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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File Number 1-13578
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A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
DOWNEY FINANCIAL CORP.
3501 JAMBOREE ROAD
NEWPORT BEACH, CA 92660
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DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Financial Statements and Supplemental Schedule
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
PAGE
Independent Auditors' Report ........................................... 1
Statements of Net Assets Available for Plan Benefits - December 31, 1999
and 1998 .......................................................... 2
Statements of Changes in Net Assets Available for Plan Benefits - Years
ended December 31, 1999 and 1998 .................................. 3
Notes to Financial Statements .......................................... 4
SUPPLEMENTAL SCHEDULE
1 - Schedule of Assets Held for Investment Purposes at End of Year -
December 31, 1999 ................................................. 9
All other schedules are omitted because they are not required by Department of
Labor regulations, or are not applicable.
INDEPENDENT AUDITORS' REPORT
The Administrative Committee
Downey Savings and Loan Association, F.A.
Employees' Retirement and Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Downey Savings and Loan Association, F.A. Employees' Retirement
and Savings Plan as of December 31, 1999 and 1998 and the related statements of
changes in net assets available for Plan benefits for the years then ended.
These financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for Plan benefits of the Downey
Savings and Loan Association, F.A. Employees' Retirement and Savings Plan as of
December 31, 1999 and 1998 and the changes in net assets available for Plan
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes at end of year is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ KPMG LLP
May 5, 2000
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1999 and 1998
ASSETS 1999 1998
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Investments, at fair value:
Mutual funds ............................. $16,815,708 13,581,446
Money market funds ....................... 5,610,956 4,577,296
Downey Financial Corp. common stock ...... 3,727,078 3,930,044
Participant loans ........................ 1,132,908 920,883
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27,286,650 23,009,669
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Receivables:
Employer's contribution .................. 1,492,527 1,607,464
Employees' contribution .................. 633 --
Investment income ........................ 995 882
Other .................................... -- 19,323
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1,494,155 1,627,669
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Net assets available for Plan benefits $28,780,805 24,637,338
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See accompanying notes to financial statements.
2
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 1999 and 1998
1999 1998
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Additions to net assets attributed to:
Dividends ........................................... $ 72,349 46,477
Interest and realized and unrealized gains and losses 849,305 2,209,930
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921,654 2,256,407
Contributions:
Employer ......................................... 1,851,644 1,905,888
Employee ......................................... 2,963,182 2,613,614
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Total additions ......................... 5,736,480 6,775,909
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Deductions from net assets attributed to:
Benefits paid to participants ....................... 1,581,215 1,586,550
Fees for participant loans .......................... 11,798 11,542
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Total deductions ........................ 1,593,013 1,598,092
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Net increase ............................ 4,143,467 5,177,817
Net assets available for Plan benefits:
Beginning of year ................................... 24,637,338 19,459,521
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End of year ......................................... $28,780,805 24,637,338
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See accompanying notes to financial statements.
3
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(1) DESCRIPTION OF THE PLAN
(A) GENERAL
The Downey Savings and Loan Association, F.A. Employees' Retirement
and Savings Plan (the Plan) was established as a profit sharing plan
on January 1, 1978 and was originally called the Employees' Profit
Sharing Plan of Downey Savings and Loan Association. The Plan was
amended and restated in its entirety as of October 1, 1997, and
continues to qualify as both a profit sharing plan and a qualified
cash or deferred arrangement under Internal Revenue Code Sections
401(a) and 401(k). The following description provides only general
information. Participants should refer to the Plan agreement for a
more complete description of the Plan's provisions.
The Plan is a defined contribution plan which provides retirement
benefits for eligible employees of Downey Savings and Loan
Association, F.A., its affiliates and subsidiaries (Downey). It is
subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA).
(B) ADMINISTRATION OF THE PLAN
The Plan is administered by Downey (the Plan Administrator). Downey
Savings and Loan Association, F.A. Administrative Committee (the
Committee) also administers the Plan and consists of at least three
members and has the authority to control and manage the operation and
administration of the Plan. The assets of the Plan are held in a
nondiscretionary trust by Fidelity Management Trust Company as trustee
and are administered under a trust agreement which requires that the
trustee hold, administer and distribute the funds of the Plan in
accordance with the text of the Plan and the instructions of the Plan
Administrator, the Committee or its designees.
(C) CONTRIBUTIONS
All employees of Downey are eligible to participate in the Plan
provided they are 21 years of age and have completed one year of
service. Each year, participants may contribute up to 15% of their
compensation, as defined in the Plan. Participants may roll over into
the Plan amounts representing distributions from other qualified
plans.
Downey makes a matching contribution equal to 25% of the participant's
pretax contributions which do not exceed 4% of the participant's
annual compensation. In addition, through an amendment dated October
11, 1999 and effective October 1, 1999, Downey makes annual
contributions based upon Downey's net income and the employee's age,
vested years of service and salary. Contributions are subject to
certain limitations.
