd., India, has transferred all of its assets and liabilities to the Company. JSW Steel Holding (USA), Inc. was dissolved immediately thereafter. B. Restructuring As part of the Company s efforts to restructure and consolidate its US operations and holding structure, the Company has implemented a reorganization which broadly entailed (i) a write back of loans (ii) Transfer of assets and liabilities on 28th of March 2017 of JSW Steel Holding (USA) Inc. to its wholly owned subsidiary company, Periama Holding LLC in US; and (iii) Dissolution of JSW Steel Holding (USA) Inc on the same day. Additionally, to improve the administration and making the US organization leaner to be more effective, control of its coal mining operations as well as its manufacturing facilities of steel plates and pipes have been consolidated with an entity, the office of which has effectively been relocated from the State of West Virginia to the State of Delaware by merging Periama Holdings LLC (wholly owned subsidiary of JSW Steel Holding (USA) Inc.) in the State of West Virginia with Periama Holdings LLC (Wholly owned subsidiary of JSW Steel Holding (USA) Inc.) in the state of Delaware on 16th of March Part of the loans and related dues from owners (members) amounting to $ million have been written back and these amounts have been reflected as an unusual and/or infrequent item in the Statement of Operations. The assets and liabilities of JSW Steel Holding (USA) Inc. have been transferred to Periama Holdings LLC at their carrying values and JSW Steel Holding (USA) was dissolved during the year. 9

12 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 C Going Concern The Company s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company engages in business activities that involve various risks, and future success is dependent upon a number of factors including, among others, generating sufficient revenues, the market demand and price for the Company s products, the price of raw materials and the availability of required working capital. The Company incurred a net loss of $ 0.28 million during the period ended March 31, 2017 Through its subsidiaries, the Company has adopted a plan to increase volumes by increasing its market share, thereby reducing unit cost through greater absorption of fixed costs over increased volume. Further, the company plans to reduce its cost by improving quality and other cost control initiatives. The Company is dependent upon its ultimate parent company, JSW Steel Ltd. India to continue providing financial support as done in the past for the Company to continue until it achieves profitable operations. JSW Steel, Ltd. India will continue to provide need based support to the Company as required to continue operations. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. D Summary of Significant Accounting Policies The consolidated financial statements are prepared under accounting principles generally accepted in the United States of America ( GAAP ), except that the subsidiaries of the Company are recorded on the cost basis and not consolidated in these financial statements. The following notes describe the significant accounting policies: Use of Estimates The preparation of consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include estimated future life in determining current depreciation rates under the depreciation method, estimated amounts for uncollectible accounts receivables and 10

13 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 the estimated present value of the Company s note payable to seller. Actual results could differ from those estimates. Federal Income Taxes The Company records income taxes pursuant to the liability method. Deferred tax assets and liabilities are recorded based upon differences between the financial statement and tax bases of assets and liabilities and the available tax carry forwards. For tax purposes buildings, property and equipment will carry the same book value for federal taxes as carried by the entities before the merger. The difference between the tax basis and financial statement basis is a temporary timing difference and has been recorded as a deferred tax liability for financial statement purposes. The Company files as consolidated tax return with its subsidiaries that are included in the consolidated tax return. Accordingly, the Company is allocated income taxes as if it were separate taxpayer Tax positions are evaluated in a two step process. The Company first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more likely than not threshold, it is then measured to determine the amount of expense to record in the financial statements. The tax position is measured as the largest amount of expense that is greater than 50 percent likely to be realized upon settlement. The Company classifies any potential accrued interest recognized on an underpayment of income taxes as interest expense and classifies any statutory penalties recognized on a tax position taken as operating expense. Management of the Company has not taken a tax position that, if challenged, would be expected to have a material effect on the consolidated financial statements or the effective tax rate for the period ended March 31, The Company s federal income tax returns since 2008 are subject to examination by the Internal Revenue Service. Fair Value of Financial Instruments The fair value of financial instruments classified as current assets or liabilities, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate carrying value, principally because of the short maturity of those items. 11

