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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, 2001
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, 2001 and 2000
(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, 2001
and 2000 .......................................................... 2
Statements of Changes in Net Assets Available for Plan Benefits - Years
ended December 31, 2001 and 2000 .................................. 3
Notes to Financial Statements .......................................... 4
SUPPLEMENTAL SCHEDULE
Schedule H, Line 4i - Schedule of Assets (Held at End of Year) -
December 31, 2001 ................................................. 10
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, 2001 and 2000 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000 and the changes in net assets available for plan
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
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
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
June 11, 2002
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 2001 and 2000
Assets: 2001 2000
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Investments, at fair value:
Money market funds ............................. $ 8,141,477 7,085,790
Mutual funds ................................... 20,732,369 19,017,225
Downey Financial Corp. common stock ............ 5,925,853 7,253,843
Participant loans .............................. 1,445,590 1,333,818
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36,245,289 34,690,676
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Receivables:
Employer's contribution ........................ 1,967,996 1,604,468
Investment income .............................. 632 1,868
Other .......................................... -- 20,305
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1,968,628 1,626,641
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38,213,917 36,317,317
Liabilities:
Excess contributions payable ................... -- 55,517
Other liabilities .............................. 69 --
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Net assets available for Plan benefits $38,213,848 36,261,800
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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, 2001 and 2000
2001 2000
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Additions to net assets attributed to:
Net appreciation (depreciation) in fair value of investments $(3,312,510) 3,986,447
Interest and dividends ..................................... 1,193,947 2,135,390
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(2,118,563) 6,121,837
Contributions:
Employer ................................................ 2,412,451 1,991,468
Participant ............................................. 3,818,232 3,206,245
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Total additions ................................ 4,112,120 11,319,550
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Deductions from net assets attributed to:
Benefits paid to participants .............................. 2,144,521 3,822,105
Fees for participant loans ................................. 15,551 16,450
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Total deductions ............................... 2,160,072 3,838,555
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Net increase ................................... 1,952,048 7,480,995
Net assets available for plan benefits:
Beginning of year .......................................... 36,261,800 28,780,805
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End of year ................................................ $38,213,848 36,261,800
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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, 2001 and 2000
(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 January 1, 1999, Downey may make an annual
discretionary profit sharing contribution to the Plan. Allocation of
the discretionary contribution is based on points credited to each
eligible participant and salary. Points are credited based on the
employee's age and vested years of service. Contributions are subject
to certain limitations.
On March 27, 2001, the Plan Administrative Committee approved
Amendment No. 5 to the Plan. The Amendment is effective for fiscal
years after December 31, 2001 and is summarized as follows:
o The definition of enrollment date is changed from first day of
each Plan Year Quarter to first day of each Plan Year Month.
o Age requirement for eligibility is changed from 21 to 18.
4 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
o The annual discretionary profit sharing contribution is
eliminated. Downey will make a matching contribution equal to 50%
of the first 6% of salary deferred in the Plan year.
(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.
(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. In addition, a participant becomes 100%
vested if the sum of the participant's age and years of service equals
at least 60.
(F) FORFEITED ACCOUNTS
At years ended December 31, 2001 and 2000, forfeited accounts totaled
$55,780 and $65,126, respectively. These accounts are used to reduce
future employer contributions. For Plan years 2001 and 2000, $57,055
and $68,435 of forfeitures, respectively, were used to reduce employer
contributions.
(G) INVESTMENT OPTIONS
At December 31, 2001, 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 Fidelity Aggressive Growth Fund - The fund seeks to increase the
value of investments over the long term through capital
appreciation.
5 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
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.
o Fidelity Freedom Income Fund - The fund seeks high current income
and, as a secondary objective, some capital appreciation for
those already in retirement.
o Fidelity Freedom 2000 Fund - The fund seeks high total returns
for those planning to retire in approximately 1 - 10 years.
o Fidelity Freedom 2010 Fund - The fund seeks high total returns
for those planning to retire in approximately 10 - 20 years.
o Fidelity Freedom 2020 Fund - The fund seeks high total returns
for those planning to retire in approximately 20 - 30 years.
o Fidelity Freedom 2030 Fund - The fund seeks high total returns
for those planning to retire in approximately 30 - 40 years.
o Fidelity Freedom 2040 Fund - The fund seeks high total returns
for those planning to retire around 2040.
(H) 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.
(I) PAYMENTS OF BENEFITS
Upon termination of service, a participant may elect to receive either
a single lump-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.
