SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarterly Period
Ended October 2, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transaction Period
From to
Commission File Number 001-08634
Temple-Inland Inc.
(Exact name or registrant as specified in its charter)
Delaware 75-1903917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 South Temple Drive, Diboll, Texas 75941
(Address of principal executive offices) (Zip Code)
(409) 829-5511
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to the filing requirements for
the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Number of common shares outstanding
Class as of October 2, 1999
Common Stock (par
value $1.00 per share) 55,852,175
The Exhibit Index appears on page 25 of this report.
<PAGE>2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Summarized Statements of Income
Parent Company (Temple-Inland Inc.)
Unaudited
Third Quarter First Nine Months
1999 1998 1999 1998
(in millions)
Revenues
Net sales $ 669 $ 566 $ 1,903 $ 1,727
Financial services earnings 41 36 102 114
------ ------ ------ ------
710 602 2,005 1,841
Costs and expenses
Cost of sales 525 472 1,531 1,423
Selling and administrative 69 66 197 191
------ ------ ------ ------
594 538 1,728 1,614
Operating income 116 64 277 227
Interest expense - net (25) (19) (69) (58)
Other 5 1 11 4
------ ------ ------ ------
Income from continuing operations
before income taxes 96 46 219 173
Taxes on income 36 20 84 73
------ ------ ------ ------
Income from continuing operations 60 26 135 100
Discontinued operations, net of tax:
Loss from operations (1) (2) (16) (15)
Loss on disposal (79) - (79) -
------ ------ ------ ------
Total discontinued operations (80) (2) (95) (15)
Net income (loss) before cumulative
effect of accounting change (20) 24 40 85
Cumulative effect of accounting
change, net of tax - - - (3)
------ ------ ------ ------
Net income (loss) $ (20) $ 24 $ 40 $ 82
====== ====== ====== ======
See notes to consolidated financial statements.
<PAGE>3
Summarized Balance Sheets
Parent Company (Temple-Inland Inc.)
Unaudited
Third
Quarter Year End
1999 1998
(in millions)
ASSETS
Current Assets
Cash $ 2 $ 15
Receivables, less allowances of $10
million in 1999 and $13 million in 1998 366 264
Inventories:
Work in process and finished goods 67 61
Raw materials 197 222
------ ------
264 283
Net assets of discontinued operations 579 677
Prepaid expenses 17 14
------ ------
Total current assets 1,228 1,253
Investment in Financial Services 1,035 708
Property and Equipment
Buildings 432 428
Machinery and equipment 2,738 2,706
Construction in progress 112 88
Less allowances for depreciation (1,747) (1,646)
------- ------
1,535 1,576
Timber and timberlands--less depletion 506 499
Land 34 34
------- ------
Total property and equipment 2,075 2,109
Other Assets 153 174
------- ------
Total Assets $ 4,491 $ 4,244
======= ======
See notes to consolidated financial statements.
<PAGE>4
Summarized Balance Sheets - Continued
Parent Company (Temple-Inland Inc.)
Unaudited
Third
Quarter Year End
1999 1998
(in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 143 $ 126
Accrued expenses 189 167
Employee compensation and benefits 25 28
Current portion of long-term debt 6 2
------ ------
Total current liabilities 363 323
Long-Term Debt 1,726 1,501
Deferred Income Taxes 261 266
Postretirement Benefits 145 145
Other Liabilities 11 11
Shareholders' Equity 1,985 1,998
------ ------
Total Liabilities and Shareholders'
Equity $ 4,491 $ 4,244
======= ======
See notes to consolidated financial statements.
<PAGE>5
Summarized Statements of Cash Flows
Parent Company (Temple-Inland Inc.)
Unaudited
First Nine Months
1999 1998
(in millions)
Cash Provided by (Used for) Operations
Net income $ 40 $ 82
Adjustments to reconcile net income to net cash:
Cumulative effect of accounting change,
net of tax - 3
Loss on disposal of discontinued operations,
net of tax 79 -
Depreciation and depletion 146 143
Deferred taxes 51 23
Unremitted earnings from financial services (91) (87)
Receivables (113) (28)
Inventories 16 10
Accounts payable and accrued expenses 16 (9)
Change in net assets of discontinued
operations 9 47
Other 11 (16)
------ ------
164 168
Cash Provided by (Used for) Investments
Capital expenditures for property and
equipment (138) (115)
Proceeds from sale of notes 11 -
Proceeds from sale of property and equipment 18 4
Acquisitions and joint ventures, net (6) (113)
Capital contributions to financial services (279) (40)
Dividends from financial services 30 40
------ ------
(364) (224)
Cash Provided by (Used for) Financing
Additions to debt 315 328
Payments of debt (86) (172)
Purchase of stock for treasury - (48)
Cash dividends paid to shareholders (54) (54)
Other 12 3
------ ------
187 57
Net increase (decrease) in cash (13) 1
Cash at beginning of period 15 13
------ ------
Cash at end of period $ 2 $ 14
===== =====
See notes to consolidated financial statements.
