XML 41 R25.htm IDEA: XBRL DOCUMENT v3.20.4
Long-term Incentive Compensation and Shareholders’ Equity
 12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Long-term Incentive Compensation and Shareholders’ Equity Long-term incentive compensation
Long-term incentive compensation
Long-term incentive program (LTIP) compensation includes both stock-based awards (principally stock-settled stock appreciation rights, restricted stock units and performance stock units) as well as long-term performance-based cash awards.
Long-term incentive compensation expense, which is primarily general and administrative in nature, is attributed to the Company’s U.S. dialysis business, its corporate administrative support, and its ancillary services.
The Company’s stock-based compensation expense for stock-settled awards is measured at the estimated fair value of awards on the date of grant and recognized on a cumulative straight-line basis over the vesting terms of the awards, unless the stock awards are based on non-market-based performance metrics, in which case expense is adjusted for the ultimate number of shares expected to be issued as of the end of each reporting period. Stock-based compensation expense for cash-settled awards is based on their estimated fair values as of the end of each reporting period. The expense for all LTIP awards is recognized net of expected forfeitures.
Stock-based compensation to be settled in shares is recorded to the Company’s shareholders’ contributed capital, while stock-based compensation to be settled in cash is recorded as a liability. Shares issued upon exercise or, when applicable, vesting of stock awards, are issued from authorized but unissued shares.
Long-term incentive compensation plans
On June 11, 2020, the Company’s stockholders approved the DaVita Inc. 2020 Incentive Award Plan (the 2020 Plan). Prior to June 11, 2020 stock-based awards were granted under the DaVita Healthcare Partners Inc. 2011 Incentive Award Plan (the 2011 Plan). The 2011 Plan was terminated with respect to any new awards upon stockholder approval of the 2020 Plan. At the time the 2020 Plan was approved there were 8,730 shares of common stock available for issuance under the 2020 Plan, consisting of 5,000 newly authorized shares and 3,730 shares that were available for issuance under the 2011 Plan as of the effective date of the 2020 Plan and which became available for grant under the 2020 Plan, pursuant to the terms of the 2020 Plan.
The 2020 Plan is the Company’s current omnibus equity compensation plan and provides for grants of stock-based awards to employees, directors and other individuals providing services to the Company, except that incentive stock options may only be awarded to employees. The 2020 Plan provides for the grant of stock appreciation rights, nonqualified stock options, incentive stock options, restricted stock units, restricted stock, performance stock awards, dividend equivalents, stock payments, deferred stock unit awards, deferred stock awards and performance cash awards. The 2020 Plan mandates a maximum award term of 10 years for stock appreciation rights and stock options and stipulates that awards of these types be granted with a base or exercise price per share of not less than the fair market value of the Company's common stock on the date of grant. Shares available under the 2020 Plan are also stated on a full value share basis rather than on an option-equivalent basis. The 2020 Plan therefore provides that shares available for issuance under the plan are reduced by one share available for every four shares underlying stock appreciation rights and stock options, and are reduced by one share available for every one share underlying stock-based awards other than stock appreciation rights and stock options. At December 31, 2020, there were 8,074 shares available for future grants under the 2020 Plan. The Company’s stock units awarded under the 2020 Plan generally vest over 36 months to 48 months from the date of grant. As of December 31, 2020, no stock appreciation rights have been awarded under the 2020 Plan.
The 2011 Plan was the Company’s prior omnibus equity compensation plan and authorized the Company to award stock options, stock appreciation rights, restricted stock units, restricted stock, and other stock-based or performance-based awards. The 2011 Plan mandated a maximum award term of five years and stipulated that stock appreciation rights and stock options be granted with prices not less than fair market value on the date of grant. The 2011 Plan also required that full value share awards such as restricted stock units reduce shares available under the 2011 Plan at a ratio of 3.5:1. The Company’s stock appreciation rights and stock units awarded under the 2011 Plan generally vest over 36 months to 48 months from the date of grant.
