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 September 30,2000
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)
(936) 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 September 30, 2000
Common Stock (par
value $1.00 per share) 49,172,708
Page 1 of 28 The Exhibit Index appears on page 27.
<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
-------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Revenues
Net revenues $ 702 $ 668 $ 2,147 $ 1,902
Financial services earnings 50 41 133 102
----- ---- ----- -----
752 709 2,280 2,004
Costs and Expenses
Cost of sales 595 525 1,751 1,530
Selling and administrative 48 68 183 197
Special charge 15 - 15 -
----- ---- ----- -----
658 593 1,949 1,727
Operating Income 94 116 331 277
Interest expense (26) (25) (77) (69)
Other 3 5 8 11
----- ---- ----- -----
Income From Continuing Operations
Before Taxes 71 96 262 219
Taxes on income 28 36 102 85
----- ---- ----- -----
Income From Continuing Operations 43 60 160 134
Discontinued operation - (80) - (94)
----- ---- ----- -----
Net Income $ 43 $ (20) $ 160 $ 40
===== ==== ===== =====
See notes to consolidated financial statements.
<PAGE>3
Summarized Balance Sheets
Parent Company (Temple-Inland Inc.)
Unaudited
Third
Quarter Year
End End
2000 1999
------ ------
(in millions)
ASSETS
Current Assets
Cash and cash equivalents $ 3 $ 51
Receivables, net of allowances of $8 in
2000 and $9 in 1999 358 328
Inventories:
Work in process and finished goods 75 71
Raw materials 195 216
----- -----
270 287
Prepaid expenses 21 16
----- -----
Total current assets 652 682
Investment in Temple-Inland Financial
Services 1,095 1,023
Property and Equipment 3,328 3,309
Less accumulated depreciation (1,805) (1,759)
----- -----
Total property and equipment 1,523 1,550
Timber and timberlands, net of depletion 507 502
Other Assets 216 184
----- -----
Total Assets $ 3,993 $ 3,941
===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 151 $ 156
Other current liabilities 197 225
----- -----
Total current liabilities 348 381
Long-Term Debt 1,417 1,253
Other Long-Term Liabilities 431 380
Shareholders' Equity 1,797 1,927
----- -----
Total Liabilities and Shareholders' $ 3,993 $ 3,941
Equity ===== =====
See notes to consolidated financial statements.
<PAGE> 4
Summarized Statements of Cash Flows
Parent Company (Temple-Inland Inc.)
Unaudited
First Nine Months
2000 1999
------ ------
(in millions)
Cash Provided by (Used for) Operations $ 213 $ 164
Cash Provided by (Used for) Investments
Capital expenditures for property and
equipment (175) (138)
Capital contributions to financial services (10) (279)
Dividends from financial services 50 30
Acquisitions, net of cash acquired, and
joint ventures (3) (6)
Other 12 29
----- -----
(126) (364)
Cash Provided by (Used for) Financing
Additions to debt 168 315
Payments of debt (6) (86)
Purchase of stock for treasury (250) -
Cash dividends paid to shareholders (49) (54)
Other 2 12
----- -----
(135) 187
----- -----
Net decrease in cash and cash equivalents (48) (13)
Cash and cash equivalents at beginning of 51 15
period ----- -----
Cash and cash equivalents end of period $ 3 $ 2
===== =====
See notes to consolidated financial statements.
<PAGE>5
Summarized Statements of Income
Financial Services Group
Unaudited
First Nine
Third Quarter Months
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Interest Income
Loans receivable and mortgage
loans held for sale $ 224 $ 187 $ 639 $ 513
Securities and other 54 33 156 96
---- ---- ---- ----
Total interest income 278 220 795 609
Interest Expense
Deposits 128 100 357 273
Borrowed funds 52 39 152 122
---- ---- ---- ----
Total interest expense 180 139 509 395
Net interest income 98 81 286 214
Provision for loan losses (7) (6) (32) (24)
---- ---- ---- ----
Net interest income after provision
for loan losses 91 75 254 190
Noninterest income 69 67 204 198
Noninterest expense
Compensation and benefits 45 42 130 125
Other 61 55 182 150
---- ---- ---- ----
Total noninterest expense 106 97 312 275
Income before taxes and minority
interest 54 45 146 113
Minority interest in income of
consolidated subsidiary (4) (4) (13) (11)
---- ---- ---- ----
Income before taxes 50 41 133 102
Taxes on income 9 (2) 28 11
---- ---- ---- ----
Net income $ 41 $ 43 $ 105 $ 91
==== ==== ==== ====
See notes to consolidated financial statements.
