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 April 3, 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 April 3, 1999
Common Stock (par
value $1.00 per share) 55,711,043
The Exhibit index appears on page 24 of this report.
<PAGE>2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Summarized Statements of Income
Parent Company (Temple-Inland Inc.)
Unaudited
First Quarter
1999 1998
(in millions)
Revenues
Net sales $ 685 $ 682
Financial services earnings 27 37
----- -----
712 719
Costs and Expenses
Costs of sales 586 584
Selling and administrative 67 65
----- -----
653 649
Operating Income 59 70
Interest - net (29) (26)
Other 3 1
----- -----
Income Before Taxes 33 45
Taxes on income 14 18
----- -----
Income Before Accounting Change 19 27
Cumulative effect of accounting
change, net of tax -- (3)
----- -----
Net Income $ 19 $ 24
===== =====
See notes to consolidated financial statements.
<PAGE>3
Summarized Balance Sheets
Parent Company (Temple-Inland Inc.)
Unaudited
First
Quarter Year End
1999 1998
(in millions)
ASSETS
Current Assets
Cash $ 13 $ 15
Receivables, less allowances of $13
million in 1999 and $13 million in 1998 358 297
Inventories:
Work in process and finished goods 93 93
Raw materials 224 242
----- -----
317 335
Prepaid expenses 17 14
----- -----
Total current assets 705 661
Investment in Financial Services 847 708
Property and Equipment
Buildings 573 574
Machinery and equipment 3,846 3,829
Construction in progress 120 104
Less allowances for depreciation (2,291) (2,242)
------ ------
2,248 2,265
Timber and timberlands--less depletion 502 499
Land 35 35
------ ------
Total property and equipment 2,785 2,799
Other Assets 171 174
------ ------
Total Assets $ 4,508 $ 4,342
====== ======
See notes to consolidated financial statements.
<PAGE> 4
Summarized Balance Sheets - Continued
Parent Company (Temple-Inland Inc.)
Unaudited
First
Quarter Year End
1999 1998
(in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 132 $ 138
Accrued expenses 165 171
Employment compensation and benefits 15 28
Current portion of long-term debt 1 2
----- -----
Total current liabilities 313 339
Long-Term Debt 1,764 1,583
Deferred Income Taxes 271 266
Postretirement Benefits 147 145
Other Liabilities 10 11
Shareholders' Equity 2,003 1,998
------ ------
Total Liabilities and Shareholders' Equity $ 4,508 $ 4,342
====== ======
See notes to consolidated financial statements.
<PAGE>5
Summarized Statements of Cash Flows
Parent Company (Temple-Inland Inc.)
Unaudited
First Quarter
1999 1998
(in millions)
Cash Provided by (Used for) Operations
Net income $ 19 $ 24
Adjustments to reconcile net income to
net cash:
Cumulative effect of accounting
change, net of tax -- 3
Depreciation and depletion 65 65
Deferred taxes 5 7
Unremitted earnings from financial
services (20) (27)
Receivables (60) (48)
Inventories 18 (6)
Accounts payable and accrued expenses (26) (15)
Other (7) (15)
----- -----
(6) (12)
----- -----
Cash Provided by (Used for) Investments
Capital expenditures for property and
equipment (49) (36)
Proceeds from sale of property and
equipment 6 --
Acquisitions and joint ventures, net -- (2)
Capital contributions to financial
services (120) (40)
----- -----
(163) (78)
----- -----
Cash Provided by (Used for) Financing
Additions to debt 305 239
Payments of debt (124) (113)
Purchase of stock for treasury -- (19)
Cash dividends paid to shareholders (18) (18)
Other 4 2
----- -----
167 91
----- -----
Net increase (decrease) in cash (2) 1
Cash at beginning of period 15 13
----- -----
Cash at end of period $ 13 $ 14
===== =====
See notes to consolidated financial statements.
