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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 23, 2004

REDWOOD TRUST, INC.

(Exact name of registrant as specified in its charter)
         
Maryland
(State or other
jurisdiction of
Incorporation)
  001-13759
(Commission File Number)
  68-0329422
(I.R.S. Employer
Identification No.)

One Belvedere Place
Suite 300
Mill Valley, California 94941

(Address of principal executive offices and Zip Code)

(415) 389-7373

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

q Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

q Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

q Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

q Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 


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ITEM 8.01. OTHER EVENTS.
SIGNATURES


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ITEM 8.01. OTHER EVENTS.

In June 2003, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board released EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 (EITF 03-6). This pronouncement provides guidance on when to apply the two-class method for computing basic and diluted earnings per share for participating securities. A participating security is a security that participates in undistributed earnings with common stock regardless of whether the participation is dependent upon the occurrence of a specific event. This guidance is effective for reporting periods after March 31, 2004.

We analyzed the provisions of EITF 03-6 and determined that our convertible preferred stock (all of which was converted into common stock at the beginning of the second quarter of 2003) and certain vested options with cash dividend equivalent rights are participating securities and thus should be included in the revised calculation of earnings per share. The results of this application were that the preferred stock was dilutive and the vested options with cash dividend equivalent rights were anti-dilutive.

We have securities registered under a registration statement on Form S-3 that incorporates by reference prior period financial statements. Therefore, we are including in this Form 8-K (which is incorporated by reference in our registration statement on Form S-3) selected financial data in the table below for the fiscal years ended December 31, 2003, 2002, 2001, 2000, and 1999, reflecting earnings per share revised pursuant to the provisions of EITF 03-6.

 


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Selected Financial Data   Years Ended December 31,
(in thousands, except share data)
 
  2003
  2002
  2001
  2000
  1999
Statement of Operations Data:
                                       
Interest income
  $ 330,976     $ 163,216     $ 144,539     $ 169,261     $ 145,964  
Interest expense
    (202,861 )     (91,705 )     (98,069 )     (138,603 )     (119,227 )
 
   
 
     
 
     
 
     
 
     
 
 
Net interest income
    128,115       71,511       46,470       30,658       26,737  
Operating expenses
    (36,895 )     (20,005 )     (12,747 )     (7,752 )     (3,660 )
Equity in earnings (losses) of RWT Holdings, Inc.
                      (1,676 )     (21,633 )
Net recognized market value gains (losses)
    46,676       5,111       1,532       (2,296 )     284  
Provision for income taxes
    (5,502 )                        
Dividends on Class B preferred stock
    (681 )     (2,724 )     (2,724 )     (2,724 )     (2,741 )
Undistributed earnings allocated to Class B preferred stock
    (15 )     (452 )     (150 )            
 
   
 
     
 
     
 
     
 
     
 
 
Net income (loss) available to common
                                       
stockholders before change in accounting principle
    131,698       53,441       32,381       16,210       (1,013 )
Cumulative effect of adopting EITF 99-20
                (2,368) (1)            
 
   
 
     
 
     
 
     
 
     
 
 
Net income (loss) available to common stockholders
  $ 131,698     $ 53,441     $ 30,013     $ 16,210       ($1,013 )
 
Average common shares — basic
    17,759,346       15,177,449       10,163,581       8,793,487       9,768,345  
Net income (loss) per share — basic
  $ 7.42     $ 3.52     $ 2.95     $ 1.84       ($0.10 )
 
Average common shares — diluted
    18,812,166       15,658,623       10,474,764       8,902,069       9,768,345  
Net income (loss) per share diluted
  $ 7.04     $ 3.41     $ 2.87     $ 1.82       ($0.10 )
 
Dividends declared per Class B preferred share
  $ 0.755     $ 3.020     $ 3.020     $ 3.020     $ 3.020  
 
Regular dividends declared per common share
  $ 2.600     $ 2.510     $ 2.220     $ 1.610     $ 0.400  
Special dividends declared per common share
  $ 4.750     $ 0.375     $ 0.330     $ 0.000     $ 0.000  
 
   
 
     
 
     
 
     
 
     
 
 
Total dividends declared per common share
  $ 7.350     $ 2.885     $ 2.550     $ 1.610     $ 0.400  
 