14 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 Cash and Cash Equivalents Cash equivalents include time deposits, certificates of deposits, sweep account and all highly liquid debt instruments with original maturities of three months or less. Restricted amounts of cash and cash equivalent are segregated and appropriately classified as current or noncurrent asset. Restricted Investments and Bond Collateral The Company had requirements to maintain restricted cash and investments (time deposits) for bonding requirements. Amounts held were recorded as Restricted Investments. Funds in the restricted investment were not available to meet the Company s operating cash needs. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash. The Company maintains cash balances at financial institutions, which may at times be in excess of federally insured levels. The Company has not incurred losses related to these balances to date. Capitalized Loan Costs The Company incurred costs to obtain certain loans. These costs have been deferred and are being amortized to interest expense over the related maturities of the loans. The deferred financing costs included on the balance sheet at March 31, 2017 of $4.13 million represents the remaining unamortized cost. E. Debt from Related Party Minority Shareholder The debt due to a related party was $3,350,716 as of March 31, 2017 bears interest rate equal to the weighted average of interest charged on term loan facilities availed by JSW Steel (USA), Inc. The note is unsecured. 12

15 F. Debts PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 On February 19, 2013, JSW Steel Holding (USA) Inc. had entered into a term loan agreement with ANZ Banking Group of Singapore for $40,000,000. The note had been renewed for the period until Feb. 17, On Feb. 17, 2017, JSW Steel Holding (USA) Inc. paid this $40 million loan in full along with the accrued interest thereon. Therefore, on March 31, 2017 the Company did not have any liability on this term loan. This loan was secured by corporate guarantee furnished by JSW Steel Limited, India. In October 2013 JSW Steel Holding (USA), Inc. entered into a loan agreement with the State Bank of India for $400,000,000. The note has an interest rate of LIBOR plus 2.42%. At March 31, 2017 the interest rate was 3.68%. The note is secured through an unconditional and irrevocable standby letter of credit to the bank based on guarantee by JSW Steel, Ltd. India. On November 3, 2014, JSW Steel Holding (USA), Inc. entered into a credit facility agreement with ICICI Bank UK PLC, Frankfurt Branch for $40 million. The loan bears interest at LIBOR plus 3.05% p.a. At March 31, 2017 the interest rate was 3.93%. The loan is secured by a guarantee issued by the ultimate parent JSW Steel Limited. The loan is further secured by a second charge on the assets of company s 90% subsidiary. The loan is repayable in 3 equal installments commencing from the end of 4th year of drawdown. In October 2014, JSW Steel Holding (USA), Inc. entered into a standby letter of credit (SBLC) facility with ICICI, NY for $40 million. This facility was secured by a corporate guarantee issued by JSW Steel Limited. In addition to above, in December 2014 the company entered into a SBLC facility for an additional $40 million secured by interest bearing cash collateral of equal amount. Both of the above SBLC facilities were availed in December 2014 to issue two irrevocable SBLCs of $40 million each, to secure a surety bond of $80 million posted by company s 90% subsidiary in defending an antitrust law suit filed in the United States District Court for the Southern District of Texas. During the year , the company has been awarded an adverse judgment for the law suit filed in the United States District Court for the Southern District of Texas. The company paid judgment amount as per the court s order. Thereafter, original SBLCs were returned to ICICI NY and respective corporate guarantee of JSW Steel Limited pertaining to issuing of first $40 million SBLC by ICICI NY and cash collateral of $40 million held by ICICI NY pertaining to second SBLC of $40 million, were released. 13

16 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 Debt was composed of the following: March 31, 2017 Short Term Debts Notes payable to a bank Notes payable to related party 3,350,716 3,350,716 Long Term Debts Notes payable to a bank 440,000,000 Notes payable to related party Total long term debt 443,350,716 Less current portion 243,350,716 Long term debts, net of current portion 200,000,000 The Debts will mature as follows: Fiscal year Ending Mar. 31, Related Party Banks Total ,350, ,000, ,350, ,666,667 66,666, ,666,667 66,666, ,666,666 66,666,666 3,350, ,000, ,350,716 14