<PAGE>6
Summarized Balance Sheets
Financial Services Group
Unaudited
First Nine
Third Quarter Months
1999 1998 1999 1998
(in millions)
Interest income
Loans receivable and mortgage
loans held for sale $ 187 $ 148 $ 513 $ 429
Mortgage-backed and investment
securities 31 35 92 115
Other earning assets 2 1 4 3
----- ----- ----- -----
Total interest income 220 184 609 547
Interest expense
Deposits 100 90 273 269
Borrowed funds 39 31 122 98
----- ----- ----- -----
Total interest expense 139 121 395 367
Net interest income 81 63 214 180
Provision for loan losses 6 1 24 2
----- ----- ----- -----
Net interest income after provision
for loan losses 75 62 190 178
Noninterest income
Loan servicing fees 20 19 57 61
Loan origination and marketing 14 34 61 84
Other 41 39 109 116
----- ----- ----- -----
Total noninterest income 75 92 227 261
Noninterest expense
Compensation and benefits 42 43 125 126
Other 63 71 179 189
----- ----- ----- -----
Total noninterest expense 105 114 304 315
Income before taxes and
minority interest 45 40 113 124
Minority interest in income
of consolidated subsidiary (4) (4) (11) (10)
----- ----- ----- -----
Income before taxes 41 36 102 114
Taxes on income (2) 8 11 27
----- ----- ----- -----
Net income $ 43 $ 28 $ 91 $ 87
===== ===== ===== =====
See notes to consolidated financial statements.
<PAGE>7
Summarized Balance Sheets
Financial Services Group
Unaudited
Third
Quarter Year End
1999 1998
(in millions)
ASSETS
Cash and cash equivalents $ 314 $ 229
Mortgage loans held for sale 273 621
Loans receivable 9,519 8,101
Mortgage-backed and investment
securities 2,386 2,485
Other assets 1,101 964
------- -------
TOTAL ASSETS $13,593 $12,400
====== ======
LIABILITIES
Deposits $ 8,899 $ 7,338
Federal Home Loan Bank advances 2,623 3,221
Other borrowings 215 210
Other liabilities 596 698
Preferred stock issued by subsidiary 225 225
------ ------
TOTAL LIABILITIES 12,558 11,692
SHAREHOLDERS' EQUITY 1,035 708
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $13,593 $12,400
====== ======
See notes to consolidated financial statements.
<PAGE>8
Summarized Statements of Cash Flows
Financial Services Group
Unaudited
First Nine Months
1999 1998
(in millions)
Cash Provided by (Used for) Operations
Net income $ 91 $ 87
Adjustments to reconcile net income to net cash:
Provision for amortization, depreciation and
accretion 53 69
Provision for loan losses 24 2
Mortgage loans held for sale 348 (101)
Collections and remittances on loans serviced
for others, net (194) (11)
Originated mortgage servicing rights (48) (48)
Minority interest in earnings of consolidated
subsidiary 11 10
Other 90 12
----- -----
375 20
Cash Provided by (Used for) Investments
Purchases of securities available-for-sale (168) (35)
Maturities of securities available-for-sale 245 228
Maturities and redemptions of securities
held-to-maturity 286 259
Loans originated or acquired, net of principal
collected on loans (1,121) (873)
Proceeds from sale of securities available-
for-sale 144 53
Purchase of asset based lending loans (106) -
Capital expenditures for property and equipment (19) (24)
Acquisition of HF Bancorp, Inc., net of
cash acquired (90) -
Purchase of Fidelity Funding (19) -
Proceeds from sale of loans 233 16
Other (24) 4
----- -----
(639) (372)
Cash Provided by (Used for) Financing
Net increase (decrease) in deposits 679 (52)
Securities sold under repurchase agreements and
short-term borrowings, net 100 (248)
Additions to debt 21 606
Payments of debt (758) (65)
Capital contributions from Parent Company 279 40
Dividends paid to Parent Company (30) (40)
Proceeds from sale of subsidiary preferred
stock 1 75
Distributions to minority interest (11) (10)
Net increase in advances from borrowers for
taxes and insurance 68 49
----- -----
349 355
Net increase in cash and cash equivalents 85 3
Cash and cash equivalents at beginning of 229 175
period ----- -----
Cash and cash equivalents at end of period $ 314 $ 178
===== =====
See notes to consolidated financial statements.