<PAGE>6
Summarized Balance Sheets
Financial Services Group
Unaudited
Third
Quarter Year End
End
2000 1999
---- ----
(in millions)
ASSETS
Cash and cash equivalents $ 325 $ 233
Mortgage loans held for sale 221 252
Loans and leases receivable,
net of allowance for losses
of $124 in 2000 and $113 in 1999 10,199 9,296
Securities available-for-sale 2,037 1,431
Securities held-to-maturity 908 1,061
Other assets 1,066 1,048
------ ------
TOTAL ASSETS $ 14,756 $ 13,321
====== ======
LIABILITIES
Deposits $ 9,744 $ 9,027
Securities sold under repurchase
agreements 898 -
Federal Home Loan Bank advances 2,094 2,403
Other borrowings 213 212
Other liabilities 486 430
Stock issued by subsidiary 226 226
------ ------
TOTAL LIABILITIES 13,661 12,298
SHAREHOLDERS' EQUITY 1,095 1,023
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 14,756 $ 13,321
====== ======
See notes to consolidated financial statements.
<PAGE>7
Summarized Statements of Cash Flows
Financial Services Group
Unaudited
First Nine Months
2000 1999
---- ----
(in millions)
Cash Provided by (Used for) Operations $ 244 $ 375
Cash Provided by (Used for) Investments
Maturities and redemptions of securities 381 531
Purchases of securities available-for-sale (813) (168)
Proceeds from sale of securities
available-for-sale - 144
Loans and leases originated or acquired, net
of principal collected (909) (1,227)
Proceeds from sale of loans 104 233
Capital expenditures for property and
equipment (77) (19)
Acquisitions, net of cash acquired (19) (109)
Other 11 (24)
----- -----
(1,322) (639)
Cash Provided by (Used for) Financing
Net increase in deposits 717 679
Securities sold under repurchase agreements
and short-term borrowings, net 599 100
Additions to debt 23 21
Payments of debt (162) (758)
Capital contributions from Parent Company 10 279
Dividends paid to Parent Company (50) (30)
Other 33 58
----- -----
1,170 349
----- -----
Net increase in cash and cash equivalents 92 85
Cash and cash equivalents at
beginning of period 233 229
----- -----
Cash and cash equivalents at end of period $ 325 $ 314
===== =====
See notes to consolidated financial statements.
<PAGE>8
Consolidated Statements of Income
Temple-Inland Inc. and Subsidiaries
Unaudited
Third Quarter First Nine
Months
2000 1999 2000 1999
---- ---- ---- ----
(in millions, except per share
amounts)
Revenues
Manufacturing $ 702 $ 668 $ 2,147 $ 1,902
Financial services 347 287 999 807
----- ----- ----- -----
1,049 955 3,146 2,709
Costs and Expenses
Manufacturing 643 593 1,934 1,727
Special charge 15 - 15 -
Financial services 297 246 866 705
----- ----- ----- -----
955 839 2,815 2,432
Operating income 94 116 331 277
Parent company interest (26) (25) (77) (69)
Other 3 5 8 11
----- ----- ----- -----
Income from Continuing
Operations Before Taxes 71 96 262 219
Taxes on income 28 36 102 85
----- ----- ----- -----
Income From Continuing Operations 43 60 160 134
Discontinued operations - (80) - (94)
----- ----- ----- -----
Net Income $ 43 $ (20)$ 160 $ 40
===== ===== ===== =====
Weighted average shares outstanding:
Basic 49.7 55.9 51.4 55.8
===== ===== ===== =====
Diluted 49.7 56.1 51.4 56.0
===== ===== ===== =====
Earnings Per Share
Basic:
Income from continuing
operations $ .87 $ 1.07 $ 3.11 $ 2.42
Discontinued operation - (1.43) - (1.70)
----- ----- ----- -----
Net Income $ .87 $ (.36)$ 3.11 $ .72
===== ===== ===== =====
Diluted:
Income from continuing
operations $ .87 $ 1.07 $ 3.11 $ 2.41
Discontinued operation - (1.43) - (1.69)
----- ----- ----- -----
Net Income $ .87 $ (.36)$ 3.11 $ .72
===== ===== ===== =====
Dividends paid per share of
common stock $ .32 $ .32 $ .96 $ .96
===== ===== ===== =====
See notes to consolidated financial statements.