<PAGE>6
Summarized Statements of Income
Financial Services Group
Unaudited
First Quarter
1999 1998
(in millions)
Interest income
Loans receivable and mortgage
loans held for sale $ 160 $ 139
Mortgage-backed and investment securities 33 41
Other earnings assets 1 1
---- ----
Total interest income 194 181
Interest expense
Deposits 85 89
Borrowed funds 44 32
---- ----
Total interest expense 129 121
Net interest income 65 60
Provision for loan losses 10 2
---- ----
Net interest income after provision for
loan losses 55 58
Noninterest income
Loan servicing fees 18 23
Loan origination and marketing 27 22
Other 32 37
---- ----
Total noninterest income 77 82
Noninterest expense
Compensation and benefits 43 41
Other 59 59
---- ----
Total noninterest expense 102 100
Income before taxes and minority interest 30 40
Minority interest in income of consolidated
subsidiary (4) (3)
---- ----
Income before taxes 26 37
Taxes on income 6 10
---- ----
Net income $ 20 $ 27
==== ====
See notes to consolidated financial statements.
<PAGE>7
Summarized Balance Sheets
Financial Services Group
Unaudited
First
Quarter Year End
1999 1998
(in millions)
ASSETS
Cash and cash equivalents $ 150 $ 229
Mortgage loans held for sale 489 621
Loans receivable 8,533 8,101
Mortgage-backed and investment
securities 2,325 2,485
Other assets 1,021 964
------- -------
TOTAL ASSETS $ 12,518 $ 12,400
======= =======
LIABILITIES
Deposits $ 7,603 $ 7,338
Securities sold under repurchase
agreements 198 -
Federal Home Loan Bank advances 2,813 3,221
Other borrowings 210 210
Other liabilities 622 698
Preferred stock issued by subsidiary 225 225
------- -------
TOTAL LIABILITIES 11,671 11,692
SHAREHOLDERS' EQUITY 847 708
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 12,518 $ 12,400
======= =======
See notes to consolidated financial statements.
<PAGE>8
Summarized Statements of Cash Flows
Financial Services Group
Unaudited
First Quarter
1999 1998
(in millions)
Cash Provided by (Used for) Operations
Net income $ 20 $ 27
Adjustments to reconcile net income to net cash:
Provision for amortization, depreciation and
accretion 21 18
Mortgage loans held for sale 132 (215)
Collections and remittances on loans serviced
for others, net (121) 70
Originated mortgage servicing rights (21) (12)
Other 15 5
------ ------
46 (107)
------ ------
Cash Provided by (Used for) Investments
Maturities of securities available-for-sale 68 55
Maturities and redemptions of securities
held-to-maturity 90 63
Loans originated or acquired, net of principal
collected on loans (446) (447)
Proceeds from sale of securities
available-for-sale - 18
Capital expenditures for property
and equipment (6) (7)
Other (15) 40
------ ------
(309) (278)
------ ------
Cash Provided by (Used for) Financing
Net increase (decrease) in deposits 265 (28)
Securities sold under repurchase agreements
and short-term borrowings, net (110) 352
Additions to debt 4 27
Payments of debt (103) (16)
Capital contributions from Parent Company 120 40
Other 8 17
------ ------
184 392
------ ------
Net increase (decrease) in cash and
cash equivalents (79) 7
Cash and cash equivalents at beginning
of period 229 175
------ ------
Cash and cash equivalents at end of period $ 150 $ 182
====== ======
See notes to consolidated financial statements.
<PAGE>9
Consolidated Statements of Income
Temple-Inland Inc. and Subsidiaries
Unaudited
First Quarter
1999 1998
(in millions)
Revenues
Manufacturing $ 685 $ 682
Financial services 271 263
------ ------
956 945
Costs and Expenses
Manufacturing 653 649
Financial services 244 226
------ ------
897 875
Operating Income 59 70
Parent Company interest - net (29) (26)
Other 3 1
------ ------
Income Before Taxes and Accounting
Change 33 45
Taxes on income 14 18
------ ------
Income Before Accounting Change 19 27
Cumulative effect of accounting change,
net of tax - (3)
------ ------
Net Income $ 19 $ 24
====== ======
Weighted average shares outstanding:
Basic 55.7 56.0
Diluted 55.9 56.2
Earnings Per Share
Basic:
Income before accounting change $ 0.34 $ 0.47
Cumulative effect of accounting
change, net of tax - (0.06)
------ ------
Net Income $ 0.34 $ 0.41
====== ======
Diluted:
Income before accounting change $ 0.33 $ 0.47
Cumulative effect of accounting
change, net of tax - (0.06)
------ ------
Net Income $ 0.33 $ 0.41
====== ======
Dividends paid per share of
common stock $ 0.32 $ 0.32
====== ======
See notes to consolidated financial statements.
