LONG-TERM EMPLOYEE BENEFITS

Defined Benefit Pension and Other Long-Term Employee Benefits Plans

Successor period

Defined Benefit Pensions

In connection with the Acquisition, we assumed certain defined benefit plan obligations for both current and former employees of our non-U.S. subsidiaries. All defined benefit pension plan obligations for current and former employees in the U.S. were retained by DuPont.

The defined benefit obligations for remaining current employees of non-U.S. subsidiaries assumed by Axalta were carved out of defined benefit pension plans retained by DuPont, where required. We created new defined benefit pension plans for all effected participants. The Acquisition Agreement required DuPont to transfer assets generally in the form of cash, insurance contracts or marketable securities from DuPont’s funded defined benefit pension plans to our defined benefit pension plans.

During the Predecessor period, DuPont had accounted for the benefit obligations of all the defined benefit plans as though the employees were participants in a multiemployer plan in the Predecessor period. For multiemployer plans, ASC 805, Business Combinations, requires an obligation to the plan for a portion of its unfunded benefit obligations to be established at the acquisition date when withdrawal from the multiemployer plan is probable. As withdrawal from the DuPont defined benefit pension plan and related transfer of plan assets was required pursuant to the Acquisition Agreement, an estimate of the unfunded benefit obligations were recorded as of the Acquisition date. All plan assets, where applicable, have been directly transferred to the respective plans' pension trusts. Accordingly, assumed defined benefit obligations are presented net of the plan assets.

Other Long-Term Employee Benefits

We also assumed in connection with the Acquisition certain long-term employee health care and life insurance benefits for certain eligible employees. These programs require retiree contributions based on retiree-selected coverage levels for certain retirees.

Predecessor period

DuPont offered various long-term benefits to its employees. DuPont offered U.S. plans that were shared amongst its businesses. In these cases, the costs, assets, and liabilities of participating employees in these plans are reflected in the Predecessor combined financial statements as though DPC participated in a multiemployer plan. The total cost of the plan was determined by actuarial valuation and the business received an allocation of the cost of the plan based upon several factors, including a percentage of salaries, headcount and fixed costs.

For the non-U.S. plans, the Predecessor combined financial statements were prepared as though the DPC employees who participated in the non-U.S. plans were considered separate plans. As such a portion of DuPont’s liabilities, assets and expenses were included in the Predecessor combined financial statements.

Defined Benefit Pensions

DuPont had both funded and unfunded noncontributory defined benefit pension plans covering a majority of the U.S. employees hired before January 1, 2007, including U.S. employees of DPC. The benefits under these plans were based primarily on years of service and employees’ pay near retirement. DuPont’s funding policy was consistent with the funding requirements of federal laws and regulations.

Pension coverage for employees of DuPont’s non-U.S. subsidiaries was provided, to the extent deemed appropriate, through separate plans. Obligations under such plans were funded by depositing funds with trustees, covered by insurance contracts, or were unfunded.

Other Long-Term Employee Benefits

DuPont and certain subsidiaries provided medical, dental and life insurance benefits to pensioners and survivors, and disability and life insurance protection to employees. The associated plans for retiree benefits were unfunded and the cost of the approved claims was paid from DuPont funds. Essentially all of the cost and liabilities for these retiree benefit plans were attributable to DuPont’s U.S. plans. The retiree medical plan was contributory with pensioners and survivors’ contributions adjusted annually to achieve a 50/50 target sharing of cost increases between DuPont and pensioners and survivors. In addition, limits were applied to DuPont’s portion of the retiree medical cost coverage. U.S. employees hired after December 31, 2006 were not eligible to participate in the postretirement medical, dental and life insurance plans.

Employee life insurance and disability benefit plans were insured in many countries. However, primarily in the U.S., such plans were generally self-insured or were fully experience rated. Expenses for self-insured and fully experience rated plans are reflected in the Predecessor combined financial statements.

Participation in the U.S. Plans

DPC participated in DuPont’s U.S. plans as though they were participants in a multiemployer plan with the other businesses of DuPont. The following table presents pension expense allocated by DuPont to DPC for DuPont’s significant plans in which DPC participated.