<PAGE>9
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
Third Quarter End 2000
Unaudited
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 3 $ 325 $ 328
Mortgage loans held for sale - 221 221
Loans and leases receivable, net - 10,199 10,199
Securities available-for-sale - 2,037 2,037
Securities held-to-maturity - 908 908
Trade and other receivables 358 - 342
Inventories 270 - 270
Property and equipment 2,030 156 2,186
Other assets 237 910 1,113
Investment in Financial Services 1,095 - -
----- ----- -----
TOTAL ASSETS $ 3,993 $ 14,756 $ 17,604
===== ====== ======
LIABILITIES
Deposits $ - $ 9,744 $ 9,744
Securities sold under repurchase
agreements and Federal Home
Loan Bank advances - 2,992 2,992
Other liabilities 361 486 822
Long-term debt 1,417 213 1,630
Deferred income taxes 276 - 251
Postretirement benefits 142 - 142
Stock issued by subsidiary - 226 226
----- ------ ------
TOTAL LIABILITIES $ 2,196 $ 13,661 $ 15,807
===== ======
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 364
Accumulated other comprehensive income (loss) (24)
Retained earnings 1,949
------
2,350
Cost of shares held in the treasury: 12,216,844 shares (553)
------
TOTAL SHAREHOLDERS' EQUITY 1,797
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,604
======
See the notes to the consolidated financial statements.
<PAGE>10
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
Year End 1999
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 51 $ 233 $ 284
Mortgage loans held for sale - 252 252
Loans receivable, net - 9,296 9,296
Securities available-for-sale - 1,431 1,431
Securities held-to-maturity - 1,061 1,061
Trade and other receivables 328 - 319
Inventories 287 - 287
Property and equipment 2,052 145 2,197
Other assets 200 903 1,059
Investment in Financial Services 1,023 - -
------ ------ ------
TOTAL ASSETS $ 3,941 $ 13,321 $ 16,186
====== ====== ======
LIABILITIES
Deposits $ - $ 9,027 $ 9,027
Federal Home Loan Bank advances - 2,403 2,403
Other liabilities 392 430 799
Long-term debt 1,253 212 1,465
Deferred income taxes 226 - 196
Postretirement benefits 143 - 143
Stock issued by subsidiary - 226 226
------ ------ ------
TOTAL LIABILITIES $ 2,014 $ 12,298 $ 14,259
====== ======
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 364
Accumulated other comprehensive income (loss) (31)
Retained earnings 1,838
------
2,232
Cost of shares held in the treasury: 7,177,592 shares (305)
------
TOTAL SHAREHOLDERS' EQUITY 1,927
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 16,186
======
See the notes to the consolidated financial statements.
<PAGE>11
Consolidated Statements of Cash Flows
Temple-Inland Inc. and Subsidiaries
Unaudited
First Nine Months
2000 1999
(in millions)
CASH PROVIDED (USED FOR) OPERATIONS $ 457 $ 539
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures for property
and equipment (252) (157)
Proceeds from sale of property and
equipment 16 18
Maturities of securities available-for-sale 232 245
Maturities and redemptions of securities
held-to-maturity 149 286
Purchases of securities available-for-sale (813) (168)
Proceeds from the sale of securities
available-for-sale - 144
Loans and leases originated or acquired,
net of principal collected (909) (1,227)
Acquisitions, net of cash acquired, and
joint ventures (22) (115)
Proceeds from sales of loans 104 233
Other 7 (13)
------ ------
(1,488) (754)
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt 191 336
Payments of debt (168) (844)
Securities sold under repurchase agreements
and short-term borrowings, net 599 100
Purchase of stock for treasury (250) -
Cash dividends paid to shareholders (49) (54)
Net increase in deposits 717 679
Other 35 70
------ ------
1,075 287
------ ------
Net increase in cash and cash equivalents 44 72
Cash and cash equivalents at beginning
of period 284 244
------ ------
Cash and cash equivalents at end of period $ 328 $ 316
====== ======
See the notes to the consolidated financial statements.
<PAGE>12
TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim 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 considered necessary for a fair presentation have
been included. Interim operating results are not necessarily
indicative of the results that may be expected for the entire
year. For further information, refer to the 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 1, 2000.
The consolidated financial statements include the accounts of the
company and its manufacturing and financial services
subsidiaries. The consolidated net assets invested in financial
services activities are subject, in varying degrees, to
regulatory rules and restrictions. Accordingly, included as an
integral part of the consolidated financial statements are
separate summarized financial statements for the company's
manufacturing and financial services groups. The Parent Company
(Temple-Inland Inc.) summarized financial statements include the
accounts of the company and its manufacturing subsidiaries.
Temple Inland Financial Services Group is reflected in the
summarized financial statements on the equity basis, except that
the related earnings are presented before tax to be consistent
with the consolidated financial statements. The Financial
Services Group summarized financial statements include savings
bank, mortgage banking, real estate and insurance brokerage
operations.
All material intercompany amounts and transactions have been
eliminated. Certain amounts have been reclassified to conform
with current year's classification.