<PAGE>10
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
First Quarter 1999
Unaudited
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 13 $ 150 $ 163
Mortgage loans held for sale - 489 489
Loans receivable - 8,533 8,533
Mortgage-backed and investment
securities - 2,325 2,325
Trade and other receivables 358 - 350
Inventories 317 - 317
Property and equipment 2,785 131 2,916
Other assets 188 890 1,041
Investment in Financial Services 847 - -
------- ------- -------
TOTAL ASSETS $ 4,508 $ 12,518 $16,134
======= ======= =======
LIABILITIES
Deposits $ - $ 7,603 $ 7,603
Securities sold under repurchase
agreements and Federal Home
Loan Bank advances - 3,011 3,011
Other liabilities 323 622 923
Long-term debt 1,764 210 1,974
Deferred income taxes 271 - 248
Postretirement benefits 147 - 147
Preferred stock issued by
subsidiary - 225 225
------ ------ ------
TOTAL LIABILITIES $2,505 $ 11,671 $14,131
====== ====== ------
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 359
Accumulated other comprehensive income (loss) (17)
Retained earnings 1,811
------
2,214
Cost of shares held in the treasury: 5,678,509 shares (211)
------
TOTAL SHAREHOLDERS' EQUITY 2,003
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,134
======
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 297 - 290
Inventories 335 - 335
Property and equipment 2,799 129 2,928
Other assets 188 835 986
Investment in Financial
Services 708 - -
------- ------ -------
TOTAL ASSETS $ 4,342 $ 12,400 $ 15,990
======= ====== =======
LIABILITIES
Deposits $ - $ 7,338 $ 7,338
Federal Home Loan Bank
advances - 3,221 3,221
Other liabilities 350 698 1,028
Long-term debt 1,583 210 1,793
Deferred income taxes 266 - 242
Postretirement benefits 145 - 145
Preferred stock issued by
subsidiary - 225 225
------- ------ -------
TOTAL LIABILITIES $ 2,344 $ 11,692 $ 13,992
======= ====== -------
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 $ 15,990
=======
See notes to consolidated financial statements.
<PAGE>12
Consolidated Statements of Cash Flows
Temple-Inland Inc. and Subsidiaries
Unaudited
First Quarter
1999 1998
(in millions)
CASH PROVIDED (USED FOR) OPERATIONS
Net income $ 19 $ 24
Adjustments to reconcile net income to net cash:
Cumulative effect of accounting change,
net of tax - 3
Depreciation and depletion 69 69
Amortization of goodwill 2 1
Deferred taxes 7 7
Amortization and accretion on financial
instruments 16 13
Mortgage loans held for sale 132 (215)
Receivables (60) (48)
Inventories 18 (6)
Accounts payable and accrued expenses (26) (15)
Collections and remittances on loans
serviced for others, net (121) 70
Originated mortgage servicing rights (21) (12)
Other 5 (10)
------ ------
40 (119)
------ ------
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures for property and
equipment (55) (43)
Proceeds from sale of property and equipment 6 7
Maturities of securities available-for-sale 68 55
Maturities and redemptions of securities
held-to-maturity 90 63
Loans originated or acquired, net of
principal collected on loans (446) (447)
Proceeds from sale of securities
available-for-sale - 18
Acquisitions and joint ventures, net - (2)
Other (15) 33
------ ------
(352) (316)
------ ------
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt 309 266
Payments of debt (227) (129)
Securities sold under repurchase agreements
and short-term borrowings, net (110) 352
Purchase of stock for treasury - (19)
Cash dividends paid to shareholders (18) (18)
Net increase (decrease) in deposits 265 (28)
Other 12 19
------ ------
231 443
------ ------
Net increase (decrease) in cash and
cash equivalents (81) 8
Cash and cash equivalents at
beginning of period 244 188
------ ------
Cash and cash equivalents at end of period $ 163 $ 196
====== ======
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, Temple-Inland Inc.'s (the "company") Annual Report on Form
10-K for the fiscal year ended January 2, 1999.
