SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

PPG Industries Inc – ‘8-K/A’ for 1/2/08

On:  Friday, 2/29/08, at 2:18pm ET   ·   For:  1/2/08   ·   Accession #:  1193125-8-43398   ·   File #:  1-01687

Previous ‘8-K’:  ‘8-K’ on / for 1/17/08   ·   Next:  ‘8-K’ on 3/18/08 for 3/13/08   ·   Latest:  ‘8-K’ on 4/23/24 for 4/18/24

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 2/29/08  PPG Industries Inc                8-K/A:2,9   1/02/08    2:936K                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K/A       Amendment No. 1 to Form 8-K                         HTML    761K 
 2: EX-23       Consent of Pricewaterhousecoopers Accountants N.V.  HTML      7K 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)    January 2, 2008

PPG INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:    (412) 434-3131

Not Applicable

(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:

Table of Contents

2

Explanatory Note

As reported in a Current Report on Form 8-K filed by PPG Industries Inc. (“PPG” or “the Company”) on January 2, 2008, PPG completed the acquisition of SigmaKalon (BC) Holdco B.V. (“SigmaKalon”) on January 2, 2008. Pursuant to Item 9.01, this Form 8-K/A amends the initial Form 8-K and is being filed in order to include the audited historical financial statements of SigmaKalon and the related pro forma financial information that were excluded from the initial Form 8-K as permitted by Item 9.01 of Form 8-K. In accordance with Securities Exchange Act Rule 12b-15, the complete text of Items 2.01 and 9.01 as amended are set forth below.

On January 2, 2008, PPG completed the acquisition of SigmaKalon, a worldwide coatings producer based in Uithoorn, Netherlands, from global private investment firm Bain Capital. SigmaKalon produces architectural, protective, marine and industrial coatings and operates 22 major manufacturing facilities as well as a number of smaller facilities across Europe and other key markets around the world. SigmaKalon sells architectural coatings directly to professional painters through a combination of approximately 500 company-owned stores, approximately 3,000 independent distributors, home centers, paint dealers and directly to customers.

The total transaction value, including assumed debt, was approximately €2.2 billion (US$3.2 billion), consisting of cash paid to the seller of $1,673 million and debt assumed of $1,517 million. The cash paid to the seller consisted of €717 million ($1,056 million) and $617 million. The Company funded the acquisition through issuance of commercial paper and by borrowings under its three year €650,000,000 revolving credit facility with several banks and financial institutions and Societe Generale, as facility agent for the lenders, and a bridge loan agreement in the amount of €1,000,000,000 with multiple lenders and Credit Suisse, as administrative agent for those lenders.

A copy of the Company’s press release announcing completion of the acquisition was attached as Exhibit 99 to the Company’s initial 8-K filed January 2, 2008, and is incorporated by reference herein.

(a) Financial statements of business acquired

The following historical financial information of SigmaKalon (BC) Holdco B.V. is attached to this Current Report and is incorporated by reference in this Item 9.01.

3

(b) Pro forma financial information.

The following pro forma financial information is attached to this Current Report and is incorporated by reference in this Item 9.01.

(d) Exhibits

SIGNATURE

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 hereunto duly authorized.

4

Report of Independent Registered Public Accounting Firm

We have audited the accompanying consolidated balance sheet of SigmaKalon (BC) Holdco B.V. and its subsidiaries as of 31 December 2007 and the related consolidated income statement, statement of changes in equity and the statement of cash flow for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 2.1, the accompanying financial statements do not include comparative figures for the prior year as required by IAS 1 “Presentation of Financial Statements”. In our opinion, inclusion of comparative figures is necessary to obtain a proper understanding of the current period’s financial statements.

In our opinion, except for the exclusion of comparative information as discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SigmaKalon (BC) Holdco B.V. and its subsidiaries at 31 December 2007 and the results of their operations and their cash flows for the year then ended in conformity with International Financial Reporting Standards as adopted by the European Union.

International Financial Reporting Standards, as adopted by the European Union, vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and the effect of such differences is presented in Note 33 to the consolidated financial statements.

Amsterdam, 19 February 2008

PricewaterhouseCoopers Accountants N.V.

