Defined Benefit Plans

9 Months Ended

Sep. 30, 2012

Defined Benefit Plans

Defined Benefit Plans

6.  Defined Benefit Plans

Covance sponsors various pension and other post-retirement benefit plans.

Defined Benefit Pension Plans

Covance sponsors two defined benefit pension plans for the benefit of its employees at two United Kingdom subsidiaries and one defined benefit pension plan for the benefit of its employees at a German subsidiary, all of which are legacy plans of previously acquired companies.  Benefit amounts for all three plans are based upon years of service and compensation.  The German plan is unfunded, while the United Kingdom plans are funded.  Covance’s funding policy has been to contribute annually a fixed percentage of the eligible employee’s salary at least equal to the local statutory funding requirements.  Pension plan assets are administered by the plans’ trustees and are principally invested in equity and debt securities.

The components of net periodic pension cost for these plans for the three and nine month periods ended September 30, 2012 and 2011 are as follows:

	United Kingdom Plans						German Plan
	Three Months Ended September 30						Three Months Ended September 30
	2012			2011			2012			2011
Components of Net Periodic Pension Cost:
Service cost	$	582		$	1,083		$	177		$	201
Interest cost	1,925			2,023			165			157
Expected return on plan assets	(2,569		)	(2,549		)	—			—
Amortization of net actuarial loss	293			325			7			28
Expected participant contributions	—			(498		)	—			—
Net periodic pension cost	$	231		$	384		$	349		$	386
Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	4.60		%	5.20		%	5.40		%	4.60		%
Expected rate of return on assets	5.90		%	6.50		%	n/a			n/a
Salary increases	4.00		%	4.50		%	2.50		%	2.50		%

	United Kingdom Plans						German Plan
	Nine Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011
Components of Net Periodic Pension Cost:
Service cost	$	1,745		$	3,331		$	547		$	625
Interest cost	5,775			6,225			509			487
Expected return on plan assets	(7,707		)	(7,843		)	—			—
Amortization of net actuarial loss	879			999			23			88
Expected participant contributions	—			(1,532		)	—			—
Net periodic pension cost	$	692		$	1,180		$	1,079		$	1,200
Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	4.60		%	5.20		%	5.40		%	4.60		%
Expected rate of return on assets	5.90		%	6.50		%	n/a			n/a
Salary increases	4.00		%	4.50		%	2.50		%	2.50		%

In the third quarter of 2012, the Company remeasured its German defined benefit pension plan liability due to a reduction in plan participants resulting from cost reduction actions taken at its Muenster, Germany toxicology facility. The measurement resulted in a $5.4 million net increase to the liability, which reflects a $6.1 million actuarial loss, partially offset by a curtailment gain of $0.7 million. The actuarial loss is due primarily to a 190 basis point reduction in the discount rate, which decreased from 5.40% at December 31, 2011 to 3.50% at September 30, 2012. The curtailment gain reflects the impact of the reduction in plan participants as a result of the Muenster cost actions. The actuarial loss and curtailment gain were recognized as a component of accumulated other comprehensive income, net of tax of $1.9 million and $0.2 million, respectively.

Supplemental Executive Retirement Plan

In addition to these foreign defined benefit pension plans, Covance also has a non-qualified Supplemental Executive Retirement Plan (“SERP”).  The SERP, which is not funded, is intended to provide retirement benefits for certain executive officers of Covance.  Benefit amounts are based upon years of service and compensation of the participating employees.

The components of net periodic pension cost for the three and nine month periods ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011
Components of Net Periodic Pension Cost:
Service cost	$	369		$	320		$	1,108		$	961
Interest cost	194			174			582			521
Amortization of prior service credit	(30		)	(30		)	(89		)	(89		)
Amortization of net actuarial loss	68			74			202			221
Net periodic pension cost	$	601		$	538		$	1,803		$	1,614
Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	4.30		%	4.40		%	4.30		%	4.40		%
Salary increases	3.75		%	3.75		%	3.75		%	3.75		%

Post-Employment Retiree Health and Welfare Plan

Covance also sponsors a post-employment retiree health and welfare plan for the benefit of eligible employees at certain U.S. subsidiaries who retire after satisfying service and age requirements.  This plan is funded on a pay-as-you-go basis and the cost of providing these benefits is shared with the retirees.

The components of net periodic post-retirement benefit cost for the three and nine month periods ended September 30, 2012 and 2011 are as follows:

	Three Months Ended September 30						Nine Months Ended September 30
	2012			2011			2012			2011
Components of Net Periodic Post-retirement Benefit Cost:
Service cost	$	25		$	30		$	73		$	89
Interest cost	72			72			218			217
Amortization of net actuarial loss	9			7			28			22
Net periodic post-retirement benefit cost	$	106		$	109		$	319		$	328
Assumptions Used to Determine Net Periodic Post- retirement Benefit Cost:
Discount rate	4.60		%	4.70		%	4.60		%	4.70		%
Health care cost trend rate	8.00		%(a)	8.50		%	8.00		%(a)	8.50		%

(a) decreasing to ultimate trend of 5.00% in 2018