The consolidated financial statements include the accounts of
Temple-Inland Inc. 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 Temple-Inland Inc. 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.
The company will adopt Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging
Activities, effective at the beginning of 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 qualifying 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:
(in millions,
except per share data)
First Quarter
1999 1998
Denominator for basic earnings per
share - weighted average common
shares outstanding 55.7 56.0
Dilutive effect of stock options 0.2 0.2
------ ------
Denominator for diluted earnings
per share 55.9 56.2
====== ======
NOTE C - COMPREHENSIVE INCOME
Comprehensive income is as follows:
First Quarter
1999 1998
(in millions)
Net Income $ 19 $ 24
Other comprehensive income,
net of income taxes:
Unrealized gains (losses)on
available-for-sale securities (1) 5
Foreign currency translation
adjustments 1 -
Minimum pension liability
adjustments - (1)
---- ----
Other comprehensive income - 4
---- ----
Comprehensive income $ 19 $ 28
==== ====
<PAGE>15
NOTE D - SEGMENT INFORMATION
The company has three reportable segments: paper, building
products and financial services. The paper segment manufactures
corrugated packaging and bleached paperboard products. 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.
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.
For the first quarter or at Building Financial Corporate
quarter end 1999 Paper Products Services and Other Total
- ---------------- ----- -------- -------- --------- -----
(in millions)
Revenues from external
customers 513 172 271 - 956
Operating income 5 34 27 (7) 59
Financial Services, net
interest income - - 65 - 65
Total assets 2,485 1,056 12,518 75 16,134
For the first quarter or at
quarter end 1998
- ----------------
Revenues from external
customers 528 154 263 - 945
Operating income 10 30 37 (7) 70
Financial Services, net
interest income - - 60 - 60
Total assets 2,618 928 11,303 60 14,909
NOTE E - 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, principally related to the Paper
Group's South American 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, $11.00
million was utilized during the first quarter of 1999.
<PAGE>16
During the first quarter of 1999, the Company signed a letter of
intent to sell its Argentina operation. The sale is subject to
the negotiation of a definitive agreement and certain other
conditions. Subject to final settlement, the Company expects to
realize the carrying value of these assets. The sale of this
operation is not expected to have a material effect on the
Company's financial position or results of operation.
NOTE F - 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.
<PAGE>17
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 Quarter
1999 1998
(in millions)
Revenues
Paper $ 513 $ 528
Building products 172 154
------- ------
Manufacturing net sales 685 682
Financial services 271 263
------- ------
Total revenues $ 956 $ 945
======= ======
Income
Paper $ 5 $ 10
Building products 34 30
------- ------
39 40
Financial services 27 37
------- ------
Segment operating income 66 77
Corporate expenses (7) (7)
Parent company interest - net (29) (26)
Other - net 3 1
------- ------
Income before taxes and
accounting change 33 45
Taxes on income 14 18
------- ------
Income before accounting
change 19 27
Cumulative effect of accounting change,
net of tax - (3)
------- ------
Net income $ 19 $ 24
======= ======
First Quarter 1999 vs. First Quarter 1998
First quarter earnings of $19 million, or $.33 per diluted share,
represent a 30 percent decrease from first quarter 1998 net income
of $27 million, or $.47 per diluted share, before effect of
accounting change. Revenues for the first quarter of 1999 were
$956 million, compared with $945 million in the first quarter of
1998.
The paper group reported operating income of $5 million in the
quarter compared with operating income of $10 million in the first
quarter of 1998 and an operating loss of $5 million in the fourth
quarter of 1998. The decline from last year's first quarter was
<PAGE>18
due to lower prices for corrugated containers and bleached
paperboard. Despite lower prices compared with the fourth quarter
of 1998, the paper group reported improved results due to
increased sales volume, margin enhancement initiatives, and
initial results from the productivity improvement program.