<PAGE>9
Consolidated Statements of Income
Temple-Inland Inc. and Subsidiaries
Unaudited
Third Quarter First Nine Months
1999 1998 1999 1998
(in millions)
Revenues
Manufacturing $ 669 $ 566 $ 1,903 $ 1,727
Financial services 295 276 836 808
----- ----- ----- -----
964 842 2,739 2,535
Costs and expenses
Manufacturing 594 538 1,728 1,614
Financial services 254 240 734 694
----- ----- ----- -----
848 778 2,462 2,308
Operating income 116 64 277 227
Parent company interest - net (25) (19) (69) (58)
Other 5 1 11 4
----- ----- ----- -----
Income from continuing operations
before taxes 96 46 219 173
Taxes on income 36 20 84 73
----- ----- ----- -----
Income from continuing operations 60 26 135 100
Discontinued operations, net of tax:
Loss from operations (1) (2) (16) (15)
Loss on disposal (79) - (79) -
----- ----- ----- -----
Total discontinued operations (80) (2) (95) (15)
Net income (loss) before cumulative
effect of accounting change (20) 24 40 85
Cumulative effect of accounting
change, net of tax - - - (3)
----- ----- ----- -----
Net income (loss) $ (20) $ 24 $ 40 $ 82
===== ===== ===== =====
Weighted average shares outstanding:
Basic 55.9 55.6 55.8 55.8
Diluted 56.1 55.6 56.0 55.9
Earnings Per Share
Basic:
Income before discontinued operations
and cumulative effect of accounting
change $ 1.07 $ 0.47 $ 2.42 $ 1.79
Discontinued operations, net of
tax (1.43) (0.03) (1.70) (0.26)
Cumulative effect of accounting
change, net of tax - - - (0.06)
----- ----- ----- -----
Net income (loss) $(0.36) $ 0.44 $ 0.72 $ 1.47
===== ===== ===== =====
Diluted:
Income before discontinued operations
and cumulative effect of accounting
change $ 1.07 $ 0.47 $ 2.41 $ 1.79
Discontinued operations, net of
tax (1.43) (0.03) (1.69) (0.26)
Cumulative effect of accounting
change, net of tax - - - (0.06)
----- ----- ----- -----
Net income (loss) $(0.36) $ 0.44 $ 0.72 $ 1.47
===== ===== ===== =====
Dividends paid per share of
common stock $ 0.32 $ 0.32 $ 0.96 $ 0.96
===== ===== ===== =====
See notes to consolidated financial statements.
<PAGE>10
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
Third Quarter 1999
Unaudited
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 2 $ 314 $ 316
Mortgage loans held for sale - 273 273
Loans receivable - 9,519 9,519
Mortgage-backed and investment
securities - 2,386 2,386
Trade and other receivables 366 - 358
Inventories 264 - 264
Net assets of discontinued operations 579 - 579
Property and equipment 2,075 142 2,217
Other assets 170 959 1,089
Investment in Financial Services 1,035 - -
------ ------ ------
TOTAL ASSETS $ 4,491 $ 13,593 $ 17,001
====== ======= =======
LIABILITIES
Deposits $ - $ 8,899 $ 8,899
Federal Home Loan Bank advances - 2,623 2,623
Other liabilities 374 596 953
Long-term debt 1,726 215 1,941
Deferred income taxes 261 - 230
Postretirement benefits 145 - 145
Preferred stock issued by subsidiary - 225 225
------- ------- -------
TOTAL LIABILITIES $ 2,506 $ 12,558 $ 15,016
======= ======= -------
SHAREHOLDERS' EQUITY
Preferred stock - par value $1 per
share: authorized 25,000,000 shares;
none issued -
Common stock - par value $1 per
share; authorized 200,000,000 shares; issued
61,389,552 shares including shares held in the
treasury 61
Additional paid-in capital 361
Accumulated other comprehensive income (loss) (28)
Retained earnings 1,797
-------
2,191
Cost of shares held in the treasury:
5,537,377 shares (206)
-------
TOTAL SHAREHOLDERS' EQUITY 1,985
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,001
=======
See notes to consolidated financial statements.
<PAGE>11
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
Year End 1998
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 15 $ 229 $ 244
Mortgage loans held for sale - 621 621
Loans receivable - 8,101 8,101
Mortgage-backed and investment
securities - 2,485 2,485
Trade and other receivables 264 - 257
Inventories 283 - 283
Net assets of discontinued operations 677 - 677
Property and equipment 2,109 129 2,238
Other assets 188 835 986
Investment in Financial Services 708 - -
------- ------ ------
TOTAL ASSETS $ 4,244 $12,400 $15,892
======= ====== ======
LIABILITIES
Deposits $ - $ 7,338 $ 7,338
Federal Home Loan Bank advances - 3,221 3,221
Other liabilities 334 698 1,012
Long-term debt 1,501 210 1,711
Deferred income taxes 266 - 242
Postretirement benefits 145 - 145
Preferred stock issued by subsidiary - 225 225
------- ------ ------
TOTAL LIABILITIES $ 2,246 $11,692 $13,894
======= ====== ------
SHAREHOLDERS' EQUITY
Preferred stock - par value $1 per
share: authorized 25,000,000 shares;
none issued -
Common stock - par value $1 per share;
authorized 200,000,000 shares; issued
61,389,552 shares including shares held
in the treasury 61
Additional paid-in capital 357
Accumulated other comprehensive income (loss) (17)
Retained earnings 1,810
-------
2,211
Cost of shares held in the treasury:
5,785,139 shares (213)
-------
TOTAL SHAREHOLDERS' EQUITY 1,998
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,892
=======
See notes to consolidated financial statements.
