Business Context and Reporting Period
Company: Redwood Trust, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: November 23, 2004
Subject: Restatement of historical financial data and earnings per share (EPS) calculations to comply with EITF 03-6 (Participating Securities and the Two-Class Method). The filing updates data for fiscal years 1999–2003 and the six months ended June 30, 2003, to be incorporated into a Form S-3 registration statement.
Key Financial Metrics
The filing provides selected financial data reflecting the revised EPS calculations. Figures are in thousands, except per share data.
| Year Ended Dec 31 | 2003 | 2002 | 2001 | 2000 | 1999 |
|---|---|---|---|---|---|
| Net Interest Income | $128,115 | $71,511 | $46,470 | $30,658 | $26,737 |
| Net Income Available to Common | $131,698 | $53,441 | $30,013 | $16,210 | ($1,013) |
| Basic EPS | $7.42 | $3.52 | $2.95 | $1.84 | ($0.10) |
| Diluted EPS | $7.04 | $3.41 | $2.87 | $1.82 | ($0.10) |
| Total Assets | $17,626,770 | $7,007,772 | $2,435,644 | $2,082,115 | $2,419,928 |
| Total Liabilities | $17,073,442 | $6,534,739 | $2,127,871 | $1,866,451 | $2,209,993 |
| Stockholders' Equity | $553,328 | $473,033 | $307,773 | $215,664 | $209,935 |
Six Months Ended June 30 (Unaudited):
- 2004 Net Income Available to Common: $105,879 (Basic EPS: $5.29; Diluted EPS: $5.08)
- 2003 Net Income Available to Common (Revised): $36,757 (Basic EPS: $2.16; Diluted EPS: $2.07)
Material Changes and Accounting Adjustments
The primary material change in this filing is the restatement of EPS due to the adoption of EITF 03-6, effective for periods after March 31, 2004. Key adjustments include:
- Participating Securities: The company identified convertible preferred stock (converted in Q2 2003) and certain vested options with cash dividend equivalent rights as participating securities.
- Dilution Impact: The preferred stock was determined to be dilutive, while the vested options were anti-dilutive.
- Historical Restatement: EPS figures for 1999–2003 and the six months ended June 30, 2003, were recalculated to allocate undistributed earnings to Class B preferred stock.
- Asset Growth: Total assets grew significantly from $7.0 billion in 2002 to $17.6 billion in 2003, driven by increased earning assets.
Guidance, Outlook, and Risks
Management Commentary: Management assessed the revisions as immaterial to the Form 10-Q filed for the period ended June 30, 2004, and therefore did not amend that filing. The restated data is provided solely for incorporation into the Form S-3 registration statement.
Risks and Contingencies:
- Accounting Principle Changes: The filing references a prior cumulative effect charge of $2.4 million in 2001 related to EITF 99-20 regarding residential credit-enhancement securities where fair value declined below carrying value.
- Debt Structure: The company relies heavily on asset-backed securities and short-term debt for funding, as evidenced by interest expense exceeding $164 million in the first half of 2004.
Investor Verification Checklist
- EPS Accuracy: Verify that the revised EPS figures ($7.42 basic for 2003) are correctly reflected in all current investor presentations and S-3 filings.
- Preferred Stock Status: Confirm that all Class B preferred stock remains converted to common stock and that no new participating securities have been issued that would alter the two-class method calculation.
- Asset Quality: Review the provision for credit losses ($4,011 in H1 2004) and the composition of the $17.5 billion earning assets portfolio for potential impairment risks.
- Liquidity Position: Assess the sustainability of the $16.8 billion long-term debt load relative to the $553 million equity base.