17 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 G. Intercompany, Related Party and Affiliates Disclosure Information Intercompany balances relate to loans and other transactions between the Company and its stockholders including JSW Steel Ltd., India and JSW Steel (Netherlands) BV. The following details intercompany balances at: March 31, 2017 Intercompany Receivables Accounts receivable from Sales JSW Steel Ltd., India 32,688 Accounts receivable from JSW UK 527, ,980 Intercompany Loans Receivables Interest receivable from Periama Holdings, LLC (WV) Interest receivable from JSW Steel (USA), Inc. Intercompany Interest Receivables Interest receivable from Periama Holdings, LLC (WV) Interest receivable from JSW Steel (USA), Inc. 44,089,897 Intercompany Payables Accounts payable due to JSW Steel (USA), Inc. Interest payable JSW (Netherlands) B.V. Interest payable JSW Steel Ltd., India 57,217,436 Corp. Guarantee Com. Payable JSW Steel Ltd., India SBLC commission payable JSW Steel Ltd., India 57,217,436 Intercompany Loans Payable JSW Steel Netherlands BV Notes payable to JSW Steel Ltd., India 239,164,400 Intercompany Loans Payable 239,164,400 15

18 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 Related Party affiliates The Company has loans from one of the shareholders JSW Steel (USA), Inc. The loan amounts due to this shareholder are subordinated to bank loans. March 31, 2017 Notes payable to St. James Investments Ltd. 3,3350,716 Interest payable to St. James Investments Ltd. Interest expense St. James Investments Ltd. H Income Taxes The Company s deferred tax liabilities, and deferred tax assets at March 31, 2017 are as follows: March 27, 2017 Deferred tax assets/benefits related to: Net operating loss carry forward 46,362,543 Interest not currently deductible 20,055,858 Total deferred tax assets / benefits 66,418,401 Total deferred tax liability Net deferred assets / benefits (liability) 66,418,401 For Financial Statement Presentation, the net current and long term deferred taxes are as follows: March 31, 2017 Deferred tax assets current 20,055,858 Deferred tax assets non current 46,362,543 I Contingencies A Houston, Texas jury returned a verdict on March 25, 2014 against JSW Steel Holding (USA), Inc. the Company, along with other co defendants, in an antitrust lawsuit filed in the United States District Court for the Southern District of Texas. The jury returned a verdict of $52 million in damages against all defendants jointly and severally, which amount has been trebled under the federal antitrust laws and to which has been added an award of attorneys fees. The Company disagreed with the judgment and damages award and filed an appeal with the U.S. Court of Appeals for the Fifth Circuit. 16

19 PERIAMA HOLDINGS, LLC (STADALONE) NOTES TO FINANCIAL STATEMENTS Period ended March 31, 2017 The Company posted a surety bond in the amount of $80 million in December In order to secure reimbursement of that surety bond, two irrevocable standby letters of credit (SBLC) were issued by ICICI, New York. Those two letters of credit total $80 million were set to expire December 3, Three of the original co defendants settled the case, leaving the Company and one other defendant to appeal. The Court of Appeals affirmed the judgment against the Company and reversed the judgment against the remaining defendant. The Company strongly disagreed with the decision of the Court of Appeals and planned to appeal in US Supreme Court. On October 31, 2016, the United States Supreme Court declined to hear an appeal of the decision of the Fifth Circuit Court of Appeals. The Fifth Circuit Court of Appeals had upheld the judgment of the Federal District Court in the case of MM Steel, L.P. v. JSW Steel (USA) Inc. and several other defendants. JSW Steel (USA) respectfully disagrees and is disappointed with the decision of the Supreme Court. There were no further appeals available and this matter is therefore concluded. J Subsequent Events Subsequent events have been evaluated through May 30, 2017, which is the date on which the financial statements were available to be issued. As of the date of this report, there are no reportable events other than the events already disclosed above where appropriate. 17