Note B - EARNINGS PER SHARE
Denominators used in computing earnings per share are as follows:
Third Quarter First Nine Months
2000 1999 2000 1999
(in millions)
Denominator for basic earnings
per share - weighted average
shares outstanding 49.7 55.9 51.4 55.8
Dilutive effect of stock options - .2 - .2
---- ---- ---- ----
Denominator for diluted
earnings per share 49.7 56.1 51.4 56.0
==== ==== ==== ====
<PAGE>13
NOTE C - COMPREHENSIVE INCOME
Comprehensive income is as follows:
Third Quarter First Nine Months
2000 1999 2000 1999
(in millions)
Net income $ 43 $(20) $ 160 $ 40
Other comprehensive income,
net of income taxes:
Unrealized gains (losses) on
available-for-sale securities 10 (3) 6 (12)
Foreign currency translation
adjustments 1 - - 1
--- --- --- ---
Other comprehensive income 11 (3) 6 (11)
--- --- --- ---
Comprehensive income $ 54 $(23) $ 166 $ 29
=== === === ===
NOTE D - ACQUISITIONS, JOINT VENTURES AND DISCONTINUED OPERATIONS
The company is in joint venture that produces lightweight gypsum
facing paper. Near the end of the second quarter of 2000, the
company transferred ownership of its corrugating medium mill in
Newport, Indiana, and associated debt of $50 million to the joint
venture as part of its agreement to maintain its 50 percent
interest in the joint venture. The fair value of the assets
contributed exceeded their net carrying amount. This difference
will be recognized in earnings over the life of the venture. In
the third quarter of 2000, the joint venture completed converting
the corrugated medium mill to enable the mill to produce
lightweight gypsum facing paper as well as corrugated medium. For
a period of twelve months after the transfer, the company is
obligated to purchase, at market rates, all of the corrugating
medium produced by the venture that meets the company's
specifications.
During the third quarter of 2000, the company completed its
assessment of its fiber cement joint venture and decided to exit
this business by assuming control of the fiber cement joint
venture and leasing most of the venture's assets to a third
party. As a result, the company obtained control over $53
million of assets, which were subject to $53 million of
liabilities and recorded a $15 million special charge that
includes $11 million for assets excluded from the lease agreement
that will be disposed of and $4 million of other costs. Following
a six-month rental ramp-up period, the lease agreement provides
for payment of $3.4 million per year over the balance of the 19.5-
year lease term.
On March 1, 2000, the Financial Services Group acquired American
Finance Group, Inc. (AFG) for approximately $32 million cash, of
which $29 million was paid at closing with the balance subject to
final adjustment. AFG provides commercial and industrial
equipment leasing and financing. AFG had total assets of $161
<PAGE>14
million and total liabilities of $132 million of which $128
million were repaid after acquisition. Pro forma results of
operations assuming this acquisition took place at the beginning
of 2000 would not be materially different from those reported.
During the fourth quarter of 1999, the company discontinued its
bleached paperboard operation. Accordingly, the results of the
bleached paperboard operation have been classified as
discontinued operations, and prior periods have been restated. In
connection with the sale of the bleached paperboard mill in
December 1999, the company agreed, subject to certain
limitations, to indemnify the purchaser from certain liabilities
and contingencies associated with the company's ownership and
operation of the mill. The company does not believe that the
resolution of these matters will have a material adverse effect
on its consolidated operations or financial position.
NOTE E - SEGMENT INFORMATION
The company has three reportable segments: Paper, Building
Products and Financial Services.
Building Financial Corporate
Paper Products Services and Other Total
(in millions)
For the third quarter 2000
Revenues from external
customers $ 512 $ 190 $ 347 $ - $ 1,049
Operating income 57 10 50 (23)a 94
Financial Services, net
interest income - - 98 - 98
Depreciation, depletion
and amortization 33 15 8 2 58
---------------------------------------------------------------------------
For the first nine months of 2000
Revenues from external
customers $ 1,524 $ 623 $ 999 $ - $ 3,146
Operating income 164 73 133 (39)a 331
Financial Services, net
interest income - - 286 - 286
Depreciation, depletion
and amortization 100 46 23 5 174
---------------------------------------------------------------------------
For the third quarter 1999
Revenues from external
customers $ 462 $ 206 $ 287 $ - $ 955
Operating income 29 53 41 (7) 116
Financial Services, net
interest income - - 81 - 81
Depreciation, depletion
and amortization 34 14 6 3 57
---------------------------------------------------------------------------
For the first nine months of 1999
Revenues from external
customers $1,326 576 807 $ - $ 2,709
Operating income 61 136 102 (22) 277
Financial Services, net
interest income - - 214 - 214
Depreciation, depletion
and amortization 102 42 16 5 165
---------------------------------------------------------------------------
a Includes a special charge of $15 million, which applies to the
building products segment.
<PAGE>15
NOTE F - CONTINGENCIES
There are pending against the company and its subsidiaries
lawsuits, claims and environmental matters arising in the regular
course of business. In addition, the Internal Revenue Service is
currently examining the company's consolidated income tax returns
for the years 1993 through 1996.