		Predecessor
Plan Name	EIN/Pension Number	January 1, 2013 through January 31, 2013
DuPont Pension and Retirement Plan	51-0014090/001	$	4.2
All Other Plans		$	0.7

Obligations and Funded Status

The measurement date used to determine defined benefit and other long-term employee benefit obligations was December 31. The following table sets forth the changes to the projected benefit obligations ("PBO") and plan assets for the Successor years ended December 31, 2015 and 2014 and the funded status and amounts recognized in the accompanying consolidated balance sheets at December 31, 2015 and 2014 for the Company’s defined benefit pension and other long-term benefit plans:



	Defined Benefits						Other Long-Term Employee Benefits
	Successor						Successor
	Year Ended December 31,						Year Ended December 31,
Obligations and Funded Status	2015			2014			2015			2014
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	613.1		$	603.0		$	0.1		$	4.6
Service cost	12.0			15.4			—			0.1
Interest cost	16.9			22.9			—			0.1
Participant contributions	0.9			1.0			—			—
Actuarial losses (gains)—net	(12.0		)	85.8			—			1.1
Plan curtailments and settlements	(4.7		)	(16.3		)	(0.1		)	—
Benefits paid	(27.4		)	(30.1		)	—			—
Amendments	2.7			(4.3		)	—			(5.7		)
Currency translation adjustment	(59.8		)	(64.3		)	—			(0.1		)
Projected benefit obligation at end of year	541.7			613.1			—			0.1
Change in plan assets:
Fair value of plan assets at beginning of year	294.5			281.3			—			—
Actual return on plan assets	6.0			26.5			—			—
Employer contributions	31.1			40.9			0.1			—
Participant contributions	0.9			1.0			—			—
Benefits paid	(27.4		)	(30.1		)	—			—
Settlements	(4.7		)	(2.7		)	(0.1		)	—
Currency translation adjustment	(22.0		)	(22.4		)	—			—
Fair value of plan assets at end of year	278.4			294.5			—			—
Funded status, net	$	(263.3	)	$	(318.6	)	$	—		$	(0.1	)
Amounts recognized in the consolidated balance sheets consist of:
Other assets	$	0.2		$	0.1		$	—		$	—
Other accrued liabilities	(11.2		)	(12.4		)	—			—
Accrued pension and other long-term employee benefits	(252.3		)	(306.3		)	—			(0.1		)
Net amount recognized	$	(263.3	)	$	(318.6	)	$	—		$	(0.1	)

The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation ("ABO") is the actuarial present value of benefits attributable to employee service rendered to date, but does not include the effects of estimated future pay increases.

The following table reflects the ABO for all defined benefit pension plans as of December 31, 2015 and 2014. Further, the table reflects the aggregate PBO, ABO and fair value of plan assets for pension plans with PBO in excess of plan assets and for pension plans with ABO in excess of plan assets.



	Successor
	Year Ended December 31,
	2015		2014
ABO	$	500.1	$	559.4
Plans with PBO in excess of plan assets:
PBO	$	537.1	$	606.2
ABO	$	495.7	$	553.2
Fair value plan assets	$	273.7	$	287.5
Plans with ABO in excess of plan assets:
PBO	$	532.0	$	602.0
ABO	$	492.7	$	550.9
Fair value plan assets	$	270.3	$	285.1

The pre-tax amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss include the following:



Defined Benefits:	Successor
	Year Ended December 31,
	2015			2014
Accumulated net actuarial losses	$	(48.3	)	$	(52.6	)
Accumulated prior service credit	1.5			4.3
Total	$	(46.8	)	$	(48.3	)



Other Long-Term Employee Benefits:	Successor
	Year Ended December 31,
	2015		2014
Accumulated net actuarial losses	$	—	$	(0.4	)
Accumulated prior service credit	—		4.1
Total	$	—	$	3.7

