Notes to Financial Statements
December 31, 2015 and 2014
The following description of the DaVita Retirement Savings Plan
(the Plan) provides only general information. Participants should refer to the Plan Document for a more complete description of the Plans provisions.
The Plan was established as a defined contribution plan for the benefit of
employees of DaVita HealthCare Partners Inc. (the Company). Employees become eligible to participate immediately following the date of hire and attaining the age of 18. The Plan does not cover certain classes of individuals such as leased
employees, independent contractors, nonresident aliens, employees covered under a collective bargaining agreement and employees of HealthCare Partners Holdings, LLC, a wholly-owned subsidiary of the Company, and any of its subsidiaries. The Plan is
intended to qualify under Section 401(a) of the Internal Revenue Code of 1986 (the Code), as amended and restated, and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
Conversion Transactions
Effective May 2015, the Plan changed its Trustee, Investment Manager and Recordkeeper from T. Rowe Price to Voya Institutional Trust Company
(Voya). While the majority of investment funds remained the same, the few funds that were replaced were mapped into new fund options. Certain investment funds, including DaVita HealthCare Partners Inc. Common Stock Fund, transferred the total number
of shares held in the funds on the date of conversion. Participants were notified of the mapping and given the opportunity to change their investments prior to the transfer.
Auto Enrollment
Effective May 1, 2015, all new employees of the Company will be automatically enrolled in the Plan at a pre-tax deferral rate of 4.0% upon
meeting the eligibility requirements as described above. Prior to May 1, 2015, new employees of the Company were automatically enrolled in the Plan at a pre-tax deferral rate of 3.0% upon meeting the eligibility requirements as described above.
Automatic Increase Contributions
Effective November 21, 2013, the Plan adopted a policy whereby all new employees of the Company hired on or after January 1, 2014
will become part of the Automatic Increase Contributions Program. Participants who are deferring at least one percent but no more than nine percent of Compensation per pay period will see their deferral rate increase annually by 1% each
January 1
st
until their deferral rate reaches ten percent. All eligible Participants shall receive a notice of the right to opt out of Automatic Increase Contributions before Automatic
Increase Contribution are made. If the Participant does not make an affirmative election on or before the deadline the Participants deferral percentage in effect as of December 31 of the prior Plan Year shall be increased by one percent.
Participants may elect to contribute a maximum percentage of 75% of their
eligible compensation into any one of the investment options offered by the Plan, subject to the legal limit allowed by the Internal Revenue Service (IRS) regulations. With the conversion to Voya, effective May 1, 2015, participants may elect
to contribute eligible compensation on a pre-tax basis, an after-tax (Roth) basis or a combination of both. Participants may change their election prospectively at any time.
Participants may direct their investments into the Company Common Stock Fund, certain registered investment company funds and a common
commingled trust fund as allowed under the Plan. The contributions of participants who do not make elected investment options are automatically invested into various T. Rowe Price Retirement Funds, depending upon the age of the participants.
Participants cannot direct more than 25% of their contributions into the Company Common Stock Fund.
4
DAVITA RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2015 and 2014
Participants may elect to change their contribution percentage at any time and may change
their investment elections or transfer amounts between funds daily. Participants who have attained the age of fifty before the close of the plan year are also eligible to make catch-up contributions in accordance with, and subject to, the legal
limitations of the Code.
The Company may elect to make discretionary contributions to the Plan as long as the total contributions
(including participants 401(k) contributions) do not exceed the maximum allowable deduction to the Company under the Code. There were no Company discretionary contributions made to the Plan in 2015 and 2014.
Participants may transfer rollover contributions from other qualified plans into their Plan account subject to provision under the Plan.
Rollovers must be made in cash within the time limit specified by the IRS.
The Plan recordkeeper maintains an account for each
participants contributions, allocations of Company contributions if any, rollover contributions, investment earnings and losses and Plan expenses. Company discretionary contributions, if any, are allocated to participants who (i) are not
considered highly compensated employees for the year, (ii) have elected to make contributions during the year, (iii) have completed 1000 hours of service during the year, and (iv) who are employed by the Company on the last day of the year.
Investment earnings and losses and Plan expenses are allocated to each account in the proportion that the account bears to the total of all participants accounts. Participants accounts are valued on a daily basis based on the quoted
market prices as reported by the investment funds, or the quoted market prices of the underlying securities.