The company does not believe that the resolution of these matters
will have a material adverse effect on its consolidated
operations or financial position.
Note G - NEW ACCOUNTING PRONOUNCMENTS
The company will be required to adopt Statements of Financial
Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities, as amended, in 2001. This
statement will require derivative positions to be recognized in
the balance sheet at fair value. The company uses, to a limited
extent, derivative instruments to mitigate exposure to certain
interest rate and commodity price risks, but does not use
derivatives for trading or speculative purposes. Adoption of
Statement 133 is not expected to have a material effect on the
company's financial statements.
The company will be required to adopt the consensus of the
Emerging Issues Task Force Issue 00-10, Accounting for Shipping
and Handling Fees and Costs, that shipping and handling costs
cannot be netted against revenues. The company currently nets
shipping and handling costs against revenues. During the fourth
quarter of 2000, the company will begin classifying such costs in
cost of sales and will reclassify prior periods to conform to
this presentation. This reclassification will have no effect on
net income.
<PAGE>16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the quarter and for the first nine months ended September
2000 and 1999.
Summary
Consolidated revenues for the third quarter 2000 were $1,049
million, up 10 percent over third quarter 1999. Income from
continuing operations for the third quarter 2000 was $43 million
or $0.87 per diluted share compared with $60 million or $1.07 per
diluted share. The quarter's results include a $15 million
special charge related to the company's decision to exit the
fiber cement business. Consolidated revenues for the first nine
months 2000 were $3,146 million, up 16 percent over the first
nine months of 1999. Income from continuing operations for the
nine months 2000 was $160 million or $3.11 per diluted share
compared with $134 million or $2.41 per diluted share.
Business Segments
The Company manages its operations through three business
segments: Paper, Building Products, and Financial Services.
A summary of the results of operations by business segment
follows.
Third Quarter First Nine Months
2000 1999 2000 1999
(in millions)
Revenues
Paper $ 512 $ 462 $ 1,524 $1,326
Building Products 190 206 623 576
Financial Services 347 287 999 807
----- ---- ----- -----
Total revenues $ 1,049 $ 955 $ 3,146 $2,709
===== ==== ===== =====
Income
Paper $ 57 $ 29 $ 164 $ 61
Building Products 10 53 73 136
Financial Services 50 41 133 102
----- ---- ----- -----
Segment operating income 117 123 370 299
Corporate expense (8) (7) (24) (22)
Special charge (15) - (15) -
Parent Company interest (26) (25) (77) (69)
Other 3 5 8 11
----- ---- ----- -----
Income from continuing operations
before taxes 71 96 262 219
Taxes on income 28 36 102 85
----- ---- ----- -----
Income from continuing operations 43 60 160 134
Discontinued operations - (80) - (94)
----- ---- ----- -----
Net income $ 43 $ (20) $ 160 $ 40
===== ==== ===== =====
Each of these business segments is affected by the factors of
supply and demand and changes in domestic and global economic
conditions, including changes in interest rates, new housing
starts, home repair and remodeling activities, and the strength
of the U.S. dollar.
Unless otherwise noted, increases or decreases refer to third
quarter 2000 amounts compared with third quarter 1999 amounts and
first nine months 2000 amounts compared with first nine months
1999 amounts.
<PAGE>17
The 1999 amounts have been restated to reflect the
discontinued bleached paperboard operation, which was sold in
December 1999.
For the third quarter 2000
Paper
The Paper Group revenues were $512 million, up 11 percent.
Average domestic box prices were up 17 percent while box
shipments were 546,000 tons, down four percent, both due in part
to an upgrading and realignment of the customer base as part of
the Paper Group's ongoing revenue enhancement initiatives.
Slower demand also contributed to the decrease in box shipments.
Average linerboard prices were up 18 percent. Mill production
was 537,000 tons, down 21 percent. The box plants used 98
percent of the mill containerboard production; the remainder of
the mill production was sold in the domestic and export markets.
As compared with the second quarter 2000, Paper Group revenues
were down slightly with average box prices up 3 percent, box
shipments down 3 percent, and linerboard prices about even.
Production, distribution, and administrative costs were $455
million, up five percent due to effects of production
curtailments, joint venture start-up costs associated with the
conversion of the Newport, Indiana, containerboard mill, and
higher energy costs. These were partially offset by lower
delivered costs for old corrugated containers (OCC), which
accounts for about 38 percent of the Paper Group's fiber
requirements. OCC costs were down 15 percent or $16 per ton.
OCC costs began to decline near the end of the second quarter
2000, declined throughout the third quarter and have continued to
decline into the fourth quarter. For the quarter, OCC costs
averaged $91 per ton compared with $107 per ton and with $139 per
ton in the second quarter 2000.