<PAGE>12
Consolidated Statements of Cash Flows
Temple-Inland Inc. and Subsidiaries
Unaudited
First Nine Months
1999 1998
(in millions)
CASH PROVIDED (USED FOR) OPERATIONS
Net income $ 40 $ 82
Adjustments to reconcile net income to
net cash:
Loss on disposal of discontinued
operations, net of tax 79 -
Cumulative effect of accounting change,
net of tax - 3
Depreciation and depletion 159 153
Amortization of goodwill 6 5
Provision for loan losses 24 2
Deferred taxes 54 28
Amortization and accretion on financial
instruments 36 55
Mortgage loans held for sale 348 (101)
Receivables (113) (28)
Inventories 16 10
Accounts payable and accrued expenses 16 (9)
Collections and remittances on loans
serviced for others, net (194) (11)
Change in net assets of discontinued
operations 9 47
Originated mortgage servicing rights (48) (48)
Other 107 -
----- -----
539 188
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures for property and
equipment (157) (139)
Proceeds from sale of notes 11 -
Proceeds from sale of property and equipment 18 20
Purchases of securities available-for-sale (168) (35)
Maturities of securities available-for-sale 245 228
Maturities and redemptions of securities
held-to-maturity 286 259
Loans originated or acquired, net of
principal collected on loans (1,121) (873)
Proceeds from sale of securities available-
for-sale 144 53
Purchase of asset based lending loans (106) -
Manufacturing acquisitions and joint
ventures, net (6) (113)
Acquisition of HF Bancorp Inc., net of cash
acquired (90) -
Purchase of Fidelity Funding (19) -
Proceeds from sale of loans 233 16
Other (24) (12)
------ ------
(754) (596)
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt 336 934
Payments of debt (844) (237)
Securities sold under repurchase agreements
and short-term borrowings, net 100 (248)
Purchase of stock for treasury - (48)
Cash dividends paid to shareholders (54) (54)
Net increase (decrease) in deposits 679 (52)
Proceeds from sale of subsidiary preferred
stock 1 75
Distributions to minority shareholders (11) (10)
Other 80 52
------ ------
287 412
Net increase in cash and cash equivalents 72 4
Cash and cash equivalents at beginning of period 244 188
------ ------
Cash and cash equivalents at end of period $ 316 $ 192
====== ======
See the notes to the consolidated financial statements.
<PAGE>13
TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
accruals) considered necessary for a fair presentation have been
included. For further information, refer to the consolidated
financial statements and footnotes included in, or incorporated
into, the Annual Report on Form 10-K of Temple-Inland Inc. (the
"Company") for the fiscal year ended January 2, 1999.
The consolidated financial statements include the accounts of the
Company and all subsidiaries in which the company has more than a
50 percent equity ownership. Because certain assets and
liabilities are in separate corporate entities, the consolidated
assets are not available to satisfy all consolidated liabilities.
All material intercompany amounts and transactions have been
eliminated. Certain amounts have been reclassified to conform
with current year's classification.
Included as an integral part of the consolidated financial
statements are separate summarized financial statements for the
company's primary business groups.
The Parent Company (Temple-Inland Inc.) summarized financial
statements include the accounts of the Company and its
manufacturing subsidiaries with the Financial Services
subsidiaries and the 20 percent to 50 percent owned companies
being reflected in the financial statements on the equity method.
The Financial Services Group summarized financial statements
include savings bank, mortgage banking, real estate development
activities and insurance operations.
In July 1999, the Financial Accounting Standards Board (FASB)
delayed the effective date of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and
Hedging Activities, to fiscal years beginning after June 15, 2000.
This statement will require derivative positions to be recognized
in the balance sheet at fair value. The company presently
utilizes derivatives to manage interest rate risk and risk in its
mortgage loan production operations. The company has not yet
determined the effect on earnings or financial position of
adopting this statement.
<PAGE>14
Effective with the beginning of 1999, the company adopted AICPA
Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which requires
the capitalization of internal and external costs incurred during
the application development stage. All costs incurred during the
preliminary project stage and post-implementation stage are to be
expensed as incurred. The adoption of this statement did not have
a material effect on the company's earnings or financial position.
NOTE B - EARNINGS PER SHARE
Denominators used in computing earnings per share are as follows:
Third First Nine
Quarter Months
1999 1998 1999 1998
(in millions)
Denominator for basic earnings per
share
Weighted average common shares
outstanding 55.9 55.6 55.8 55.8
Dilutive effect of stock options .2 - .2 .1
----- ----- ----- -----
Denominator for diluted earnings per
share 56.1 55.6 56.0 55.9
===== ===== ===== =====
NOTE C - COMPREHENSIVE INCOME
Comprehensive income is as follows:
Third First Nine
Quarter Months
1999 1998 1999 1998
(in millions)
Net income (loss) $(20) $24 $40 $82
Other comprehensive income, net of
income taxes:
Unrealized gains (losses) on
available-for-sale securities (3) 2 (12) 8
Foreign currency translation
adjustments - - 1 -
Minimum pension liability adjustments - - - (1)
---- ---- ---- ----
Other comprehensive income (loss) (3) 2 (11) 7
---- ---- ---- ----
Comprehensive income (loss) $(23) $ 26 $ 29 $ 89
==== ==== ==== ====
<PAGE>15
NOTE D - DISCONTINUED OPERATIONS
On October 4, 1999, the Company announced it had entered
into an agreement to sell its bleached
paperboard business, including the mill located in Evadale, Texas
to Westvaco Corporation for $625 million. Accordingly, the
results of the bleached paperboard operation have been classified
as discontinued operations, and prior periods have been restated.