Participants in the Plan will always be 100% vested in their section 401(k)
contributions, and their rollover contributions and earnings thereon. Certain employer contributions from merged plans and Company discretionary contributions, if any, vest over a five year period. Employees become fully vested upon death or
disability.
Distributions from the Plan will be paid in the form of cash or if a
participants vested balance includes the Company Common Stock Fund, they may elect to receive a distribution of those shares. Participants may receive distributions either upon termination of service, by obtaining age 59
1
⁄
2
, incurring a financial hardship, or withdrawing their rollover and
after-tax
contributions. Rollover and
after-tax
contributions may be withdrawn at any time. Employee deferral contributions may not be distributed unless the participant has attained age 59
1
⁄
2
, terminates service or upon termination of the Plan. However, unless the participant elects otherwise, distributions in cash will begin no later than sixty days after the close of the Plan year end, in which the
latest following event occurs: a participant reaches normal retirement age and obtains ten years of participation in the Plan or terminates employment. Distributions are also required to begin by April of the calendar year following the
calendar year in which the participant attains age 70
1
⁄
2
. The benefit to which a participant is entitled is the benefit that can be provided from the
participants vested account.
Terminated participants with vested balances greater than $1,000 and less than $5,000 will have their
account transferred to another qualified account. For termination of service with vested benefits of $1,000 or less, a participant may automatically receive the vested interest in his or her account in a lump sum distribution.
Distributions for financial hardship can only be made both on account of an immediate and heavy financial need, and be necessary to satisfy
that need. Participants are required to obtain Plan loans described below, before requesting a hardship distribution except if the funds are to be used as a down payment on a principal residence. Only the participants tax deferred
contributions, Roth contributions, matching contributions and rollover contributions may be distributed. Earnings and Company discretionary contributions are not eligible for distribution. Participants contributions will be suspended for at
least six months after the receipt of a hardship distribution.
In the event of death of a participant, the participants vested
account balance will be distributed to the participants beneficiary as soon as reasonably practicable.
5
DAVITA RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2015 and 2014
Excess contributions payable to participants represent amounts due
to participants for excess contributions as a result of Code limitations that will be refunded to participants subsequent to year end. These excess contributions become taxable to the participant in the year in which the participant receives the
refund of these contributions.
|
(g)
|
Notes Receivable From Participants
|
The Plan permits participants to borrow a minimum of
$1,000 from their participant accounts. Subject to certain IRS regulations and Plan limits, such notes receivable cannot exceed the lesser of 50% of the value of the participants vested account, or $50,000 reduced for any prior note receivable
outstanding.
The note receivable must be repaid generally within 5 years or within 10 years when the proceeds are used to purchase a
principal residence of the participant and bears interest at prime as stated in the Wall Street Journal on the date the note receivable is made plus 1%. The interest rates on outstanding notes receivable ranged from 3.25% to 10.50% at
December 31, 2015, with maturities through December 2038, which includes loans transferred in from the DSI Holding Company, Inc. 401(k) Savings Plan primarily related to mortgage loans. Notes receivable are secured by the vested portion of
a participants account balance.
Although it has not expressed the intent to do so, DaVita HealthCare
Partners Inc. has the right to terminate the Plan at any time subject to the provisions under ERISA. If the Plan is terminated, each participants account balance will be fully vested and distributed in a timely manner.
(2)
|
Summary of Significant Accounting Policies
|
The accompanying financial statements are prepared on the accrual
basis of accounting, in accordance with U.S. generally accepted accounting principles.
|
(b)
|
Income Recognition and Net Investment Income
|
Purchases and sales of securities are
recorded on a
trade-date
basis. Interest income is accrued when earned. Dividends are recorded on the
ex-dividend
date. The change in fair value of assets from one
period to the next and realized gains and losses are recorded as net appreciation (depreciation) in fair value of investments.
The Plans investments at December 31, 2015 and 2014 at fair
value include the value of assets including any accrued income. Investments in shares of registered investment company funds are reported at fair value based on quoted market prices (the net asset values) as reported by each investment fund. The
fair values of the common and commingled trust funds are calculated as discussed below. The Company Common Stock Fund is valued at fair value based on its
year-end
unit closing price from the New York Stock
Exchange (comprised of
year-end
market price of underlying stock plus uninvested cash position).
The T. Rowe Price Stable Value Fund B (Stable Value Fund) is a common commingled trust (CCT) fund investing primarily in guaranteed investment
contracts (GICs), synthetic GICs and US government securities. The Stable Value Fund is measured using the net asset value (NAV) practical expedient of the CCT as reported by the CCT managers. The NAV practical expedient is based on the fair value
of the underlying assets owned by the CCT, less its liabilities and divided by the number of units outstanding.