Corrugated box shipments increased approximately 5 percent for the
quarter versus the same period last year. Prices for corrugated
containers declined approximately 4 percent from last year's first
quarter and 2 percent from the fourth quarter of 1998. The average
price for bleached paperboard in the quarter was 6 percent below
year-ago levels and down 2 percent from the prior quarter. During
the first quarter of 1999, the paper group substantially completed
its workforce reductions and utilized approximately $11.00 million
of the $13.0 million that had been accrued. Also during the first
quarter of 1999, the Company signed a letter of intent to sell its
Argentina operation. The sale is subject to the negotiation of a
definitive agreement and certain other conditions. Subject to
final settlement, the Company expects to realize the carrying
value of these assets. The sale of this operation is not expected
to have a material effect on the Company's financial position or
results of operation.
The building products group reported first quarter operating
income of $34 million, compared with operating income of $30
million in last year's first quarter. Revenues for the first
quarter were $172 million, up $18 million from last year's first
quarter revenues of $154 million. First quarter sales averages
were above levels from the same period of last year across all
product lines, except lumber. Although lumber prices decreased 4
percent from last year's first quarter, prices were up 10 percent
from last year's fourth quarter. Operating losses for the
building products group's three new medium density fiberboard
facilities and its fiber cement operation had a negative effect on
earnings in the quarter. The modernization of the Diboll sawmill,
which was completed late in the quarter, also had a negative
effect on earnings in the quarter.
The financial services group reported first quarter operating
earnings of $27 million compared with $37 million in the first
quarter of 1998. Net interest income after provision for loan loss
decreased by $3 million from the net effect of a $5 million
increase in interest income, which was due to higher loan volumes,
and an $8 million increase in the provision for loan loss. The
increase in provision for loan loss is due to additional reserves
required due to loan growth and the change in asset mix of the
bank. Noninterest income decreased by $5 million due primarily to
gains of $3 million on sale of commercial properties by the Real
Estate group in 1998 that did not recur in 1999 and decreased
gains of $1 million on sales of acquired property by the bank in
1999. Noninterest expense increased by $2 million from first
quarter 1998 to support the growth of the bank.
Gross and net interest expense was $3 million higher in the first
quarter of 1999 compared with the same quarter in 1998 due to
<PAGE>19
higher levels of debt outstanding. Net interest expense was $29
million in the first quarter of 1999 compared with $26 million in
the first quarter of 1998.
Capital Resources and Liquidity
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, service existing debt, pay dividends and
meet normal working capital requirements.
During the first quarter of 1999, deposit campaigns by the bank
increased deposits by approximately $265 million. Parent
Company's debt increased by $181 million in the first quarter of
1999, mainly through issuance of $300 million of medium-term
notes, $5 million of other notes and the $124 million payment of
commercial paper and borrowings under bank credit agreements. A
capital contribution of $120 million to Guaranty at the end of the
first quarter provided additional capital to maintain Guaranty's
regulatory capital requirements.
Guaranty continues to meet all three regulatory capital
requirements.
Year 2000 Compliance
The company's three lines of business, the Paper, Building
Products and Financial Services Groups, are dependent upon
computer technology and programs for conducting business. In
1996, the Company began working to address the possible effects of
the Year 2000 issue on its information, financial, and
manufacturing systems. These efforts included inventory
assessment, remediation, and testing with non-compliant hardware
and software being modified or replaced. Implementation of the
Company's overall Year 2000 project plan was approximately 80
percent complete as of March 31, 1999.
To date, the company has spent $8 million on Year 2000 compliance
and estimates the total spending will be approximately $11
million. These costs are being expensed as incurred and are not
expected to have a material impact on the company's financial
position.
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 will be completed by June 30, 1999. Based upon
project progress, the company is confident all regulatory
requirements will be met and that any Year 2000 disruption is
unlikely. If any disruption that would significantly affect
operations or customer service were to occur, the group would
implement its disaster recovery contingency plans.
<PAGE>20
The Paper and Building Products Groups have found few instances of
date-dependent information within their manufacturing processes.
No significant issues that will impact operations have been
identified with the Company's manufacturing systems.