5

SigmaKalon (BC) Holdco B.V.

Consolidated Balance Sheet

At December 31, 2007

The accompanying notes are an integral part of these consolidated financial statements.

6

SigmaKalon (BC) Holdco B.V.

Consolidated Balance Sheet

At December 31, 2007

The accompanying notes are an integral part of these consolidated financial statements.

7

SigmaKalon (BC) Holdco B.V.

Consolidated Income Statement

For the year ended December 31, 2007

The accompanying notes are an integral part of these consolidated financial statements.

8

SigmaKalon (BC) Holdco B.V.

Consolidated Statement of Changes in Equity

For the year ended December 31, 2007

The accompanying notes are an integral part of these consolidated financial statements.

9

SigmaKalon (BC) Holdco B.V.

Consolidated Statement of Cash Flow

For the year ended December 31, 2007

The accompanying notes are an integral part of these consolidated financial statements

10

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

(all amounts in millions of euros, unless otherwise stated)

SigmaKalon (BC) Holdco B.V. (the “Company”) and its subsidiaries (together the “Group”) develop, produce and sell decorative, protective, marine and industrial paints and coatings primarily for the European market. The Company was incorporated on December 24, 1921. On June 29, 2005 the name of the Company was changed from Veveo Coatings B.V. into SigmaKalon (BC) Holdco B.V.

The Company is a limited liability company domiciled in the Netherlands. The address of its registered office is Amsterdamseweg 14, 1422 AD Uithoorn.

The Company’s primary ultimate shareholder is SigmaKalon Luxco S.C.A. in Luxembourg, which is held by certain affiliates of Bain Capital Ltd. (“the Partners”), private investments firms located in Boston, United States of America.

These consolidated financial statements are presented in euros, since that is the currency in which the majority of the Group’s transactions are denominated.

These consolidated financial statements have been approved by the Board of Directors on February 19, 2008.

As of January 2, 2008 the Company has been purchased by PPG Industries, Inc., a global supplier of paints, coatings, chemicals, optical products, specialty materials, glass and fiber glass, located in Pittsburgh, Pennsylvania, U.S.A. .

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied in the years presented, unless otherwise stated.

These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU (“IFRS”), except that the consolidated financial statements do not include comparative figures for the prior year as required by IAS 1 “Presentation of Financial Statements”. The purpose of these financial statements is to meet the reporting requirements of Rule 3-05 of Regulation S-X.

IFRS 1, First-time adoption of International Financial Reporting Standards, has been applied in preparing these financial statements. These are the first consolidated financial statements for the Group and the first to be prepared in accordance with IFRS.

The policies set out below have been consistently applied to all years presented except for those set out below relating to the classification and measurement of financial instruments. The Group has elected to measure its assets and liabilities at the carrying amounts, based on SigmaKalon Luxco S.C.A. (the “Parent”) date of transition.

11

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of derivative financial instruments at fair value through the income statement.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.

Interpretations and amendments to published standards effective in 2007

The following amendments to published standards are mandatory for the Group’s accounting periods beginning on or after January 1, 2007:

Standards, amendments and interpretations effective in 2007 but not relevant The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after January 1, 2007, but are not relevant to the Group’s operations:

12

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group

The following new standards and interpretations have been published that are mandatory for the Group’s accounting periods beginning on or after January 1, 2008 or later periods, but that the Group has not early adopted:

13

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

Standards and interpretations to published standards that are not yet effective and not relevant for the Group’s operations

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

The interest of minority shareholder’s in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognized.

Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(b) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognized at cost.

14

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in equity is recognized in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c) Joint ventures

Joint ventures are all entities in which the Group has joint control, generally accompanying a shareholding of 50% of the voting rights. Joint ventures are accounted for by the equity method of accounting and are initially recognized at cost.

The Group’s share of its joint ventures’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in equity is recognized in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint venture.

Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

15

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

16

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

17

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

18

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

A business segment is a group of assets and operations engaged in providing products that are subject to risks and returns that are different from those of other business segments.

A geographical segment is engaged in providing products within a particular economic environment that are subject to risks and returns that are different from those of other geographical segments.