During the quarter, production was curtailed by 85,000 tons due
to market, maintenance, and operational factors, compared with
43,000 tons in the second quarter 2000. The Paper Group may
continue to curtail more production in future quarters for these
reasons. The Paper Group's joint venture conversion of its
285,000-ton corrugating medium mill in Newport, Indiana, to
produce lightweight gypsum facing paper was completed during the
third quarter of 2000. For a period of twelve months, the Paper
Group is obligated to purchase, at market rates, all of the
corrugating medium produced by the venture that meets the
company's specifications. During the third quarter, the Paper
Group purchased 26,000 tons of corrugated medium from the
venture.
Operating income was $57 million up almost 2 times due to the
factors discussed above.
Building Products
The Building Products Group revenues were $190 million, down
eight percent. Lower lumber prices, down 22 percent, and gypsum
prices, down 35 percent, more than offset higher prices for
particleboard, up two percent, and MDF, up four percent. Gypsum
shipments were down 24 percent. Particleboard and MDF shipments
were up due to the operations of the Mt. Jewett facilities in
<PAGE>18
2000. As compared with the second quarter 2000, Building Products
Group revenues were down ten percent due in part to lower lumber,
particleboard, and gypsum prices, down nine percent, five percent
and 22 percent, respectively, and lower particleboard and MDF
shipments. Gypsum shipments were about even. These trends of
lower prices and shipments will likely continue during the fourth
quarter.
Production, distribution, and administrative costs were $180
million, up 18 percent due mainly to new manufacturing
facilities, higher energy costs, and $4 million of operating
losses from the fiber cement joint venture. During the third
quarter 2000, the Building Products Group completed its
assessment of its fiber cement joint venture and decided to exit
this business by assuming control of the joint venture and
leasing most of its assets to a third party. As a result, the
company recognized a $15 million special charge that includes $11
million for assets excluded from the lease agreement that will be
disposed of and $4 million for other costs. Following a six-month
rental ramp-up period the lease agreement provides for payments
of $3.4 million per year over the balance of 19.5-year lease
term.
During the quarter, production was curtailed at several
manufacturing and production facilities, primarily at the gypsum
facilities, due to market conditions. The Building Products
Group may curtail more production in future quarters for this
reason.
Operating income excluding the $15 million special charge was $10
million down $43 million due to the factors discussed above.
Financial Services
The Financial Services Group revenues, which consist of interest
and non-interest income, were $347 million, up 21 percent.
Interest income was $278 million, up 26 percent and net interest
income was $98 million, up 21 percent. These increases were
mainly due to the growth and change in the mix of the loan
portfolio due primarily to growth in construction and development
and commercial and business lending activities. The provision for
loan losses was $7 million, up $1 million due mainly to the
growth and change in the mix of the loan portfolio. At quarter
end, the allowance for losses was $124 million compared with $116
million and with $129 million at the end of the second quarter
2000.
Non-interest income was $69 million, up three percent due
primarily to lease income related to the acquisition of American
Finance Group, Inc., offset by a decline in fees and gains
related to mortgage loan originations. Non-interest expense was
$106 million, up nine percent, mainly due to the acquired
operations. At quarter end, the mortgage-servicing portfolio
totaled $20 billion, down 14 percent and down 11 percent from
year end 1999. As compared with the second quarter 2000,
Financial Services Group revenues were up slightly with net
interest income about even, non-interest income down 5 percent,
and non-interest expenses down 2 percent.
<PAGE>19
Operating income was $50 million, up 22 percent due to the
factors discussed above.
Corporate, Interest, and Other
Parent Company interest expense was up $1 million due to higher
interest rates and higher average outstanding debt during the
quarter.
Income Taxes
The effective tax rate was 39 percent based on current
expectations of income and expenses for the year 2000.
Average Shares Outstanding
Average diluted shares outstanding were 49.7 million, down 11
percent compared with third quarter 1999 and down four percent
compared with second quarter 2000 due mainly to the effects of
the stock repurchase programs authorized during the third quarter
2000 and the fourth quarter 1999.
For the first nine months 2000
Paper
The Paper Group revenues were $1,524 million, up 15 percent.
Average domestic box prices were up 18 percent while box
shipments were 1,677 thousand tons, down three percent, both
due in part to an upgrading and realignment of the customer
base as part of the Paper Group's ongoing revenue enhancement
initiatives. Slower demand also contributed to the decrease in
box shipments. Average linerboard prices were up 23 percent.
Mill production was 1,816 thousand tons, down 10 percent. The
box plants used 92 percent of the mill containerboard production;
the remainder of the mill production was sold in the domestic and
export markets.