The Plan provides for
various investment fund options, which in turn invest in a combination of stocks, bonds and other investment securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility
risks. Due to the high level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts
reported in the statements of net assets available for benefits.
6
DAVITA RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2015 and 2014
|
(d)
|
Receivables Participant Contributions
|
Receivables from participant contributions
are stated at net realizable value, and represent deferrals of employees compensation that have not yet been contributed to the Plan.
|
(e)
|
Receivables Notes Receivable From Participants
|
Notes receivable from
participants are measured at their unpaid outstanding principal balance plus any accrued but unpaid interest. Interest income is recorded on the accrual basis.
Benefits are recorded when paid.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
|
(h)
|
Administrative Expenses and Investment Management Fees
|
All operational administrative
costs of the Plan are deducted from participants account balances except certain transaction costs associated with the recordkeeping of the Company Common Stock Fund which are borne by the Company. Administrative costs include trustee fees,
recordkeeping, participant reporting costs, brokerage fees, participant note receivable costs, accounting and legal fees, commissions and transactions charges. Investment management fees are paid by each respective investment fund and are deducted
in arriving at each funds overall net asset value. For the years ended December 31, 2015 and 2014, administration fees paid by the Plan were approximately $1,264,000 and $625,000, respectively.
|
(i)
|
Recently Issued Accounting Pronouncements
|
In May 2015, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-07
, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)
. This ASU removes the requirement to
categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured
at fair value using the NAV per share practical expedient. Those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The Plan elected to early adopt this ASU and has
implemented the guidance on a retrospective basis to all periods presented, therefore prior periods were retrospectively adjusted.
In July
2015, the FASB issued ASU 2015-12,
Plan Accounting
. Part I of ASU 2015-12 eliminates the requirements to measure the fair value of fully benefit-responsive investment contracts and provide certain disclosures. Contract value is the only
required measure for fully benefit-responsive investment contracts. Part II of the ASU eliminates the requirements to disclose individual investments that represent 5% or more of net assets available for benefits and the net appreciation or
depreciation in fair value of investments by general type. It also simplifies the level of disaggregation of investments that are measured using fair value. Part III of the ASU provides employee benefit plans with a measurement-date practical
expedient that is not applicable to the Plan. The ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. Management has elected to early adopt this ASU and has implemented the guidance on a
retrospective basis to all periods presented, therefore prior periods were retrospectively adjusted.
7
DAVITA RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2015 and 2014
(3)
|
Related Party and
Party-in-Interest
Transactions
|
Beginning May 1, 2015, Voya became the Trustee and Recordkeeper for the Plan. Each fund within the Plan has its own investment manager.
The transfer of assets, as well as the recordkeeping functions of the Plan qualifies as party-in-interest transactions. Prior to May 1, 2015, T. Rowe Price served as the Trustee, Investment Manager and Recordkeeper of the Plan. Transactions
with the previous Trustee also qualified as party-in-interest transactions. Additionally, the Company provided personnel and administrative functions for the Plan at no charge to the Plan. The Plan also holds shares of the Companys Common
Stock, which qualifies as a party-in-interest transaction.
The Plan was amended and restated effective January 1, 2014 to include
recent tax law changes and other statutory changes and received a favorable determination letter regarding this restatement on April 26, 2016. Since the 2014 restatement, the Plan has been amended to add certain discretionary provisions,
including the addition of Roth 401(k) contributions. Management believes that the Plan as amended is designed in accordance with the applicable sections of the Code.
The third party administrator of the DaVita Retirement Savings Plan has identified certain loan failures and filed an application under the VCP
with the IRS. The Company consented to be included in this VCP application on August 20, 2012. On April 1, 2014 the Company was notified by the third party administrator that the IRS issued a compliance statement regarding this VCP
application to maintain the Plans qualified status. The IRS approved the proposed correction methods, all errors have been corrected and no additional action is required.
U.S. generally accepted accounting principles require plan management to evaluate tax positions taken by the Plan and recognize a tax liability
(or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of
December 31, 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions;
currently the IRS is auditing the 2014 Plan Year. The plan administrator believes it is no longer subject to income tax examinations for years prior to 2011.