The Company recorded an after-tax loss of $79.0 million, net of
income tax benefits of $48.5 million, in the third quarter for the
estimated loss on disposal and operating losses. Revenues from
the bleached paperboard operation were $97.3 million and $102.0
million for the third quarter 1999 and 1998, respectively, and
$283.1 million and $293.7 million for the first nine months of
1999 and 1998, respectively. Loss from operations for the third
quarter of 1999 totaled $1.0 million, net of income tax benefits
of $.4 million compared with $1.5 million loss for the third
quarter of 1998, net of income tax benefits of $1.2 million. Loss
from operations for the first nine months of 1999 was $15.8
million (net of income tax benefits of $9.6 million) compared with
an operating loss of $14.6 million (net of income tax benefits of
$11.1 million) in the first nine months of 1998. Interest cost of
approximately $7 million per quarter has been allocated to the
discontinued operations based on debt allocated to the bleached
paperboard operation. Included in the estimated loss on disposal
of the bleached paperboard operation is anticipated operating
losses through the date of disposal of $3.8 million, net of income
tax benefits of $2.3 million. The transaction is scheduled to close
by the end of the year, subject to certain regulatory approvals
and satisfaction of various conditions contained in the agreement.
NOTE E - SEGMENT INFORMATION
The Company has three reportable segments: paper, building
products and financial services. The paper segment manufactures
corrugated packaging. The building products segment manufactures
a variety of building materials and manages the Company's timber
resources. The financial services segment operates a savings bank
and also engages in mortgage banking, real estate development and
insurance activities. All prior periods have been restated to
reflect the discontinued operations of the bleached paperboard
operation (Note D).
These segments are managed as separate business units. The
Company evaluates performance based on operating income before
special charges, corporate expenses and income taxes. Corporate
interest expense is not allocated to business segments. The
accounting policies of the segments are the same as those
described in the accounting policy notes to the financial
statements. Corporate and other includes corporate expenses and
special charges.
<PAGE>16
Building Financial Corporate
Paper Products Services and Other Total
(in millions)
For the third quarter 1999
Revenues from external
customers 463 206 295 - 964
Operating income 29 53 41 (7) 116
Financial services,
net interest income - - 81 - 81
- ---------------------------------------------------------------------------
For the third quarter 1998
Revenues from external
customers 411 155 276 - 842
Operating income 5 30 36 (7) 64
Financial Services,
net interest income - - 63 - 63
- ---------------------------------------------------------------------------
For the first nine months or
at third quarter end 1999
Revenues from external
customers 1,327 576 836 - 2,739
Operating income 61 136 102 (22) 277
Financial Services,
net interest income - - 214 - 214
Total assets 2,261(a) 1,071 13,593 76 17,001
- ---------------------------------------------------------------------------
For the first nine months or
at third quarter end 1998
Revenues from external
customers 1,262 465 808 - 2,535
Operating income 42 92 114 (21) 227
Financial services,
net interest income - - 180 - 180
Total assets 2,449(a) 1,039 11,279 70 14,837
- ---------------------------------------------------------------------------
(a) Includes net assets of discontinued operations.
NOTE F - SPECIAL CHARGE
During the fourth quarter of 1998, the Parent Company recorded a
special charge of $47.4 million, which included $13.0 million
related to work force reductions in the Paper Group, $24.5 million
related to asset impairments (primarily Paper Group's Argentine
operation), and $9.9 million of asset impairments related to the
Building Products Group. Of the $13.0 million charge for work
force reductions, which included termination benefits associated
with the early retirement offer and severance amounts for the
involuntary terminations, substantially all was utilized
during the first nine months of 1999.
During the second quarter of 1999, the Company sold its Argentine
operation for $12.0 million, which approximated the carrying value
of these assets. The sale proceeds included $1.0 million in cash
<PAGE>17
and $11.0 million in promissory notes, which were subsequently
sold in the third quarter of 1999.
NOTE G - CONTINGENCIES
There are pending against the Company and its subsidiaries
lawsuits and claims arising in the regular course of business. In
the opinion of management, recoveries, if any, by plaintiffs or
claimants that may result from the foregoing litigation and claims
will not be material in relation to the consolidated financial
statements of the Company and its subsidiaries.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of operations, including information regarding the
Company's principal business segments, are shown below:
First
Third Quarter Nine Months
1999 1998 1999 1998
(in millions)
Revenues
Paper $ 463 $ 411 $ 1,327 $ 1,262
Building products 206 155 576 465
----- ----- ------ ------
Manufacturing net sales 669 566 1,903 1,727
Financial services 295 276 836 808
----- ----- ------ ------
Total revenues $ 964 $ 842 $ 2,739 $ 2,535
===== ===== ====== ======
Income
Paper $ 29 $ 5 $ 61 42
Building products 53 30 136 92
----- ----- ------ ------
82 35 197 134
Financial services 41 36 102 114
----- ----- ------ ------
Segment operating income 123 71 299 248
Corporate expenses (7) (7) (22) (21)
Parent company interest - net (25) (19) (69) (58)
Other - net 5 1 11 4
----- ----- ------ ------
Income from continuing operations
before taxes 96 46 219 173
Taxes on income 36 20 84 73
----- ----- ------ ------
Income from continuing
operations 60 26 135 100
Discontinued operations, net of tax:
Loss from operations (1) (2) (16) (15)
Loss on disposal (79) - (79) -
----- ----- ------ ------
Total discontinued operations (80) (2) (95) (15)
Net income (loss) before cumulative
effect of accounting change (20) 24 40 85
Cumulative effect of accounting
change, net of tax - - - (3)
----- ----- ----- -----
Net income (loss) $ (20) $ 24 $ 40 $ 82
===== ===== ===== =====
<PAGE>18
Third quarter 1999 vs. Third quarter 1998
Third quarter earnings from continuing operations for 1999 totaled
$60 million, or $1.07 per diluted share, compared with third
quarter 1998 earnings from continuing operations of $26 million,
or $0.47 per diluted share.