Balance Sheet Data: end of period
                                       
Earning assets
  $ 17,543,487     $ 6,971,794     $ 2,409,271     $ 2,049,188     $ 2,387,286  
Total assets
  $ 17,626,770     $ 7,007,772     $ 2,435,644     $ 2,082,115     $ 2,419,928  
Short-term debt
  $ 236,437     $ 99,714     $ 796,811     $ 756,222     $ 1,253,565  
Long-term debt
  $ 16,782,586     $ 6,397,020     $ 1,313,715     $ 1,095,835     $ 945,270  
Total liabilities
  $ 17,073,442     $ 6,534,739     $ 2,127,871     $ 1,866,451     $ 2,209,993  
Total stockholders’ equity
  $ 553,328     $ 473,033     $ 307,773     $ 215,664     $ 209,935  
Number of Class B preferred shares outstanding
          902,068       902,068       902,068       902,068  
Number of common shares outstanding
    19,062,983       16,277,285       12,661,749       8,809,500       8,783,341  
Book value per common share
  $ 29.03     $ 27.43     $ 22.21     $ 21.47     $ 20.88  
 
Other Data:
                                       
Average assets
  $ 11,058,272     $ 4,039,652     $ 2,223,280     $ 2,296,641     $ 2,293,238  
Average borrowings
  $ 10,489,614     $ 3,616,506     $ 1,945,820     $ 2,070,943     $ 2,046,132  
Average reported total equity
  $ 526,808     $ 402,986     $ 254,021     $ 209,987     $ 236,229  
GAAP earnings/average reported common equity
    25.3 %     14.2 %     13.2 %     8.8 %     (0.5 %)

(1)   The provisions of Emerging Issues Task Force 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF 99-20), became effective January 1, 2001. At that date, the Company’s projections of cash flows in certain of its residential credit-enhancement securities were less than the cash flows anticipated at acquisition and the fair value had

 


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    declined below the carrying value. Accordingly, the Company recorded a $2.4 million charge through the Consolidated Statements of Income at that time as a cumulative effect of a change in accounting principle.

    The following table provides reconciliation of the numerators and denominators of the basic and diluted net income per share computations as restated for the adoption of EITF 03-6.

                                         
(in thousands, except share data)
  Years Ended December 31,
    2003
  2002
  2001
  2000
  1999
Numerator:
                                       
Numerator for basic and diluted earnings per share:
                                       
Net income before change in accounting principle
  $ 132,394     $ 56,617     $ 35,255     $ 18,934     $ 1,728  
Cash dividends on Class B preferred stock
    (681 )     (2,724 )     (2,724 )     (2,724 )     (2,741 )
Undistributed earnings allocated for Class B preferred stock
    (15 )     (452 )     (150 )            
 
   
 
     
 
     
 
     
 
     
 
 
Net income before change in accounting principle
    131,698       53,441       32,381       16,210       (1,013  
Cumulative effect of adopting EITF 99-20
                (2,368 )            
 
   
 
     
 
     
 
     
 
     
 
 
Basic and Diluted EPS – Net income available to common stockholders
  $ 131,698     $ 53,441     $ 30,013     $ 16,210       ($1,013 )
 
   
 
     
 
     
 
     
 
     
 
 
Denominator:
                                       
Denominator for basic earnings per share:
                                       
Weighted average number of common shares outstanding during the period
    17,759,346       15,177,449       10,163,581       8,793,487       9,768,345  
Net effect of dilutive stock options and preferred stock
    1,052,820       481,174       311,183       108,582        
 
   
 
     
 
     
 
     
 
     
 
 
Denominator for diluted earnings per share
    18,812,166       15,658,623       10,474,764       8,902,069       9,768,345  
 
   
 
     
 
     
 
     
 
     
 
 
Basic Earnings Per Share:
                                       
Net income before change in accounting principle
  $ 7.42     $ 3.52     $ 3.19     $ 1.84       (0.10 )
Cumulative effect of adopting EITF 99-20
                (0.24 )            
 
   
 
     
 
     
 
     
 
     
 
 
Net income per share
  $ 7.42     $ 3.52     $ 2.95     $ 1.84       (0.10 )
 
   
 
     
 
     
 
     
 
     
 
 
Diluted Earnings Per Share:
                                       
Net income before change in accounting principle
  $ 7.04     $ 3.41     $ 3.09     $ 1.82       (0.10 )
Cumulative effect of adopting EITF 99-20
                (0.22 )            
 
   
 
     
 
     
 
     
 
     
 
 
Net income per share
  $ 7.04     $ 3.41     $ 2.87     $ 1.82       (0.10 )
 
   
 
