Defined Benefit Plans

6 Months Ended

Jun. 30, 2013

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 and the assumptions used to determine net periodic pension cost for these plans for the three and six month periods ended June 30, 2013 and 2012 are as follows:

	United Kingdom Plans						German Plan
	Three Months Ended June 30						Three Months Ended June 30
	2013			2012			2013		2012
Components of Net Periodic Pension Cost:
Service cost	$	458		$	584		$	192	$	184
Interest cost	1,951			1,934			151		171
Expected return on plan assets	(2,484		)	(2,581		)	—		—
Amortization of net actuarial loss	153			294			56		8
Net periodic pension cost	$	78		$	231		$	399	$	363

	United Kingdom Plans						German Plan
	Six Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Components of Net Periodic Pension Cost:
Service cost	$	922		$	1,163		$	386		$	370
Interest cost	3,931			3,850			304			344
Expected return on plan assets	(5,005		)	(5,138		)	—			—
Amortization of net actuarial loss	309			586			113			16
Net periodic pension cost	$	157		$	461		$	803		$	730
Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	4.60		%	4.60		%	3.50		%	5.40		%
Expected rate of return on assets	5.30		%	5.90		%	n/a			n/a
Salary increases	3.60		%	4.00		%	2.00		%	2.50		%

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 six month periods ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Components of Net Periodic Pension Cost:
Service cost	$	377		$	370		$	754		$	739
Interest cost	181			194			362			388
Amortization of prior service credit	(30		)	(30		)	(60		)	(59		)
Amortization of net actuarial loss	142			67			284			134
Net periodic pension cost	$	670		$	601		$	1,340		$	1,202
Assumptions Used to Determine Net Periodic Pension Cost:
Discount rate	3.20		%	4.30		%	3.20		%	4.30		%
Salary increases	3.25		%	3.75		%	3.25		%	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 six month periods ended June 30, 2013 and 2012 are as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2013			2012			2013			2012
Components of Net Periodic Post-retirement Benefit Cost:
Service cost	$	18		$	24		$	36		$	48
Interest cost	59			73			119			146
Amortization of net actuarial loss	—			10			—			19
Net periodic post-retirement benefit cost	$	77		$	107		$	155		$	213
Assumptions Used to Determine Net Periodic Post-retirement Benefit Cost:
Discount rate	3.60		%	4.60		%	3.60		%	4.60		%
Health care cost trend rate	7.50		%(a)	8.00		%	7.50		%(a)	8.00		%

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