(D) PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contributions, allocations of Downey's matching and discretionary
contributions and the Plan's earnings and losses. Allocations are
based on participant earnings or account balances, as defined.
Forfeitures reduce the amount of employer contributions. For the years
ended December 31, 1999 and 1998, participant forfeitures totaled
$69,926 and $39,425, respectively.
4 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(E) VESTING
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in Downey's matching and discretionary
contributions plus actual earnings thereon is based on years of
service. A participant vests at the rate of 20% after one year of
service and 20% each year thereafter until 100% vesting is reached
after five years of service.
(F) INVESTMENT OPTIONS
At December 31, 1999, the investment options available to the Plan's
participants were as follows:
o Downey Financial Corp. Stock Fund - The fund provides Plan
participants with an opportunity to invest in Downey Financial
Corp. common stock. Cash balances within this fund are invested
temporarily in the Fidelity Institutional Cash Portfolio, which
is a money market fund.
o Fidelity Retirement Money Market Fund - The fund seeks to
preserve capital and maintain a high degree of liquidity while
providing income. The fund invests in high quality, short-term
U.S. dollar denominated money market instruments of domestic and
foreign issuers.
o PIMCO Low Duration Inst. Fund - The fund seeks total return -
both income and capital appreciation - consistent with prudent
investment management.
o Templeton Foreign Fund - The fund seeks long-term growth of
capital.
o Fidelity Puritan Fund - The fund seeks income consistent with
preservation of capital.
o Fidelity Growth & Income Fund - The fund seeks long-term growth,
current income and growth of income, consistent with reasonable
investment risk.
o Fidelity Low-Priced Stock Fund - The fund seeks capital
appreciation.
o Spartan U.S. Equity Index Fund - The fund seeks to provide
investment results that correspond to the total performance of
common stocks of companies publicly traded in the United States.
(G) PARTICIPANT LOANS
Participants may borrow from their fund accounts for general purposes,
as defined within the Plan. Participant loans are limited to the
lesser of 1) 50% of the participant's current vested fund balance or
2) $50,000 reduced by the highest outstanding loan balance during the
previous 12 months. Loan transactions are treated as a transfer to
(from) the investment funds. The loans are secured by the balance in
the participant's account and bear a fixed rate of interest equal to
prime plus 2% at the time the loan is originated. Participants pay $75
to establish a loan and then pay $6.25 on a quarterly basis for
maintenance. Principal and interest are paid ratably through payroll
deductions.
(H) PAYMENTS OF BENEFITS
Upon termination of service, a participant may elect to receive either
a single sum payment in cash or Downey stock equal to the value of the
vested interest in his or her account, or a series of substantially
equal annual or more frequent installments over a period not to exceed
five years.
5 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(I) PLAN TERMINATION
Although it has not expressed any intent to do so, Downey has the
right under the Plan to discontinue contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will become 100% vested in their
accounts.
(2) SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF ACCOUNTING
The financial statements of the Plan have been prepared on the accrual
basis of accounting.
(B) INVESTMENTS
Publicly traded securities are carried at fair value based on
published market quotations. Purchases and sales of investments are
recorded on a trade-date basis.
(C) PARTICIPANT LOANS
Participant loans are included in the statements of net assets
available for Plan benefits at their outstanding balance, which
approximates fair value of the loans. The loans are payable through
payroll deductions.
(D) ADMINISTRATIVE EXPENSES
All administrative costs of the Plan, excluding investment management
fees and fees for participant loans, are paid by Downey.
(E) USE OF ESTIMATES
The Plan Administrator has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Accordingly, actual results may differ from those
estimates.
(F) RECLASSIFICATION
Certain reclassifications of the prior year's reported amounts have
been made to conform to the current year's reporting format.
(3) INVESTMENTS
In accordance with the terms of the Plan's Investment Policies, Guidelines
and Objectives, the Plan will offer a minimum of five investment options.
Plan participants select the options they prefer and allocate their
contributions between options as they deem appropriate.
6 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
The fair value of investments that represent 5% or more of the Plan's net assets
at December 31, 1999 and 1998 consisted of:
INVESTMENT DESCRIPTION OF INVESTMENT 1999 1998
- ------------------------------------- ---------------------------- ---------- ----------
Downey Financial Corp. Stock Fund Common stock $3,727,078 3,930,044
Fidelity Retirement Money Market Fund Open-Ended Money Market Fund 5,412,436 4,577,296
Fidelity Puritan Fund Open-Ended Mutual Fund 3,234,665 3,164,321
Fidelity Growth & Income Fund Open-Ended Mutual Fund 8,581,894 7,272,949
Fidelity Low-Priced Stock Fund Open-Ended Mutual Fund 1,464,550 1,354,297
Spartan U.S. Equity Index Fund Open-Ended Mutual Fund 1,604,397 *
<FN>
* - Less than 5% of Plan net assets.