A potential risk is that an external provider could have a Year
2000 related problem that would affect the ability of the company
to manufacture its products or serve its customers. For instance,
should a utility provider not be able to supply power needs to a
facility, some impact to normal operations would be expected.
Larger facilities with self-power generation would be able to
continue operations with a decline in production rates until
outside power is restored. The company has the flexibility to
produce products in multiple geographic locations, which allows
for scheduling production and shipping from alternate locations
should disruptions occur.
The Company has been surveying its major suppliers, vendors, and
customers to assess the potential impact of these third-party
entities on business operations. These groups have been
prioritized based on their relative criticality to the Company's
operations. To date, no significant compliance issues have been
identified with third-party relationships. The Company's business
units will continue to evaluate key third-parties throughout 1999,
identifying and considering various contingency options to include
inventory buildup, alternate suppliers, and substitute raw
materials.
No interruption of services is expected within the administrative
support systems. Most software for meeting business needs is
purchased and Year 2000 modifications and testing is performed by
the supplier. The company also tests these purchased systems for
Year 2000 readiness. The Company's core business systems have
been replaced during the last three years with current technology.
These systems include financials, forest fiber accounting, banking
automation, and maintenance planning and control systems.
While there can be no guarantee that Year 2000 problems will not
occur, the company believes its efforts have addressed the risks
and that contingency plans are in place for the unexpected.
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 Temple-Inland 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 Temple-
Inland and its subsidiaries; the availability and price of raw
materials used by Temple-Inland and its subsidiaries; competitive
actions by other companies; changes in laws or regulations; and
<PAGE>21
other factors, many of which are beyond the control of Temple-
Inland 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 risks for the subsequent
12-month period at the end of the first quarter of 1999 with
comparative information at year end 1998:
Increase / (Decrease) in Income
before Taxes
( in millions)
First Quarter Year End
Change in Interest Rates 1999 1998
+2% $(31) $(26)
+1% $( 9) $( 1)
0% $ - $ -
-1% $ 5 $ 10
-2% $ 23 $ 29
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 $51 million or
approximately 18 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>22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note F 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.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of stockholders on
May 7, 1999, at which a quorum was present. The table
below sets forth the number of votes cast for, against
or withheld, as well as the number of abstentions and
broker non-votes for each matter voted upon at that
meeting.
Against Abstentions
Matter For or and
Withheld Broker
Non-votes
1. Election of four directors
(a) Anthony M. Frank 44,173,480 442,548 --
(b) William B. Howes 44,171,836 444,192 --
(c) Walter P. Stern 44,173,046 444,982 --
(d) Charlotte Temple 44,168,905 447,123 --
2. Ratification of appointment
of Ernst & Young LLP 44,486,045 18,968 111,415
3. Ratification of adoption of
First Amendment to the
Company's 1997 Stock Option
Plan 41,328,957 3,097,389 190,082
4. Stockholder proposal
regarding retention of
investment banker 12,881,190 27,394,034 4,341,204
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Regulation S-K
Exhibit Number
(27) Financial Data Schedule
(b) Reports on Form 8-K. During the three months ended
April 3, 1999, the Company filed one current report
on Form 8-K. This Form 8-K was filed on February
19, 1999, to report under Item 5 of Form 8-K the
renewal of the Company's stockholder rights plan.
<PAGE>23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registration has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TEMPLE-INLAND INC.
(Registrant)
Dated: May 17, 1999 By /s/ David H. Dolben
------------------------
David H. Dolben
Vice President and
Chief Accounting Officer
<PAGE>24
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 Schedule 25
<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> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> APR-03-1999
<CASH> 163
<SECURITIES> 0
<RECEIVABLES> 350
<ALLOWANCES> 0
<INVENTORY> 317
<CURRENT-ASSETS> 0
<PP&E> 2,916
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,134
<CURRENT-LIABILITIES> 0
<BONDS> 1,974
0
0
<COMMON> 61
<OTHER-SE> 1,942
<TOTAL-LIABILITY-AND-EQUITY> 16,134
<SALES> 685
<TOTAL-REVENUES> 956
<CGS> 653
<TOTAL-COSTS> 897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 33
<INCOME-TAX> 14
<INCOME-CONTINUING> 19
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
</TABLE>