On October 4, 1999, the Company announced it had entered
into an agreement to sell its bleached
paperboard business, including the mill located in Evadale, Texas,
to Westvaco Corporation for $625 million. Accordingly, the
results of the bleached paperboard operation have been classified
as discontinued operations, and prior periods have been restated.
The Company recorded an after-tax loss of $80 million, which
included the estimated loss on the disposal of the business and
related third quarter operating losses. Including this loss, the
net loss for the quarter was $20 million, or $0.36 per diluted
share.
The Paper Group, which now consists solely of corrugated packaging
operations, reported operating income of $29 million compared with
$5 million of operating income in the third quarter of 1998.
During the quarter, the Paper Group began to implement the second
corrugated box price increase of the year. Average prices in the
quarter for corrugated boxes were up 4 percent compared with the
third quarter of 1998. Corrugated box shipments during the
quarter for the group increased approximately 3.1 percent over the
same period last year. The average price for old corrugated
containers (OCC), which the Company uses for approximately 45
percent of the total fiber requirements of the containerboard
mills, was up roughly 50 percent in the third quarter compared
with the second quarter. This translated into a negative impact
on earnings of approximately $11 million.
The Building Products Group reported operating income of $53
million compared with $30 million in last year's third quarter.
The group benefited from strong demand during the quarter with
shipments for all products above last year's third quarter levels.
Particleboard shipments were at record levels in the quarter.
Prices for all products except lumber improved in the third
quarter when compared with the second quarter of 1999. Lumber
prices were volatile, and the average price for lumber in the
quarter was slightly below the prior quarter. The three new
medium density fiberboard facilities and the fiber cement
operation continued to improve operations and enhance their
product mix in the quarter.
The Financial Services Group recorded operating earnings for the
quarter of $41 million compared with $36 million in the third
quarter of 1998 and $34 million in the second quarter of 1999.
The improvement from the prior quarter was a result of the growth
of the bank, including the acquisition of Hemet Federal Savings
and Loan Association, which was completed on June 29, 1999. Net
interest income after provision for loan losses for the third
<PAGE>19
quarter of 1999 increased by $13 million, the net effect of an $18
million increase in net interest income (due to higher loan
volumes) and a $5 million increase in the provision for loan
losses. The increase in provision for loan losses is due to
additional reserves required due to loan growth, the change in
asset mix of the bank and required reserves on the mortgage
warehouse portfolio. Noninterest income for the third quarter
decreased by $17 million due primarily to decreased loan
origination and servicing revenues of $19 million offset by a $2
million increase in other noninterest income. Noninterest expense
decreased by $9 million from third quarter 1998 due primarily to
decreased amortization expense.
Parent Company net interest expense increased to $25 million in
the third quarter of 1999 compared with $19 million in the third
quarter of last year. The increase is primarily due to higher
levels of debt outstanding.
First nine months of 1999 vs. First nine months of 1998
Earnings from continuing operations for the first nine months of
1999 were $135 million, or $2.41 per diluted share, compared with
$100 million, or $1.79 per diluted share for 1998. For the first
nine months of 1999, net loss from discontinued operations, net of
income tax benefits, totaled $95 million versus $15 million, net
of income tax benefits, for the same period in 1998. Loss from
discontinued operations for the first nine months of 1999 includes
estimated loss on disposal of $79 million. Including discontinued
operations, earnings for the first nine months of 1999 were $40
million, or $0.72 per diluted share compared with $85 million, or
$1.53 per diluted share, before effect of accounting change.
Revenues of $2.7 billion were up eight percent from the 1998 first
nine months revenues of $2.5 billion.
The Paper Group earned $61 million compared with operating income
of $42 million in the first nine months of 1998. Increase in box
shipments and a decrease in the average price for old corrugated
containers (OCC) contributed to the improvement in earnings.
Corrugated box shipments during the first nine months of 1999
increased approximately 3.9 percent versus the same period last
year. The average price for old corrugated containers was down
roughly 4.4 percent in the first nine months of 1999 when compared
with the same period last year. Box prices for the first nine
months of 1999 were approximately 0.2 percent lower than 1998
prices.
The Building Products Group earned $136 million in the first nine
months of 1999 compared with $92 million in the same period last
year. Revenues for the first nine months of 1999 were $576
million, up $111 million from last year's first nine months
revenues of $465 million. Sales averages across all product lines
for the first nine months of 1999 were higher than last year.
Operating losses for the building products group's three new
medium density fiberboard facilities and its fiber cement
<PAGE>20
operation had a negative effect on earnings in first nine months
of 1999.
The Financial Services Group recorded operating earnings of $102
million in the first nine months of 1999, compared with $114
million in the first nine months of 1998. Net interest income
after provision for loan losses increased by $12 million as a
result of a $34 million increase in net interest income due to
higher loan volumes offset by a $22 million increase in the
provision for loan losses. Noninterest income decreased by $34
million due primarily to decreased loan origination income of $23
million, decreased loan servicing revenues of $4 million and
decreased gains on sale of $2 million by the Real Estate group in
1999 compared to 1998. Noninterest expense decreased by $11
million in 1999 compared with 1998.