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in euros, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing on the balance sheet date and non-monetary assets and liabilities that are denominated in foreign currencies are translated at the appropriate historical rates. Gains and losses arising on exchange are included in net profit or loss for the period, except when deferred in equity as qualifying cash flow hedges.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

19

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognized as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity. When a foreign operation is sold, such exchange differences are recognized in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated at their historical cost less accumulated depreciation and impairment charges. Historical cost includes expenditures that are directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.7).

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement.

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of

20

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is tested annually for impairment and stated at historical cost less accumulated impairment charges.

(b) Trademarks

Trademarks that have an indefinite useful life are tested annually for impairment and stated at historical cost less accumulated impairment charges.

One of the Group’s trademarks has a definite useful life. It is stated at historical cost less accumulated amortization and impairment charges. Amortization is calculated using the straight-line method to allocate the cost of the trademark over its estimated useful life (3 years).

(c) (Un)patented technology

(Un)patented technology has a definite useful life and is stated at historical cost less accumulated amortization and impairment charges. Amortization is calculated using the straight-line method to allocate the cost of (un)patented technology over its estimated useful life (2-10 years).

(d) Noncontractual customer relationship

Noncontractual customer relationship has a definite useful life and is stated at historical cost less accumulated amortization and impairment charges. Amortization is calculated using the straight-line method to allocate the cost of the noncontractual customer relationship over its estimated useful life (5 years).

(e) Computer software and licenses

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (3-5 years).

Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Software development costs that will probably generate economic benefits exceeding costs beyond one year are recognized as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads.

Computer software development costs recognized as assets are amortized over their estimated useful lives (5 years).

Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash

21

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (“cash-generating units”).

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount and an impairment loss is recognized in the income statement immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, limited to the amount of the original write-down. A reversal of an impairment loss is not allowed for goodwill. A reversal of an impairment loss for all other assets is recognized as income immediately.

The Group classifies its financial assets in the following categories: at fair value through profit or loss or loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are classified as held for trading, unless they are designated as hedges. Assets in this category are classified as current assets.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables are classified as trade and other receivables in the balance sheet and cash and cash equivalents.

Regular purchases and sales of financial assets are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. For all financial assets not carried at fair value through profit or loss, investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortized cost using the effective interest method.

22

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within finance cost-net, in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of other income when the Group’s right to receive payments is established.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Impairment testing of trade receivables is described in Note 2.11.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group designates certain derivatives as either: (1) hedges of the fair value of recognized assets or liabilities or a firm commitment or (2) hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transactions (cash flow hedges).

For cash flow hedges, the Group determines at inception of the transaction if the relationship between the hedging instruments and the hedged items qualifies for hedge accounting and if so, whether hedge accounting will be applied.

If hedge accounting is applied, the Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in Note 11. Movements on the hedging reserve in shareholders’ equity are shown in Note 16. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

23

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

(a) Derivatives at fair value through profit and loss

Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any of these instruments are recognized directly in the income statement within finance cost-net.

(b) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. No derivatives have been designated as hedges of the fair value of recognized asset or liability or a firm commitment

(c) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement within operating profit.

For hedges on forecasted sales transactions, amounts accumulated in equity are recycled as sales in the income statement in the periods when the hedged item affects profit or loss.

However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

Vendor rebates in the form of volume or other purchase discounts of which it is probable that the rebate will be earned, and the amount can be estimated reliably, are reflected in the carrying value of the inventory when earned and as a component of cost of goods sold when the inventory is sold.

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A

24

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (for example, more than 180 days after date of invoice) are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognized in the income statement within selling and distribution expenses. The carrying amount of the asset is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against selling and distribution expenses in the income statement.

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Ordinary shares are classified as equity.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

Borrowings are recognized initially at their fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs incurred for the construction of any qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the year in which they occur.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

25

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

(a) Pension obligations

In accordance with the laws and practices of each country, the Group participates in pension and early retirement schemes. These plans provide benefits based on various factors such as length of service, salaries and contributions paid.

In addition to mandatory social arrangements, plans can either be defined contribution or defined benefit pension plans and may be entirely or partially funded with investments made in various non Group instruments such as mutual funds and securities.

For defined contribution plans, expenses correspond to the contributions paid.