Production, distribution, and administrative costs were $1,360
million, up eight percent due mainly to the effects of production
curtailments, higher delivered costs for OCC, production issues,
and higher energy prices. Average OCC costs were up 36 percent
or $31 per ton. During the first nine months, production was
curtailed by 170,000 tons due to market, maintenance, and
operational factors. The Paper Group may curtail production in
the future for these reasons.
Operating income was $164 million, up almost 3 times due to the
factors discussed above.
Building Products
The Building Products Group revenues were $623 million, up eight
percent. Lower lumber prices, down 14 percent, and gypsum prices,
down 14 percent, offset higher prices for particleboard, up seven
percent, and MDF, up 10 percent. Particleboard and MDF shipments
were up due to the operations of the Mt. Jewett facilities.
Lumber shipments were up due to the reopening of the Diboll
sawmill in mid 1999.
<PAGE>20
Production, distribution, and administrative costs were $550
million, up 25 percent due mainly to additional manufacturing
facilities, higher energy costs, and $13 million of operating
losses from the fiber cement joint venture. During the third
quarter 2000, the company exited the fiber cement business and
recognized a $15 million special charge.
During the first nine months, production was curtailed at several
manufacturing and production facilities, primarily at the gypsum
facilities, due to market conditions. The Building Products
Group may curtail production in the future for this reason.
Operating income was $73 million, down 46 percent due to the
factors discussed above.
Financial Services
The Financial Services Group revenues were $999 million up 24
percent.
Interest income was $795 million, up 31 percent, and net interest
income was $286 million, up 34 percent. These increases were
mainly due to the growth and change in the mix of the loan
portfolio. The average loan portfolio was $11.1 billion, up 17
percent. Of the increase, 23 percent was due to the acquisitions
of Hemet Federal Savings and Loan Association and Fidelity
Funding Inc., in June 1999, and American Finance Group, Inc., in
March 2000. The remainder of the increase was due to internally
generated growth principally in construction and development
lending and commercial and business lending activities. The
provision for losses was $32 million, up $8 million, due mainly
to the growth and change in the mix of the loan portfolio.
Non-interest income was $204 million, up 3 percent due mainly to
lease income related to the acquisition of American Finance
Group, Inc., offset by a decline in fees and gains related to
mortgage loan originations. Non-interest expense was $312
million, up 13 percent, mainly due to the acquired operations.
Operating income was $133 million, up 30 percent due to the
factors discussed above.
Corporate, Interest, and Other
Parent Company interest expense was up $8 million due to higher
interest rates and higher average outstanding debt during this
period.
Income Taxes
The effective tax rate was 39 percent for 2000 and 1999. The
effective tax rate includes federal and state income taxes and
the effects of non-deductible goodwill amortization and other
items.
<PAGE>21
Average Shares Outstanding
Average diluted shares outstanding were 51.4 million, down eight
percent due mainly to the effects of the stock repurchase
programs authorized during the third quarter 2000 and the fourth
quarter 1999.
Capital Resources and Liquidity
For the nine months ended September 2000
The consolidated net assets invested in the Financial Services
Group are subject, in varying degrees, to regulatory rules and
regulations. Accordingly, Parent Company and Financial Services
capital resources and liquidity are discussed separately.
Parent Company
Operating Activities
Cash from operations was $213 million, up 30 percent. The
increase was due to greater earnings offset in part by increased
working capital needs. Depreciation and amortization was $151
million and is expected to approximate $202 million for the year
2000.
Investing Activities
Capital expenditures were $175 million and are expected to
approximate $225 million for the year 2000. Dividends received
from Financial Services totaled $50 million, with $30 million
received in the second and $20 million received in the third
quarter while a $10 million capital contribution was made to
Financial Services in the first quarter.
Financing Activities
In the fourth quarter 1999, the Board of Directors authorized the
repurchase of up to 6.0 million shares. This repurchase
authorization was completed during the third quarter 2000. In
August 2000, the Board of Directors authorized the repurchase of
an additional 2.5 million shares. During the first nine months of
2000, 5.1 million shares were repurchased at a cost of $250
million. By the end of the third quarter, an aggregate of 6.75
million shares had been repurchased since the inception of these
programs at a cost of $350 million. Dividends paid were $49
million or $.32 per share per quarter. Debt increased $162
million. As required by its joint venture agreement, the company
contributed its Newport, Indiana, medium mill and associated debt
of $50 million to the venture to maintain its 50 percent
ownership interest. In connection with assuming control of the
fiber cement joint venture, the company obtained control over $53
million of assets which were subject to $53 million of debt.
Cash Equivalents
At year-end 1999, $50 million of the proceeds from the sale of
the bleached paperboard operations were temporarily invested in
cash equivalents. These were used during the first nine months
in investing and financing activities.