Capital Resources and Financial Condition
The Company's financial condition continues to be strong.
Internally generated funds, existing credit facilities and the
capacity to issue long-term debt are sufficient to fund projected
capital expenditures, to service existing debt, to pay dividends
and to meet normal working capital requirements.
During the first nine months of 1999, Parent Company's debt
increased by $229 million, mainly through issuance of $300 million
of medium-term notes, payment of $70 million of private placement
debt, net decrease in other notes by $4 million and net increase
of $3 million in commercial paper and borrowings under bank credit
agreements. The acquisition of HF Bancorp Inc., for a cash
purchase price of $119 million in the second quarter 1999 resulted
in an increase in total assets of the Financial Services Group to
$13.6 billion at September 30, 1999. Loans acquired totaling
approximately $600 million as well as the continued growth of the
loan portfolio were the significant components of the increase.
Total deposits increased to $8.9 billion at quarter end September
1999 due primarily to the deposits acquired of approximately $900
million and deposit campaigns by the bank during the first six
months. A capital contribution of $120 million to the bank in the
first quarter provided additional capital to maintain the bank's
regulatory capital requirements. Parent Company contributed $119
million to the bank in the second quarter for the acquisition of
HF Bancorp Inc. Parent Company contributed $40 million to the
bank in the third quarter of 1999, and received dividends of $30
million from the bank.
The savings bank continues to maintain the minimum levels of
capital required for designation as well capitalized.
Year 2000 Compliance
Year 2000 projects are 97 percent completed and no disruption to
operations is expected. Critical systems have been remediated,
tested, and prepared for production status in the new millennium.
<PAGE>21
Business and administrative systems supporting all lines of
business are ready for Year 2000. Predominately, these are
purchased software solutions, and the vendor is responsible for
compliance processing. Year 2000 upgrades have been installed with
no date exceptions.
The Company has not found any critical date dependencies in its
manufacturing operations that would inhibit the ability to
manufacture products. Some processes will require manual date
entry at appropriate times to reflect the correct date
manufactured, but these have no impact on the production process.
The Company has reviewed the Year 2000 readiness of its major
suppliers and no major problems have been found that would have an
impact upon business operations. Contingency plans have been
developed to prepare for any major suppliers' inability to provide
required products and services. These plans include building
inventories of critical supplies and identifying alternate
sources.
Year 2000 readiness for the operations in the Financial Services
Group is subject to review and oversight of various regulatory
agencies. All critical systems have completed testing and
implementation was completed by June 30, 1999. Should any
disruption occur that would significantly affect operations or
customer service, the group would implement its disaster recovery
contingency plans, which activate backup processing and business
support functions at designated recovery sites. Employee and
customer awareness activities have been taken to insure proper
awareness and preparedness.
In preparation for the Year 2000 transition, each business unit
has prepared resource and event plans to assure a smooth rollover
into the Year 2000. Staffing will be in place twenty-four hours
daily beginning on December 31 to resolve any Year 2000 issues.
Year 2000 Project expenditures to date for all lines of business
total $10.5 million.
The Company believes its efforts have addressed the risks
associated with Year 2000 exposure and that business contingency
plans will handle unexpected items.
Forward-Looking Statements
Statements in this report that are not historical are forward-
looking statements that involve risks and uncertainties. The
actual results achieved by the Company may differ significantly
from the results discussed in the forward-looking statements.
Factors that might cause such differences include general
economic, market, or business conditions; the opportunities (or
lack thereof) that may be presented to and pursued by the Company
and its subsidiaries; the availability and price of raw materials
used by the Company and its subsidiaries; competitive actions by
other companies; changes in laws or regulations; and other
<PAGE>22
factors, many of which are beyond the control of the Company and
its subsidiaries.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest Rate Risk
The Company is subject to interest rate risk from the utilization
of financial instruments such as adjustable-rate debt and other
borrowings, as well as the lending and deposit-gathering
activities of the Financial Services Group. The following table
illustrates the estimated impact on pretax income of immediate,
parallel, and sustained shifts in interest rates for the
subsequent 12-month period at the end of the third quarter of 1999
with comparative information at year end 1998:
Increase / (Decrease) in Income
before Taxes
( in millions)
Third Quarter Year End
Change in Interest Rates 1999 1998
+2% $ (10) $ (26)
+1% $ ( 1) $ ( 1)
0% $ - $ -
-1% $ - $ 10
-2% $ (13) $ 29
The change in exposure to interest rate risk from year end 1998 is
due primarily to a decrease in the Parent Company's adjustable-
rate debt portfolio and the diminishing impact of interest rate
hedge contracts at the savings bank that are significantly closer
to maturity.
The fair value of the Financial Services Group's mortgage
servicing rights is also affected by changes in interest rates.
The Company estimates that a one percent decline in interest rates
from quarter end levels would decrease the fair value of the
mortgage servicing rights by approximately $55 million or
approximately 17 percent.
Foreign Currency Risk:
The Company's exposure to foreign currency fluctuations on its
financial instruments is not material because most of these
instruments are denominated in U.S. dollars.
Commodity Price Risk:
The Company has no financial instruments subject to commodity
price risks.