The accumulated net actuarial losses for pensions and other long-term employee benefits relate primarily to differences between the actual net periodic expense and the expected net periodic expense resulting from differences in the significant assumptions, including return on assets, discount rates, compensation and healthcare trends, used in these estimates. For individual plans in which the accumulated net actuarial losses exceed 10% of the higher of the market value of plan assets or the PBO at the beginning of the year, amortization of such excess has been included in net periodic benefit costs for pension and other long-term employee benefits. The amortization period is the average remaining service period of active employees expected to receive benefits unless a plan is mostly inactive in which case the amortization period is the average remaining life expectancy of the plan participants. Accumulated prior service credit is amortized over the future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive benefits.

The estimated pre-tax amounts that are expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2016 for the defined benefit plans and other long-term employee benefit plans is as follows:



	2016
	Defined Benefits			Other Long-Term Employee Benefits
Amortization of net actuarial losses	$	(0.4	)	$	—
Amortization of prior service credit	0.1			—
Total	$	(0.3	)	$	—

Components of Net Periodic Benefit Cost

The following table sets forth the pre-tax components of net periodic benefit costs for the Successor years ended December 31, 2015, 2014, and 2013 and the Predecessor period from January 1, 2013 through January 31, 2013.



	Pension Benefits
	Successor									Predecessor
	Year Ended December 31,									Period from January 1, 2013 through January 31,
	2015			2014			2013			2013
Components of net periodic benefit cost and amounts recognized in other comprehensive (income) loss:
Net periodic benefit cost:
Service cost	$	12.0		$	15.4		$	17.0		$	1.6
Interest cost	16.9			22.9			21.2			1.8
Expected return on plan assets	(14.6		)	(14.8		)	(11.9		)	(1.9		)
Amortization of actuarial (gain) loss, net	0.4			(0.3		)	—			1.1
Amortization of prior service credit	(0.1		)	—			—			—
Curtailment gain	—			(7.3		)	—			—
Settlement loss	0.5			0.1			—			—
Net periodic benefit cost	15.1			16.0			26.3			2.6
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net actuarial (gain) loss, net	(3.4		)	60.6			(10.6		)	—
Amortization of actuarial gain (loss), net	(0.4		)	0.3			—			(1.1		)
Prior service (credit) cost	2.7			(4.3		)	(0.4		)	—
Amortization of prior service credit	0.1			—			—			—
Curtailment gain	—			7.3			—			—
Settlement loss	(0.5		)	(0.1		)	—			—
Other adjustments	—			(4.9		)	0.6			—
Total (gain) loss recognized in other comprehensive income	(1.5		)	58.9			(10.4		)	(1.1		)
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	13.6		$	74.9		$	15.9		$	1.5



	Other Long-Term Employee Benefits
	Successor									Predecessor
	Year Ended December 31,									Period from January 1, 2013 through January 31,
	2015			2014			2013			2013
Components of net periodic benefit (gain) cost and amounts recognized in other comprehensive (income) loss:
Net periodic benefit (gain) cost:
Service cost	$	—		$	0.1		$	0.2		$	—
Interest cost	—			0.1			0.2			—
Amortization of actuarial loss, net	—			0.1			—			—
Amortization of prior service credit	(3.7		)	(1.4		)	—			—
Settlement loss	0.3			—			—			—
Net periodic benefit (gain) cost	(3.4		)	(1.1		)	0.4			—
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net actuarial (gain) loss	—			(4.6		)	(0.7		)	—
Amortization of actuarial gain (loss)	—			(0.1		)	—			—
Prior service benefit	—			—			—			—
Amortization of prior service credit	3.7			1.4			—			—
Settlement loss	(0.3		)	—			—			—
Other adjustments	0.3			—			0.1			—
Total (gain) loss recognized in other comprehensive income	3.7			(3.3		)	(0.6		)	—
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	0.3		$	(4.4	)	$	(0.2	)	$	—

Significant Events

During the Successor year ended December 31, 2014, we recorded a curtailment gain of $7.3 million within selling, general and administrative expenses due to an amendment to one of our pension plans. In addition, amendments to our long-term employee benefit plans resulted in increases to accumulated other comprehensive income of $12.0 million at December 31, 2014. These amounts will continue to be recognized in earnings over the remaining future service periods of active participants.