A combined summary of the status of the Company’s stock-settled awards under both the 2020 Plan and 2011 Plan, including base shares for stock-settled stock appreciation rights (SSARs) and stock-settled stock unit awards is as follows:
 Year ended December 31, 2020
 Stock appreciation rightsStock units
AwardsWeighted
average
exercise
price		Weighted
average
remaining
contractual life		AwardsWeighted
average
remaining
contractual life
Outstanding at beginning of year6,953 $64.10  3,160  
Granted2,765 $68.58  1,027  
Added by performance factor19 
Exercised/Vested(894)$72.13  (351) 
Expired(494)$83.61 — 
Canceled(246)$61.36  (318) 
Outstanding at end of period8,084 $63.64 3.03,537 1.8
Exercisable at end of period987 $69.56 1.0— — 
Weighted-average fair value of grants:
2020$26.70   $77.83  
2019$14.04   $50.58  
2018$16.24   $66.23  
 Awards OutstandingWeighted average exercise priceAwards exercisableWeighted average exercise price
Range of SSARs base prices
$50.01–$60.002,263 $52.53 2 $57.88 
$60.01–$70.005,165 $66.99 610 $65.95 
$70.01–$80.00656 $75.60 375 $75.50 
Total8,084 $63.64 987 $69.56 
For the years ended December 31, 2020, 2019, and 2018, the aggregate intrinsic value of stock-based awards exercised was $49,258, $11,475 and $31,045, respectively. At December 31, 2020, the aggregate intrinsic value of stock-based awards outstanding was $853,803 and the aggregate intrinsic value of stock awards exercisable was $47,208.
Estimated fair value of stock-based compensation awards
The Company has estimated the grant-date fair value of stock-settled stock appreciation rights awards using the Black-Scholes-Merton valuation model and stock-settled stock unit awards at intrinsic value on the date of grant, except for portions of the Company’s performance stock unit awards for which a Monte Carlo simulation was used to estimate the grant-date fair value. The following assumptions were used in estimating these values and determining the related stock-based compensation expense attributable to the current period:
Expected term of the awards: The expected term of awards granted represents the period of time that they are expected to remain outstanding from the date of grant. The Company determines the expected term of its stock awards based on its historical experience with similar awards, considering the Company’s historical exercise and post-vesting termination patterns.
Expected volatility: Expected volatility represents the volatility anticipated over the expected term of the award. The Company determines the expected volatility for its awards based on the volatility of the price of its common stock over the most recent retrospective period commensurate with the expected term of the award, considering the volatilities expected by peer companies in near industries.
Expected dividend yield: The Company has not paid dividends on its common stock and does not currently expect to pay dividends during the term of stock awards granted.
Risk-free interest rate: The Company bases the expected risk-free interest rate on the implied yield currently available on stripped interest coupons of U.S. Treasury issues with a remaining term equivalent to the expected term of the award.
A summary of the weighted average valuation inputs described above used for estimating the grant-date fair value of SSAR awards granted in the periods indicated is as follows: 
 Year ended December 31,
 202020192018
Expected term4.84.04.2
Expected volatility28.2 %29.5 %23.8 %
Expected dividend yield— %— %— %
Risk-free interest rate1.5 %2.2 %2.9 %
 The Company estimates expected forfeitures based upon historical experience with separate groups of employees that have exhibited similar forfeiture behavior in the past. Stock-based compensation expense is recorded only for awards that are expected to vest.
On November 4, 2019, the independent members of the Company’s Board of Directors (Board) approved an award of 2,500 premium-priced stock-settled stock appreciation rights (Premium-Priced Award) to the Company’s Chief Executive Officer (CEO), which award was subject to stockholder approval of a related amendment to the 2011 Plan. Stockholders approved such amendment to the 2011 Plan on January 23, 2020, authorizing the grant to the Company's CEO. Since stockholder approval occurred in 2020, this award was treated as granted in 2020 for accounting purposes.