</FN>
The following table presents the cost and fair value of Plan investments as of
December 31, 1999:
COST FAIR VALUE
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Mutual funds ...................... $15,555,787 16,815,708
Money Market Funds ................ 5,610,956 5,610,956
Downey Financial Corp. common stock 3,385,690 3,727,078
Participant loans ................. 1,132,908 1,132,908
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Total investments ... $25,685,341 27,286,650
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The following table presents the cost and fair value of Plan investments as of
December 31, 1998:
COST FAIR VALUE
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Mutual funds ...................... $12,381,256 13,581,446
Money Market Funds ................ 4,577,296 4,577,296
Downey Financial Corp. common stock 2,893,517 3,930,044
Participant loans ................. 920,883 920,883
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Total investments ... $20,772,952 23,009,669
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7 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1999 and 1998
(4) PARTICIPATION BY FUND
The total number of Plan participants in each of the investment funds on
December 31, 1999 and 1998 is as follows:
1999 1998
---- ----
Downey Financial Corp. Stock Fund ... 526 547
Fidelity Retirement Money Market Fund 565 497
PIMCO Low Duration Inst. Fund ....... 262 257
Templeton Foreign Fund .............. 248 232
Fidelity Puritan Fund ............... 474 463
Fidelity Growth & Income Fund ....... 710 669
Fidelity Low-Priced Stock Fund ...... 389 407
Spartan U.S. Equity Index Fund ...... 217 41
The schedule reflects the fact that participants may elect to invest in
more than one fund.
(5) FEDERAL INCOME TAXES
The Plan received a favorable tax determination letter on May 4, 1998 from
the Internal Revenue Service stating that the Plan, as amended and adopted
on September 29, 1997, is qualified under Section 401(a) of the Internal
Revenue Code, and is exempt from federal income taxes under provisions of
Section 501(a).
The Plan has been subsequently amended since September 29, 1997. The
subsequent amendments of the Plan were adopted on February 1, 1998, October
11, 1999, November 18, 1999 and March 24, 2000. In the opinion of
management, the Plan continues to meet the requirements of the Internal
Revenue Code.
(6) RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Fidelity
Management Research, which is affiliated with Fidelity Management Trust
Company, which is the trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest. Fees for the trust management
services are paid by Downey.
(7) SUBSEQUENT EVENT
On January 21, 2000 Downey Savings and Loan Association, F.A. signed a
definitive agreement to sell its indirect automobile finance subsidiary,
Downey Auto Finance Corp. to Auto One Acceptance Corp., a subsidiary of
California Federal Bank. The sale closed on February 29, 2000, and as a
result, the Plan was amended on March 24, 2000, to reflect that Downey Auto
Finance Corp. is no longer a participating employer of the Plan and the
accounts of participants employed by DAFC were fully vested.
8
SCHEDULE 1
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Schedule of Assets Held for Investment Purposes at End of Year
December 31, 1999
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE, RATE
IDENTITY OF ISSUE, BORROWER, OF INTEREST, COLLATERAL, PAR,
LESSOR OR SIMILAR PARTY OR MATURITY VALUE COST CURRENT VALUE
- ------------------------------------------ ----------------------------- ---------- -------------
* Downey Financial Corp. Stock Fund 184,623 shares common stock . $3,385,690 3,727,078
* Fidelity Retirement Money Market Fund Money Market Fund ........... 5,412,436 5,412,436
PIMCO Low Duration Inst. Fund 120,412 shares mutual fund .. 1,220,715 1,184,857
Templeton Foreign Fund 66,430 shares mutual fund ... 658,165 745,346
* Fidelity Puritan Fund 169,977 shares mutual fund .. 3,334,600 3,234,665
* Fidelity Growth & Income Fund 181,974 shares mutual fund .. 7,350,119 8,581,894
* Fidelity Low-Priced Stock Fund 64,689 shares mutual fund ... 1,546,657 1,464,550
* Spartan U.S. Equity Index Fund 30,800 shares mutual fund ... 1,445,531 1,604,396
* Fidelity Institutional Cash Portfolio Money Market Fund ........... 198,520 198,520
Participant loans Participant loans (interest
rates from 7.55% to 11%) . -- 1,132,908
<FN>
* Denotes a party-in-interest.
</FN>
See accompanying independent auditors' report.
9
REQUIRED INFORMATION
I. Financial Statements.
Financial statements and schedules prepared in accordance with the
financial reporting requirements of the Employee Retirement Income Security
Act of 1974, together with independent auditors' report thereon.
II. Exhibits:
Consent of Independent Auditors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed on its behalf by the undersigned, hereunto duly authorized.
DOWNEY SAVINGS AND LOAN
ASSOCIATION, F.A. EMPLOYEES'
RETIREMENT AND SAVINGS PLAN
Date: June 21, 2000 By: /S/ THOMAS E. PRINCE
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Thomas E. Prince
Member, Administrative Committee
10