Assumptions

We used the following assumptions in determining the benefit obligations and net periodic benefit cost:



	Successor
	2015		2014		2013
Pension Benefits
Weighted-average assumptions:
Discount rate to determine benefit obligation	3.05	%	3.23	%	4.11	%
Discount rate to determine net cost	3.23	%	4.11	%	4.15	%
Rate of future compensation increases to determine benefit obligation	3.03	%	3.57	%	3.52	%
Rate of future compensation increases to determine net cost	3.57	%	3.52	%	3.69	%
Rate of return on plan assets to determine net cost	5.21	%	5.23	%	5.22	%



	Successor
	2015		2014		2013
Other Long-Term Employee Benefits
Weighted-average assumptions:
Discount rate to determine benefit obligation	—	%	1.50	%	4.80	%
Discount rate to determine net cost	1.50	%	4.80	%	4.20	%
Rate of future compensation increases to determine benefit obligation	—		—		—	%
Rate of future compensation increases to determine net cost	—		—		—	%

The discount rates used reflect the expected future cash flow based on plan provisions, participant data and the currencies in which the expected future cash flows will occur. For the majority of our defined benefit pension obligations, we utilize prevailing long-term high quality corporate bond indices applicable to the respective country at the measurement date. In countries where established corporate bond markets do not exist, we utilize other index movement and duration analysis to determine discount rates. The long-term rate of return on plan assets assumptions reflect economic assumptions applicable to each country and assumptions related to the preliminary assessments regarding the type of investments to be held by the respective plans.

Estimated future benefit payments

The following reflects the total benefit payments expected to be paid for defined benefits:



Year ended December 31,	Benefits
2016	$	28.3
2017	$	25.5
2018	$	26.8
2019	$	30.0
2020	$	26.9
2021—2025	$	166.1

There are no future benefit payments expected to be paid for other long-term employee benefits as this plan was effectively settled at December 31, 2015.

Plan Assets

The defined benefit pension plans for our subsidiaries represent single-employer plans and the related plan assets are invested within separate trusts. Each of the single-employer plans is managed in accordance with the requirements of local laws and regulations governing defined benefit pension plans for the exclusive purpose of providing pension benefits to participants and their beneficiaries. Pension plan assets are typically held in a trust by financial institutions. Our asset allocation targets established are intended to achieve the plan’s investment strategies.

Equity securities include varying market capitalization levels. U.S. equity investments are primarily large-cap companies. Fixed income investments include corporate issued, government issued and asset backed securities. Corporate debt investments include a range of credit risk and industry diversification. Other investments include real estate and private market securities such as insurance contracts, interests in private equity, and venture capital partnerships.

Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The Company’s investment strategy in pension plan assets is to generate earnings over an extended time to help fund the cost of benefits while maintaining an adequate level of diversification for a prudent level of risk. The table below summarizes the weighted average actual and target pension plan asset allocations at December 31 for all funded Axalta defined benefit plans.



Asset Category	2015	2014	Target Allocation
Equity securities	30-35%	35-40%	30-35%
Debt securities	35-40%	35-40%	35-40%
Real estate	0-5%	0-1%	0-5%
Other	20-25%	20-25%	20-25%

The table below presents the fair values of the defined benefit pension plan assets by level within the fair value hierarchy, as described in Note 3, at December 31, 2015 and 2014, respectively.