<PAGE>22
Other
The Parent Company has sufficient liquidity and capital resources
to meet its anticipated needs.
Financial Services
The principal sources of cash for the Financial Services Group
are operating cash flows, deposits, and borrowings. The
Financial Services Group uses these funds to invest in earning
assets, generally loans and securities.
Operating Activities
Cash provided by operations was $244 million, down 35 percent.
The decrease in originations of mortgage loans held for sale was
partially offset by an increase in earnings and a reduction in
use of cash for mortgage loans serviced for others.
Investing Activities
Loans and securities increased $1,237 million and was in line
with expectations. The increase in loans and securities was
primarily attributable to increased construction and development
and commercial and business lending activities and purchases of
securities. Capital expenditures were $77 million and cash paid
for acquisitions was $19 million.
Financing Activities
Deposits increased $717 million and borrowings increased
$460 million. Dividends, net of capital contributions, paid to
the Parent Company totaled $40 million.
Cash Equivalents
Cash equivalents increased $92 million to $325 million.
Other
The Financial Services Group has sufficient liquidity and capital
resources to meet its anticipated needs. At the end of the third
quarter, the savings bank exceeded all applicable regulatory
capital requirements. The Parent Company expects to maintain the
savings bank capital at a level that exceeds the minimum required
for designation as "well capitalized" under the capital adequacy
regulations of the Office of Thrift Supervision. From time to
time, the Parent Company may make capital contributions to the
savings bank or receive dividends from the savings bank. During
the first nine months 2000, the Parent Company contributed $10
million to the savings bank and received $50 million in dividends
from the savings bank.
<PAGE>23
Selected financial and regulatory capital data for the savings
bank follows:
Third Quarter End Year End
2000 1999
(in millions of dollars)
Balance sheet data
Total assets $14,319 $12,892
Total deposits 10,062 9,329
Shareholders' equity 941 857
Savings Bank Regulatory Minimum
Regulatory capital ratios
Tangible capital 7.8% 2.0%
Leverage capital 7.8% 4.0%
Risk-based capital 10.2% 8.0%
Statistical and other data (a)
Third Quarter First Nine Months
2000 1999 2000 1999
Net revenues (in millions)
Paper $ 512 $ 462 $ 1,524 $ 1,326
Building products:
Pine lumber $ 50 $ 65 $ 169 $ 175
Plywood 12 17 42 53
Particleboard 53 42 168 126
Medium density fiberboard 20 17 64 42
Gypsum wallboard 20 41 74 113
Fiberboard 15 18 49 55
Other 20 6 57 12
---- ---- ---- ----
Total Building products $ 190 $ 206 $ 623 $ 576
==== ==== ==== ====
Unit sales
Paper (in thousand tons) (b) 653 701 2,051 2,125
Building products:
Pine lumber - MBF 166 167 511 456
Plywood - MSF (3/8" basis) 68 70 209 229
Particleboard - MSF (3/4" basis) 170 143 529 432
Medium density fiberboard - MSF
(3/4" basis) 58 51 195 139
Gypsum wallboard - MSF 173 238 525 695
Fiberboard - MSF (1/2" basis 93 113 296 344
(a) Net revenues and shipments do not include joint venture
operations
(b) Includes boxes sold and open market sales of linerboard
Forward-Looking Statements
Statements that are not historical are forward-looking statements
that involve risks and uncertainties. The actual results
achieved may differ significantly from those discussed. These
differences can be caused by such matters as general economic,
market, or business conditions and their effect on the prices of
the company's products; opportunities or lack thereof that may or
may not be pursued; availability and price of raw materials;
competition; changes in laws or regulations; and other factors,
many of which are beyond the control of the Company.
<PAGE>24
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 effect on pre-tax income of immediate,
parallel, and sustained shifts in interest rates for the
subsequent 12-month period at the end of the third quarter of
2000, with comparative information at year-end 1999:
Increase (Decrease) Income
Before Taxes
(in millions)
Third Quarter Year End
Change in Interest Rates 2000 1999
+2% $ (5) $ (1)
+1% (1) -
0% - -
-1% (9) (1)
-2% (19) (16)
The change in exposure to interest rate risk from year-end 1999
is primarily due to increases in the Parent Company's adjustable-
rate debt obligations, and growth in the Financial Services Group
commercial loan and mortgage backed securities portfolios, funded
by short-term borrowings and growth in deposits.
Additionally, 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 $32
million.
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 significant financial instruments subject to
commodity price risks.
<PAGE>25
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.
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 September 30, 2000, the Company did not file a
current report on Form 8-K.
<PAGE>26
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 14, 2000 By /s/ Louis R. Brill
---------------------------
Louis R. Brill
Vice President and
Chief Accounting Officer
<PAGE>27
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 28