<PAGE>23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note G to Notes to
Consolidated Financial Statements in Part I of this
report is incorporated by reference thereto.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Regulation S-K
Exhibit Number
(27) Financial Data Schedules
(b) Reports on Form 8-K. During the three months ended October
2, 1999, the Company did not file a current report on Form 8-K.
<PAGE>24
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.
TEMPLE-INLAND INC.
(Registrant)
Dated: November 15, 1999 By /s/ David H. Dolben
David H. Dolben
Vice President and
Chief Accounting Officer
<PAGE>25
EXHIBIT INDEX
The following is an index of the exhibits filed herewith. The
page reference set forth opposite the description of exhibits
included in such index refer to the pages under the sequential
numbering system prescribed by Rule 0-3(b) under the Securities
Exchange Act of 1934.
Regulation S-K
Exhibit Sequential
Number Page Number
(27) Financial Data Schedules 26-29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated balance sheets and consolidated income statements for
Temple-Inland Inc. and subsidiaries and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 188
<SECURITIES> 0
<RECEIVABLES> 245
<ALLOWANCES> 0
<INVENTORY> 280
<CURRENT-ASSETS> 0
<PP&E> 2,174
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,270
<CURRENT-LIABILITIES> 0
<BONDS> 1,523
0
0
<COMMON> 61
<OTHER-SE> 1,984
<TOTAL-LIABILITY-AND-EQUITY> 14,270
<SALES> 2,311
<TOTAL-REVENUES> 3,256
<CGS> 2,259
<TOTAL-COSTS> 3,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 108
<INCOME-TAX> 49
<INCOME-CONTINUING> 59
<DISCONTINUED> (8)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.90
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated balance sheets and consolidated income statements for
Temple-Inland Inc. and subsidiaries and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> JAN-02-1999 JAN-02-1999 JAN-02-1999 JAN-02-1999
<PERIOD-END> APR-04-1998 JUL-04-1998 OCT-03-1998 JAN-02-1999
<CASH> 196 272 192 244
<SECURITIES> 0 0 0 0
<RECEIVABLES> 290 275 275 257
<ALLOWANCES> 0 0 0 0
<INVENTORY> 292 287 274 283
<CURRENT-ASSETS> 0 0 0 0
<PP&E> 2,164 2,156 2,261 2,238
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 14,813 14,594 14,837 15,892
<CURRENT-LIABILITIES> 0 0 0 0
<BONDS> 1,661 1,681 1,722 1,711
0 0 0 0
0 0 0 0
<COMMON> 61 61 61 61
<OTHER-SE> 1,977 1,966 1,975 1,937
<TOTAL-LIABILITY-AND-EQUITY> 14,813 14,594 14,837 15,892
<SALES> 586 1,161 1,727 2,255
<TOTAL-REVENUES> 849 1,693 2,535 3,364
<CGS> 545 1,076 1,614 2,179
<TOTAL-COSTS> 771 1,530 2,308 3,134
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 19 39 58 78
<INCOME-PRETAX> 60 127 173 158
<INCOME-TAX> 25 53 73 70
<INCOME-CONTINUING> 35 74 100 88
<DISCONTINUED> (9) (13) (15) (21)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> (3) (3) (3) (3)
<NET-INCOME> 23 58 82 64
<EPS-BASIC> 0.41 1.03 1.47 1.16
<EPS-DILUTED> 0.41 1.03 1.47 1.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated balance sheets and consolidated income statements for
Temple-Inland Inc. and subsidiaries and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-01-2000 JAN-01-2000
<PERIOD-END> APR-03-1999 JUL-03-1999
<CASH> 163 233
<SECURITIES> 0 0
<RECEIVABLES> 311 352
<ALLOWANCES> 0 0
<INVENTORY> 263 251
<CURRENT-ASSETS> 0 0
<PP&E> 2,239 2,219
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 16,039 17,164
<CURRENT-LIABILITIES> 0 0
<BONDS> 1,892 2,002
0 0
0 0
<COMMON> 61 61
<OTHER-SE> 1,942 1,964
<TOTAL-LIABILITY-AND-EQUITY> 16,039 17,164
<SALES> 592 1,234
<TOTAL-REVENUES> 863 1,775
<CGS> 555 1,134
<TOTAL-COSTS> 799 1,614
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 22 44
<INCOME-PRETAX> 45 123
<INCOME-TAX> 19 48
<INCOME-CONTINUING> 26 75
<DISCONTINUED> (7) (15)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19 60
<EPS-BASIC> 0.34 1.08
<EPS-DILUTED> 0.33 1.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated balance sheets and consolidated income statements for
Temple-Inland Inc. and subsidiaries and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 316
<SECURITIES> 0
<RECEIVABLES> 358
<ALLOWANCES> 0
<INVENTORY> 264
<CURRENT-ASSETS> 0
<PP&E> 2,217
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,001
<CURRENT-LIABILITIES> 0
<BONDS> 1,941
0
0
<COMMON> 61
<OTHER-SE> 1,924
<TOTAL-LIABILITY-AND-EQUITY> 17,001
<SALES> 1,903
<TOTAL-REVENUES> 2,739
<CGS> 1,728
<TOTAL-COSTS> 2,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 219
<INCOME-TAX> 84
<INCOME-CONTINUING> 135
<DISCONTINUED> (95)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.72
</TABLE>