	Fair value measurements at December 31, 2015
	Total		Level 1		Level 2		Level 3
Asset Category:
Cash and cash equivalents	$	2.8	$	2.8	$	—	$	—
U.S. equity securities	23.6		23.6		—		—
Non-U.S. equity securities	70.3		69.8		0.4		0.1
Debt—government issued	64.8		53.0		11.8		—
Debt—corporate issued	44.4		37.7		4.5		2.2
Hedge Funds	0.2		0.2		—		—
Private market securities	63.8		0.4		0.1		63.3
Real estate investments	8.5		—		—		8.5
Total	$	278.4	$	187.5	$	16.8	$	74.1



	Fair value measurements at December 31, 2014
	Total		Level 1		Level 2		Level 3
Asset Category:
Cash and cash equivalents	$	4.4	$	4.4	$	—	$	—
U.S. equity securities	16.1		16.1		—		—
Non-U.S. equity securities	79.2		78.7		0.4		0.1
Debt—government issued	36.9		36.3		0.6		—
Debt—corporate issued	55.3		53.0		—		2.3
Hedge Funds	0.2		0.1		0.1		—
Private market securities	63.2		0.1		0.1		63.0
Real estate investments	0.4		—		—		0.4
	255.7		$	188.7	$	1.2	$	65.8
Pension trust receivables	38.8
Total	$	294.5

Level 3 assets are primarily insurance contracts pledged on behalf of employees with benefits in certain countries, ownership interests in investment partnerships, trusts that own private market securities, real estate investments, and other debt and equity investments. The fair values of our insurance contracts are determined based on the present value of the expected future benefits to be paid under the contract, discounted at a rate consistent with the related benefit obligation. Our real estate investments are primarily comprised of investments in commercial property funds externally valued using third party pricing methodologies, which are not actively traded on public exchanges. Debt and equity investments consist primarily of small investments in other investments that are valued at different frequencies based on the value of the underlying investments. The table below present a roll forward of activity for these assets for the years ended December 31, 2015 and 2014.



	Level 3 assets
	Total			Private market securities			Debt and Equity			Real estate investments
Ending balance at December 31, 2013	$	59.6		$	59.3		$	—		$	0.3
Realized (loss)	—			—			—			—
Change in unrealized gain	0.2			—			—			0.2
Purchases, sales, issues and settlements	6.0			3.7			2.4			(0.1		)
Transfers in/(out) of Level 3	—			—			—			—
Ending balance at December 31, 2014	$	65.8		$	63.0		$	2.4		$	0.4
Realized (loss)	—			—			—			—
Change in unrealized gain	(5.2		)	(5.2		)	(0.1		)	0.1
Purchases, sales, issues and settlements	13.5			5.5			—			8.0
Transfers in/(out) of Level 3	—			—			—			—
Ending balance at December 31, 2015	$	74.1		$	63.3		$	2.3		$	8.5

Assumptions and Sensitivities

The discount rate is determined as of each measurement date, based on a review of yield rates associated with long-term, high-quality corporate bonds. The calculation separately discounts benefit payments using the spot rates from a long-term, high-quality corporate bond yield curve.

The long-term rate of return assumption represents the expected average rate of earnings on the funds invested to provide for the benefits included in the benefit obligations. The long-term rate of return assumption is determined based on a number of factors, including historical market index returns, the anticipated long-term asset allocation of the plans, historical plan return data, plan expenses and the potential to outperform market index returns. The expected long-term rate of return on assets was 5.21% for 2015. For 2016, the expected long-term rate of return is 4.75%.

Anticipated Contributions to Defined Benefit Plan

For funded pension plans, our funding policy is to fund amounts for pension plans sufficient to meet minimum requirements set forth in applicable benefit laws and local tax laws. Based on the same assumptions used to measure our benefit obligations at December 31, 2015 we expect to contribute $17.2 million to our defined benefit plans during 2016. No plan assets are expected to be returned to the Company in 2016. No contributions to our other long-term employee benefit plans are expected during 2016 as the plan was effectively settled at December 31, 2015

Defined Contribution Plans

The Company sponsors defined contribution plans in both its US and non-US subsidiaries, under which salaried and certain hourly employees may defer a portion of their compensation. Eligible participants may contribute to the plan up to the allowable amount as determined by the plan of their regular compensation before taxes. All contributions and Company matches are invested at the direction of the employee. Company matching contributions vest immediately and aggregated to $36.7 million and $35.9 million for the Successor years ended December 31, 2015 and 2014, respectively.