The base price of the Premium-Priced Award was $67.80 per share, which was a 20% premium to the clearing price of the Company's modified Dutch auction tender offer for its shares in 2019 (2019 Tender Offer). The award vests 50% on each of November 4, 2022 and November 4, 2023 and expires on November 4, 2024. The award includes a requirement that the CEO hold any shares acquired upon exercise of this award, net of shares used to cover related taxes, until November 4, 2024 (that is, for the full term of the award), subject to lapse of the holding period upon a change in control of the Company or due to the CEO's death or termination due to disability.
Employee stock purchase plan
The Employee Stock Purchase Plan entitles qualifying employees to purchase up to $25 of the Company’s common stock during each calendar year. The amounts used to purchase stock are accumulated through payroll withholdings or through optional lump sum payments made in advance of the first day of the purchase right period. This compensatory plan allows employees to purchase stock for the lesser of 100% of its fair market value on the first day of the purchase right period or 85% of its fair market value on the last day of the purchase right period. Purchase right periods begin on January 1 and July 1, and end on December 31. Contributions used to purchase the Company’s common stock under this plan for the 2020, 2019 and 2018 purchase periods were $17,148, $16,569 and $17,398, respectively. Shares purchased pursuant to the plan’s 2020, 2019 and 2018 purchase periods were 222, 315 and 398, respectively. At December 31, 2020, there were 6,189 shares remaining available for future grants under this plan.
The fair value of participants’ purchase rights was estimated as of the beginning dates of the purchase right periods using the Black-Scholes-Merton valuation model with the following weighted average assumptions for purchase right periods in 2020, 2019 and 2018, respectively: expected volatility of 40.4%, 28.8% and 24.2%; risk-free interest rates of 1.0%, 2.6% and 1.9%, and no dividends. Using these assumptions, the weighted average estimated per share fair value of each purchase right was $22.06, $13.80 and $17.45 for 2020, 2019 and 2018, respectively.
Long-term incentive compensation expense and proceeds
For the years ended December 31, 2020, 2019 and 2018, the Company recognized $99,643, $118,513 and $85,759, respectively, in total LTIP expense, of which $91,458, $63,705 and $73,582, respectively, was stock-based compensation expense for stock appreciation rights, stock units and discounted employee stock purchase plan purchases, which are primarily included in general and administrative expenses. The estimated tax benefits recorded for stock-based compensation in 2020, 2019 and 2018 were $11,775, $9,186 and $13,591, respectively. As of December 31, 2020, there was $189,713 of total estimated but unrecognized stock-based compensation expense under the Company’s equity compensation and employee stock purchase plans. The Company expects to recognize this expense over a weighted average remaining period of 1.4 years. The Company no longer has outstanding long-term performance-based cash awards in its principal U.S. dialysis business as the performance and accrual period for these awards ended December 31, 2019 with a final payout of $66,302 in 2020.
During the year ended December 31, 2018, the Company adopted a retirement policy (Rule of 65 policy). The Rule of 65 policy generally provides that Section 16 officers that are a minimum age of 55 with five years of continuous service with the Company receive certain benefits with respect to their outstanding equity awards upon a qualifying retirement if the sum of their age plus years of service is greater than or equal to 65. These benefits generally include accelerated vesting of restricted stock unit awards, continued vesting of stock-settled stock appreciation rights and performance stock unit awards and an exercise window for stock-settled stock appreciation rights from the original vest date through the original expiration date regardless of continued employment, with pro rata vesting for a Rule of 65 retirement within one year of the award grant date. The adoption of the Rule of 65 policy resulted in a $14,704 modification charge and a net acceleration of expense of $9,727 during the year ended December 31, 2018 that is included in the expense amounts reported above.
For the years ended December 31, 2020, 2019 and 2018, the Company received $8,957, $2,251 and $7,988, respectively, in actual tax benefits upon the exercise or vesting of stock awards. Since the Company issues stock-settled stock appreciation rights rather than stock options, there were no cash proceeds from stock option exercises.