     
 
     
 
     
 
     
 
 

    When we filed our Form 10-Q for the period ended June 30, 2004, we did not include revised comparable information for the six months ended June 30, 2003. We are including the six-month revised net income per share calculation and Consolidated Statements of Income in the following tables. Based on our assessment that the revisions are immaterial, we are not amending Form 10-Q for the period ended June 30, 2004. It should be noted that all of the then outstanding convertible preferred stock was converted into common stock at the beginning of the second quarter of 2003. Thus, for any periods not including the first quarter of 2003 or subsequent periods, there is no impact of EITF 03-6 due to this participating security. Furthermore, certain stock options outstanding during prior periods, which are deemed participating securities under EITF 03-6, are anti-dilutive for all prior periods and there is no revision to our earnings per share for these participating securities.

 


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Net Income per share   Six Months Ended
(in thousands, except share data)
 
  June 30,
    2004
  2003
Numerator:
               
Numerator for basic and diluted earnings per share:
               
Diluted EPS – net income before preferred dividend and
               
undistributed earnings allocation
  $ 105,879     $ 37,825  
Cash dividends on Class B preferred stock
          (681 )
Undistributed earnings allocated for Class B preferred stock
          (387 )
 
   
 
     
 
 
Basic and undistributed earnings allocated to EPS – net
income available to common stockholders
  $ 105,879     $ 36,757  
 
   
 
     
 
 
Denominator:
               
Denominator for basic earnings per share:
               
Weighted average number of common shares
               
outstanding during the period
    20,028,267       17,036,286  
Net effect of dilutive stock options and preferred stock
    827,380       694,018  
 
   
 
     
 
 
Denominator for diluted earnings per share
    20,855,647       17,730,304  
 
   
 
     
 
 
Basic Earnings Per Share:
               
Net income per share
    5.29       2.16  
 
   
 
     
 
 
Diluted Earnings Per Share:
               
Net income per share
    5.08       2.07  
 
   
 
     
 
 

 


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REDWOOD TRUST, INC. AND SUBSIDIARIES    
CONSOLIDATED STATEMENTS OF INCOME    
(In thousands, except share data)   Six Months Ended
(Unaudited)
 
  June 30,
    2004
  2003
Interest Income
               
Residential real estate loans
  $ 212,450     $ 93,532  
Residential home equity lines of credit
    803        
Residential loan credit-enhancement securities
    31,610       31,670  
Commercial real estate loans
    1,569       1,776  
Securities portfolio
    20,156       9,249  
Cash and cash equivalents
    239       243  
 
   
 
     
 
 
Interest income before provision for credit losses
    266,827       136,470  
Provision for credit losses
    4,011 )     (3,919 )
 
   
 
     
 
 
Total interest income
    262,816       132,551  
 
Interest Expense
               
Short-term debt
    (5,061 )     (3,579 )
Asset-backed securities issued
    (164,875 )     (75,156 )
 
   
 
     
 
 
Total interest expense
    (169,936 )     (78,735 )
 
Net Interest Income
    92,880       53,816  
 
Operating expenses
    (18,487 )     (17,075 )
Net recognized gains and valuation adjustments
    29,695       3,859  
 
   
 
     
 
 
Net income before provision for income taxes
    104,088       40,600  
Provision for income taxes
    1,791       (2,775 )
 
   
 
     
 
 
Net Income
    105,879       37,825  
Dividends on Class B preferred stock
          (681 )
Undistributed earnings allocated to Class B preferred stock
          (387 )
 
   
 
     
 
 
Net Income Available to Common Stockholders
  $ 105,879     $ 36,757  
 
   
 
     
 
 
Earnings Per Share:
               
Basic Earnings Per Share:
               
Net income available to common stockholders
  $ 5.29     $ 2.16  
 
Diluted Earnings Per Share:
               
Net income available to common stockholders
  $ 5.08     $ 2.07  
 
Dividends declared per common share
  $ 1.840     $ 1.300  
Dividends declared per preferred share
  $     $ 0.755  
 
Weighted average shares of common stock and
               
common stock equivalents:
               
 
Basic
    20,028,267       17,036,286  
Diluted
    21,855,647       17,730,304  

 


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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

         
Date: November 23, 2004   REDWOOD TRUST, INC.
    By:   /s/ Harold F. Zagunis

Harold F. Zagunis
Vice President, Chief Financial
Officer, Controller, and
Secretary (Principal Financial and
Accounting Officer)