At December 31, 2015 and 2014, forfeited non-vested accounts totaled
approximately $121,000 and $1,000, respectively. These accounts may be used to reduce future employer contributions or pay Plan expenses. During 2015, no forfeitures were used to pay administrative expenses. In 2014, forfeitures of approximately
$22,000 were used to pay administrative expenses.
8
DAVITA RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2015 and 2014
(6)
|
Fair Value Measurements
|
The Plan measures the fair value of its assets based upon
certain valuation techniques that include observable or unobservable inputs and assumptions that market participants would use in pricing these assets under a fair value hierarchy. The fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The following table summarizes the Plans assets measured at fair value on a recurring basis as of December 31, 2015 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
|
Significant
other
observable
inputs (Level 2)
|
|
|
Significant
unobservable
inputs (Level 3)
|
|
Investments in Registered Investment Company Funds
|
|
$
|
955,951
|
|
|
$
|
955,951
|
|
|
$
|
|
|
|
$
|
|
|
DaVita HealthCare Partners Inc. Common Stock Fund
|
|
|
53,326
|
|
|
|
53,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in fair value hierarchy
|
|
|
1,009,277
|
|
|
|
1,009,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV practical expedient
|
|
|
84,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participant directed investments at fair value
|
|
$
|
1,093,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Plans assets measured at fair value on a recurring basis as of
December 31, 2014 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Quoted prices
in active
markets for
identical assets
(Level 1)
|
|
|
Significant
other
observable
inputs (Level 2)
|
|
|
Significant
unobservable
inputs (Level 3)
|
|
Investments in Registered Investment Company Funds
|
|
$
|
933,783
|
|
|
$
|
933,783
|
|
|
$
|
|
|
|
$
|
|
|
DaVita HealthCare Partners Inc. Common Stock Fund
|
|
|
68,630
|
|
|
|
68,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in fair value hierarchy
|
|
|
1,002,413
|
|
|
|
1,002,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV practical expedient
|
|
|
86,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total participant directed investments at fair value
|
|
$
|
1,088,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investments in registered investment company funds are recorded at fair value based upon quoted market
prices as reported by each investment fund.
Investments in the common commingled trust fund are recorded at fair value using the net asset
value practical expedient as measured daily by the common commingled trust fund managers. Trust units may be redeemed on a daily basis to meet benefit payments and other participant initiated withdrawals permitted by retirement plans invested in the
trust. The Plan is required to provide 12 months advance written notice to the trustee prior to redemption of trust units upon withdrawal from the fund. There are no restrictions related to the redemption notice period and there were no
unfunded commitments at December 31, 2015. See (2)(c) and (2)(i) under Summary of Significant Accounting Policies for further discussions.
9
DAVITA RETIREMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 2015 and 2014
DaVita HealthCare Partners Inc. Common Stock Fund is recorded at fair value based upon quoted
market prices as reported by the New York Stock Exchange. See (2)(c) under Summary of Significant Accounting Policies for further discussion.
The methods used for determining fair value may not be reflective of the actual values that will be received upon settlement of the securities
due to fluctuations in the market. However, the Plan believes the methods used to measure the fair value of its assets are appropriate and are based upon relevant market factors such as quoted prices or observable market inputs. The use of different
methods or assumptions could result in a different fair value measurement at the reporting date.
(7)
|
Reconciliation of Plan Financial Statements to the Form 5500
|
The following is a
reconciliation of the financial statements to the Form 5500 at December 31, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
Total additions:
|
|
|
|
|
|
|
|
|
Total additions per financial statements
|
|
$
|
160,973
|
|
|
$
|
212,196
|
|
Plus: adjustments from the difference in contract value to fair value for fully benefit-responsive
investment contracts
|
|
|
(1,272
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total additions per form 5500
|
|
$
|
159,701
|
|
|
$
|
212,206
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits:
|
|
|
|
|
|
|
|
|
Net assets available for benefits per financial statements
|
|
$
|
1,147,996
|
|
|
$
|
1,139,840
|
|
Plus: adjustments from contract value to fair value for fully benefit-responsive investment
contracts
|
|
|
|
|
|
|
1,272
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per form 5500
|
|
$
|
1,147,996
|
|
|
$
|
1,141,112
|
|
|
|
|
|
|
|
|
|
|
Subsequent events have been evaluated through the date the financial
statements were issued and include all necessary disclosures.
Effective April 1, 2016, all new employees of the Company will be
automatically enrolled in the Plan at a pre-tax deferral rate of 5.0% upon meeting the eligibility requirements as described above.
10