(J) ADMINISTRATIVE EXPENSES
All administrative costs of the Plan, excluding investment management
fees and fees for participant loans, are paid by Downey.
(K) 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.
6 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(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. Net appreciation or depreciation of
investments includes both realized and unrealized gains and losses.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date.
(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) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the Plan Administrator to make estimates and assumptions that affect
the reported amounts of assets and liabilities and changes therein,
and disclosure of contingent assets and liabilities. Accordingly,
actual results may differ from those estimates.
(E) PAYMENT OF BENEFITS
Benefits are recorded when paid.
(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.
7 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
The following table presents the fair value of investments, with those that
represent 5% or more of the Plan's net assets at the end of the Plan year
separately identified:
INVESTMENT 2001 2000
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Downey Financial Corp. Stock Fund ... $ 5,925,853 7,253,843
Fidelity Retirement Money Market Fund 7,784,306 6,678,766
Pimco Low Duration Institutional Fund 1,917,246 1,367,634 *
Fidelity Puritan Fund ............... 3,323,498 3,107,136
Fidelity Growth & Income Fund ....... 7,357,495 7,911,732
Fidelity Low-Priced Stock Fund ...... 3,118,937 1,940,782
Spartan U.S. Equity Index Fund ...... 2,214,177 2,172,484
Other investments less than 5% ...... 4,603,777 4,258,299
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$36,245,289 34,690,676
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* Fair value does not represent 5% or more of the Plan's net assets at
December 31, 2000.
During 2001 and 2000, the Plan's investments appreciated (depreciated) in
value as follows:
2001 2000
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Mutual funds ...................... $ (1,707,418) (1,607,883)
Downey Financial Corp. Stock Fund . (1,605,092) 5,594,330
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Net appreciation (depreciation)
in fair value of investments $ (3,312,510) 3,986,447
============ =========
(4) 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. 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.
(5) 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.
8 (Continued)
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 2001 and 2000
(6) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of benefits paid to participants per the
financial statements for the year ended December 31, 2001 to Form 5500:
Benefits paid to participants per the financial statements ... $ 2,144,521
Less loans deemed distributed from 2000 .................... 155,033
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Benefits paid to participants per the Form 5500 .. $ 1,989,488
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9
SCHEDULE
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A.
EMPLOYEES' RETIREMENT AND SAVINGS PLAN
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2001
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE, RATE
IDENTITY OF ISSUE, BORROWER, OF INTEREST, COLLATERAL, PAR OR
LESSOR, OR SIMILAR PARTY MATURITY VALUE CURRENT VALUE
-------------------------------------------- ------------------------------- -------------
* Downey Financial Corp. Stock Fund 143,657 shares common stock ... $5,925,853
* Fidelity Institutional Cash Portfolio Money Market Fund ............. 357,171
* Fidelity Retirement Money Market Fund Money Market Fund ............. 7,784,306
PIMCO Low Duration Inst. Fund 190,392 shares mutual fund .... 1,917,246
Templeton Foreign Fund 98,203 shares mutual fund ..... 908,380
* Fidelity Puritan Fund 188,087 shares mutual fund .... 3,323,498
* Fidelity Growth & Income Fund 196,830 shares mutual fund .... 7,357,495
* Fidelity Low-Priced Stock Fund 113,747 shares mutual fund .... 3,118,937
* Fidelity Aggressive Growth Fund 32,739 shares mutual fund ..... 622,688
* Spartan U.S. Equity Index Fund 54,483 shares mutual fund ..... 2,214,177
* Fidelity Freedom Income Fund 47,881 shares mutual fund ..... 523,337
* Fidelity Freedom 2000 Fund 1,850 shares mutual fund ...... 21,308
* Fidelity Freedom 2010 Fund 16,846 shares mutual fund ..... 212,428
* Fidelity Freedom 2020 Fund 17,918 shares mutual fund ..... 225,403
* Fidelity Freedom 2030 Fund 19,330 shares mutual fund ..... 242,785
* Fidelity Freedom 2040 Fund 6,047 shares mutual fund ...... 44,687
* Participant loans Participant loans (interest
rates from 6.75% to 11.5%) . 1,445,590
* Denotes a party in interest.
See accompanying independent auditors' report.
10
REQUIRED INFORMATION
I. Financial Statements.
Financial statements and schedule 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 25, 2002 By: /s/ THOMAS E. PRINCE
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Thomas E. Prince
Member, Administrative Committee
11