The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the income statement over the employees’ expected average remaining working lives.

26

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

Past service costs are recognized immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period.

For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.

(b) Jubilee awards and post-retirement healthcare benefits

Certain employees of the Group are entitled to jubilee awards. Jubilee awards are paid to employees upon completion of a certain number of years of service.

A number of companies in the Group provide post-retirement healthcare benefits to their retirees. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period.

Jubilee awards and post-retirement healthcare benefits are not funded.

The expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for defined benefit pension plans. Actuarial gains and losses arising from experience adjustments, and changes in actuarial assumptions, are charged or credited to the income statement in the year that they arise. These obligations are valued annually by independent qualified actuaries.

(c) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to their present value.

(d) Profit-sharing and bonus plans

The Group recognizes a liability and expenses for bonuses and profit-sharing. The Group recognizes a provision where it is contractually obliged or where there is a past practice that has created a constructive obligation.

Provisions for environmental costs, warranty costs, restructuring costs and legal claims are recognized when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the

27

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

obligation; and the amount can be reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

The Group recognizes provisions for costs related to restructuring measures. These costs comprise of lease termination penalties, an onerous property lease contract and employment termination payments. Provisions for restructuring costs are recognized when the Group has a detailed formal plan for the restructuring that has been communicated to affected parties. Payments falling due more than 12 months after balance sheet date are discounted to their present value at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Provisions for warranty costs are recognized at the date of sale of the relevant products, at the management’s best estimate of the outflow required to settle the Group’s liability.

No provisions are recognized for future operating losses.

Revenue comprises of the fair value for the sale of goods, net of value-added tax, rebates and discounts and after elimination of sales within the Group. Revenue is recognized as follows:

(a) Sale of goods

Revenue from product sales is recognized at the time the product is shipped or delivered, significant risks and rewards of ownership of the goods have been transferred to the customer and collectibility of the related receivables is reasonably assured. Upon shipment, the Group also provides for the estimated costs that may be incurred for product warranties.

(b) Royalty income

Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreements.

(c) Dividend income

Dividend income is recognized when the right to receive payment is established.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s inception at the lower of the fair value of the leased property and the present value

28

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are separately presented on the face of the balance sheet. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the lease term or, if ownership of the asset transfers, over the useful life of the assets.

Research costs are expensed as incurred. Development costs are recognized as intangible assets when it is probable that future economic benefits associated with the developed item will flow to the Group and the cost and future economic benefits of the item can be measured reliably. All other development costs are expensed as incurred.

The Group is involved in environmental investigation and remediation activities at some of its current and former sites. The estimated future costs for environmental obligations are accrued for and classified under provisions for other liabilities and charges when commitments or clean-up plans have been developed and the remediation cost can be reasonably estimated based on industry standards and historical experience. When it is not possible to predict the outcome of the pending environmental exposures, such exposures are disclosed as contingent liabilities. All accrued amounts are recorded on a discounted basis, where the effect of the time value of money is material.

Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk), credit risk, liquidity risk and cash flow interest-rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by a central treasury department (“Group Treasury”) under policies approved by the Chief Financial Officer. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the Group’s operating units. The policies provide written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use of derivative financial instruments and investing excess liquidity.

29

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the UK pound and the US dollar. Foreign exchange risk arises from commercial transactions, recognized assets and liabilities and net investments in foreign operations.

Management has set up a policy to require group companies to manage their transactional foreign exchange risk. Foreign exchange risk arises when future cash flows generated by recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. The group companies are required to hedge their foreign exchange risk exposure to the extent possible with legal entities centrally managed by Group Treasury, alternatively with local affiliates of international, reputable banks. The residual exposure at Group Treasury level arising from its hedging activities with the subsidiaries is then combined by currency with the assets and liabilities arising from the cash management activities located in a cross currency notional cash pool.

Acting as an in-house bank, Group Treasury also manages a large array of intercompany loans in the adequate amounts of foreign currencies to optimize cash repatriation in order to reduce foreign exchange risk on outstanding cash balances in foreign currencies. In addition, a part of the Group’s senior debt is denominated in foreign currencies in order to match foreign exchange exposures.

The specific foreign exchange risk arising from long term contracts is hedged by relevant entities in the Group by means of forward contracts transacted with local banks. Such forward contracts are managed to match the highly probable cash flows arising from signed contracts. The Group applies cash flow hedge accounting on the US dollar denominated contracts entered into by its Korean subsidiary and one of its Chinese subsidiaries.

Group Treasury’s risk management policy is to hedge between 75% and 100% of anticipated cash flows (mainly sales and purchase of inventory which are not denominated in functional currency) in each major foreign currency. Approximately 90% of projected sales in each major currency qualify as ‘highly probable’ forecast transactions for hedge accounting purposes.

Each subsidiary designates contracts with Group Treasury as fair value hedges or cash flow hedges, as appropriate. External foreign exchange contracts are designated at group level as hedges of foreign exchange risk on specific assets, liabilities or future transactions on a net basis.

At December 31, 2007, if the UK pound and the US dollar would have weakened respectively strengthened by 10 % against the euro with all other variables held constant, post-tax profit for the year and equity as per year-end would have been € 3 higher respectively lower, mainly as a result foreign exchange results on translation of UK pound denominated borrowings.

30

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

(ii) Commodity risk

The Group is exposed to limited commodity price risk, mainly in solvents, biocides and functional pigments. As these risks are relatively modest in comparison with the whole raw materials portfolio, the Group’s risk management policy is to contain the price volatility risk principally within its relationships with suppliers and customers. The Group does not use the futures markets and any forward purchase is normally limited to no more than 3 months’ stock of minor materials that can readily be absorbed into the costing structure.

(iii) Cash flow interest-rate risk

The Group has no significant interest-bearing assets. The Group’s interest-rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow risk, whereas borrowings issued at fixed rates expose the Group to fair value risk. Group policy is to fix through interest rate swaps a substantial part of the long term debt service requirements. As of December 31, 2007, more than 64 % of such funding requirements were at fixed rates.

The Group manages its cash flow interest-rate risk by using floating-to-fixed interest-rate swaps. Such interest-rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly.

At December 31, 2007, if interest rates on the Group’s floating interest rate assets and liabilities would have been 10 basis points higher/lower with all other variables held constant, post-tax profit for the year would have been € 0 lower/higher:

(b) Credit risk

Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions.

The majority of the excess cash balances are daily pooled and deposited at ABN AMRO N.V. (Moody’s: AA2 rating). Derivatives are only concluded with banks that have at least an A rating.

31

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

There is no significant concentration of credit risk with respect to customers, as the Group has a large number of internationally dispersed customers. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilization of credit limits is regularly monitored.

The Group has a collective credit insurance for the receivables of subsidiaries in six countries. This insurance policy covers insolvency and protects against default from solvent clients, and includes additional coverage when credit limit requests have been performed by the insurer. This credit insurance policy allows the subsidiaries to sell to customers, safeguarding the Group against the consequences of customer insolvency and non-payment. This protection can give a competitive advantage because it allows the Group to increase credit lines to customers.

On a monthly basis, management analyses the ageing and impairment of trade receivables.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available.

Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow.

The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows including interest. The majority of the Group’s borrowings are subject to floating interest rates payments, for which the Group has concluded interest rate swap contracts to hedge these borrowings against changes in interest rates. Until December 31, 2007, the floating rate borrowings were repriced every 3 months and the interest rate swap contracts every 6 months. As of January 2, 2008 all interest rate swaps have been settled in cash with a bank (see Note 32).

32

SigmaKalon (BC) Holdco B.V.

Notes to the Consolidated Financial Statements

The Group’s liquidity is also subject to compliance with certain financial covenants based on debt coverage by earnings before interest, taxes, depreciation and amortization (‘EBITDA’) and interest cover ratios. On a monthly basis, management reviews these ratios. Management assesses the risk of breach of such ratios to be immaterial due to their relative stability combined with a substantial margin between actual and contractual ratios on a historical basis.

Following the acquisition of the Group on January 2, 2008 by PPG Industries, Inc. the existing credit facility has been redeemed at that date and replaced by intercompany loans from the new ultimate shareholder. As a consequence of this redemption the credit facility has been classified as short-term.

The Group’s objectives when managing capital are: