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 1, 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 April 1, 2000
Common Stock (par
value $1.00 per share) 52,420,645
The Exhibit Index appears on page 23 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
------------------
2000 1999
------ ------
(in millions)
Revenues
Net revenues $ 724 $ 592
Financial services earnings 35 27
----- -----
759 619
Costs and Expenses
Cost of sales 576 491
Selling and administrative 70 64
----- -----
646 555
Operating Income 113 64
Interest expense (25) (22)
Other 3 3
----- -----
Income From Continuing Operations
Before Taxes 91 45
Taxes on income 36 19
----- -----
Income From Continuing Operations 55 26
Discontinued operations - (7)
----- -----
Net Income $ 55 $ 19
===== =====
See notes to consolidated financial statements.
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<PAGE>3
Summarized Balance Sheets
Parent Company (Temple-Inland Inc.)
Unaudited
First
Quarter Year End
2000 1999
-------- --------
(in millions)
ASSETS
Current Assets
Cash and cash equivalents $ 1 $ 51
Receivables, net of allowances 370 328
Inventories:
Work in process and finished goods 74 71
Raw materials 222 216
----- -----
296 287
Prepaid expenses 17 16
----- -----
Total current assets 684 682
Investment in Temple-Inland Financial
Services 1,058 1,023
Property and Equipment 3,348 3,309
Less accumulated depreciation (1,793) (1,759)
----- -----
Total property and equipment 1,555 1,550
Timber and timberlands, net of depletion 488 502
Other Assets 183 184
----- -----
Total Assets $ 3,968 $ 3,941
===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 136 $ 156
Other current liabilities 215 225
----- -----
Total current liabilities 351 381
Long-Term Debt 1,361 1,253
Other Long-Term liabilities 395 380
Shareholders' Equity 1,861 1,927
----- -----
Total Liabilities and Shareholders'
Equity $ 3,968 $ 3,941
===== =====
See notes to consolidated financial statements.
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<PAGE>4
Summarized Statements of Cash Flows
Parent Company (Temple-Inland Inc.)
Unaudited
First Quarter
----------------
2000 1999
------ ------
(in millions)
Cash Provided by (Used for) Operations $ 24 $ (10)
Cash Provided by (Used for) Investments
Capital expenditures for property and
equipment (54) (45)
Capital contributions to financial services (10) (120)
Other - 6
----- -----
(64) (159)
Cash Provided by (Used for) Financing
Additions to debt 108 305
Payments of debt - (124)
Purchase of stock for treasury (102) -
Cash dividends paid to shareholders (17) (18)
Other 1 4
----- -----
(10) 167
----- -----
Net decrease in cash and cash equivalents (50) (2)
Cash and cash equivalents at
beginning of period 51 15
----- -----
Cash and cash equivalents end of period $ 1 $ 13
===== =====
See notes to consolidated financial statements.
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<PAGE>5
Summarized Statements of Income
Financial Services Group
Unaudited
First Quarter
---------------
2000 1999
------ ------
(in millions)
Interest income
Loans receivable and mortgage loans
held for sale $ 202 $ 160
Securities and other 45 34
----- -----
Total interest income 247 194
Interest expense
Deposits 109 85
Borrowed funds 48 44
----- -----
Total interest expense 157 129
Net interest income 90 65
Provision for loan losses (15) (10)
----- -----
Net interest income after provision for
loan losses 75 55
Noninterest income 62 64
Noninterest expense
Compensation and benefits 42 42
Other 56 47
----- -----
Total noninterest expense 98 89
Income before taxes and minority interest 39 30
Minority interest in income of
consolidated subsidiary (4) (3)
----- -----
Income before taxes 35 27
Taxes on income 7 7
----- -----
Net income $ 28 $ 20
===== =====
See notes to consolidated financial statements.
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<PAGE>6
Summarized Balance Sheets
Financial Services Group
Unaudited
First
Quarter Year End
2000 1999
------- --------
(in millions)
ASSETS
Cash and cash equivalents $ 227 $ 233
Mortgage loans held for sale 143 252
Loans and leases receivable, net of
allowance for losses of $119 in
2000 and $113 in 1999 9,954 9,296
Securities available-for-sale 2,105 1,431
Securities held-to-maturity 994 1,061
Other assets 1,069 1,048
----- -----
TOTAL ASSETS $14,492 $13,321
====== ======
LIABILITIES
Deposits $ 9,342 $ 9,027
Securities sold under repurchase
agreements 295 -
Federal Home Loan Bank advances 2,894 2,403
Other borrowings 219 212
Other liabilities 458 430
Stock issued by subsidiary 226 226
----- -----
TOTAL LIABILITIES 13,434 12,298
SHAREHOLDERS' EQUITY 1,058 1,023
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $14,492 $13,321
====== ======
See notes to consolidated financial statements.
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<PAGE>7
Summarized Statements of Cash Flows
Financial Services Group
Unaudited
First Quarter
-----------------
2000 1999
------ ------
(in millions)
Cash Provided by (Used for) Operations $ 173 $ 46
Cash Provided by (Used for) Investments
Maturities and redemptions of securities 132 158
Purchases of securities available-for-sale (736) -
Loans and leases originated or acquired,
net of principal collected (599) (446)
Capital expenditures for property and
equipment (7) (6)
Acquisitions, net of cash acquired
of $10 million (19) -
Other 49 (15)
----- -----
(1,180) (309)
Cash Provided by (Used for) Financing
Net increase in deposits 315 265
Securities sold under repurchase agreements
and short-term borrowings, net 786 (110)
Additions to debt 9 4
Payments of debt (131) (103)
Capital contributions from Parent Company 10 120
Other 12 8
----- -----
1,001 184
----- -----
Net decrease in cash and cash equivalents (6) (79)
Cash and cash equivalents at
beginning of period 233 229
----- -----
Cash and cash equivalents at
end of period $ 227 $ 150
===== =====
See notes to consolidated financial statements.
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<PAGE>8
Consolidated Statements of Income
Temple-Inland Inc. and Subsidiaries
Unaudited
First Quarter
------------------
2000 1999
------- ------
(in millions,
except per share amounts)
Revenues
Manufacturing $ 724 $ 592
Financial services 309 258
------ ------
1,033 850
Costs and Expenses
Manufacturing 646 555
Financial services 274 231
------ ------
920 786
Operating Income 113 64
Parent company interest (25) (22)
Other 3 3
------ ------
Income From Continuing Operations
Before Taxes 91 45
Taxes on income 36 19
------ ------
Income From Continuing Operations 55 26
Discontinued operations - (7)
------ ------
Net Income $ 55 $ 19
====== ======
Weighted average shares outstanding:
Basic 52.9 55.7
====== ======
Diluted 52.9 55.9
====== ======
Earnings Per Share
Basic:
Income from continuing
operations $ 1.04 $ 0.47
Discontinued operations - (0.13)
------ ------
Net Income $ 1.04 $ 0.34
====== ======
Diluted:
Income from continuing
operations $ 1.04 $ 0.46
Discontinued operations - (0.13)
------ ------
Net Income $ 1.04 $ 0.33
====== ======
Dividends paid per share
of common stock $ 0.32 $ 0.32
====== ======
See notes to consolidated financial statements.
-8-
<PAGE>9
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
First Quarter 2000
Unaudited
Parent Financial
Company Services Consolidated
------- -------- ------------
(in millions)
ASSETS
Cash and cash equivalents $ 1 $ 227 $ 228
Mortgage loans held for sale - 143 143
Loans and leases receivable, net - 9,954 9,954
Securities available-for-sale - 2,105 2,105
Securities held-to-maturity - 994 994
Trade and other receivables 370 - 354
Inventories 296 - 296
Property and equipment 2,043 148 2,191
Other assets 200 921 1,079
Investment in Financial Services 1,058 - -
------- ------- -------
TOTAL ASSETS $ 3,968 $ 14,492 $ 17,344
======= =======
LIABILITIES
Deposits $ - $ 9,342 $ 9,342
Securities sold under repurchase
agreements and Federal Home Loan
Bank advances - 3,189 3,189
Other liabilities 361 458 795
Long-term debt 1,361 219 1,580
Deferred income taxes 241 - 207
Postretirement benefits 144 - 144
Stock issued by subsidiary - 226 226
------- ------- -------
TOTAL LIABILITIES $ 2,107 $ 13,434 $ 15,483
======= =======
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 363
Accumulated other comprehensive income (loss) (34)
Retained earnings 1,876
-------
2,266
Cost of shares held in the treasury:
8,968,907 shares (405)
-------
TOTAL SHAREHOLDERS' EQUITY 1,861
-------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 17,344
=======
See the notes to the consolidated financial statements.
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<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.
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<PAGE>11
Consolidated Statements of Cash Flows
Temple-Inland Inc. and Subsidiaries
Unaudited
First Quarter
----------------
2000 1999
------ ------
(in millions)
CASH PROVIDED (USED FOR) OPERATIONS $ 197 $ 36
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures for property
and equipment (61) (51)
Proceeds from sale of property
and equipment 1 6
Maturities of securities available-for-sale 73 68
Maturities and redemptions of securities
held-to-maturity 59 90
Purchases of securities available-for-sale (736) -
Loans and leases originated or acquired,
net of principal collected (599) (446)
Acquisitions, net of cash acquired of
$10 million (19) -
Other 48 (15)
----- -----
(1,234) (348)
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt 117 309
Payments of debt (131) (227)
Securities sold under repurchase agreements
and short-term borrowings, net 786 (110)
Purchase of stock for treasury (102) -
Cash dividends paid to shareholders (17) (18)
Net increase in deposits 315 265
Other 13 12
----- -----
981 231
----- -----
Net decrease in cash and cash equivalents (56) (81)
Cash and cash equivalents at beginning of period 284 244
----- -----
Cash and cash equivalents at end of period $ 228 $ 163
===== =====
See the notes to the consolidated financial statements.
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<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 (consisting only of normal accruals) 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.
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<PAGE>13
Note B - EARNINGS PER SHARE
Denominators used in computing earnings per share are as follows:
First Quarter
------------------
2000 1999
------ ------
(in millions)
Denominator for basic earnings per share -
Weighted average common shares outstanding 52.9 55.7
Dilutive effect of stock options - 0.2
----- -----
Denominator for diluted earnings per share 52.9 55.9
===== =====
NOTE C - COMPREHENSIVE INCOME
Comprehensive income is as follows:
First Quarter
------------------
2000 1999
------ ------
(in millions)
Net income $ 55 $ 19
Other comprehensive income, net of income taxes:
Unrealized gains (losses) on available-for-sale
securities (4) (1)
Foreign currency translation adjustments 1 1
---- ----
Other comprehensive income (3) -
---- ----
Comprehensive income $ 52 $ 19
==== ====
NOTE D - ACQUISITIONS AND DISCONTINUED OPERATIONS
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
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 has agreed, subject to certain limitations, to
indemnify the purchaser from certain liabilities and contingencies
associated with the company's ownership and operations 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.
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<PAGE>14
NOTE E - SEGMENT INFORMATION
The company has three reportable segments: Paper, Building
Products, and Financial Services.
For the first quarter or at Building Financial Corporate
quarter end 2000 Paper Products Services and Other Total
- ---------------- ----- -------- --------- --------- -----
(in millions)
Revenues from external
customers $ 501 $ 223 $ 309 $ - $ 1,033
Operating income 51 35 35 (8) 113
Financial Services, net
interest income - - 90 - 90
Total assets 1,695 1,103 14,492 54 17,344
- ------------------------------------------------------------------------------
For the first quarter or at
quarter end 1999
- ----------------
Revenues from external
customers 420 172 258 - 850
Operating income 10 34 27 (7) 64
Financial Services, net
interest income - - 65 - 65
Total assets 1,732 1,056 12,518 733a 16,039
a Includes net assets of discontinued operations.
- ------------------------------------------------------------------------------
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.
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<PAGE>15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the three months ended March 2000 and 1999.
Summary
Consolidated revenues for the first quarter 2000 were $1,033
million, up 22 percent over first quarter 1999. Income from
continuing operations for the first quarter 2000 was $55 million
or $1.04 per diluted share compared with $26 million or $.46 per
diluted share for the first quarter 1999. Net income for the
first quarter 2000 was $55 million or $1.04 per diluted share
compared with $19 million or $.33 per diluted share for the first
quarter 1999.
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.
First Quarter
----------------
2000 1999
------ ------
(in millions)
Revenues
Paper $ 501 $ 420
Building Products 223 172
Financial Services 309 258
----- -----
Total revenues $1,033 $ 850
===== =====
Income
Paper $ 51 $ 10
Building Products 35 34
Financial Services 35 27
----- -----
Segment operating income 121 71
Corporate expense (8) (7)
Parent company interest (25) (22)
Other 3 3
----- -----
Income from continuing operations
before taxes 91 45
Taxes on income 36 19
Income from continuing operations 55 26
Discontinued operations - (7)
----- -----
Net income $ 55 $ 19
===== =====
Each of these business segments is affected by the factors of
supply and demand and changes in domestic and global economic
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<PAGE>16
conditions, including changes in interest rates, new housing
starts, and home repair and remodeling activities.
Unless otherwise noted, increases or decreases refer to first
quarter 2000 amounts compared with first quarter 1999 amounts.
The first quarter 1999 amounts have been restated to reflect the
discontinued bleached paperboard operation.
Paper
The Paper Group revenues were $501 million, up 19 percent.
Average domestic box prices were up 18 percent and up four percent
from fourth quarter 1999. The increase in average box prices was
due in part to an upgrading and realignment of the customer base
as part of the Paper Group's ongoing revenue enhancement
initiatives. Box shipments were 567,000 tons, down three percent,
but were up one percent from fourth quarter 1999. Average
linerboard prices were up 28 percent. Mill production was 650,000
tons, down four percent. The box plants used 87 percent of the
mill production; the remainder of the mill production was sold in
the domestic and export markets.
Production, distribution, and administrative costs were $450
million, up ten percent due mainly to higher costs for old
corrugated containers (OCC), which accounts for 45% of the Paper
Group's fiber requirements, and more outside purchases of
linerboard. OCC costs were up 57 percent or $41 per ton. OCC
costs will likely continue to rise during second quarter 2000. At
quarter-end, OCC costs were $112 per ton compared with $89 per ton
at year-end 1999. Mill production issues, which have been
resolved, resulted in the purchase of more linerboard from outside
sources than is normally purchased. For the quarter, production
was curtailed by 42,000 tons due to market, maintenance, and
operational factors. The Paper Group may curtail more production
in future quarters for these reasons.
Operating income was $51 million, up five times due to the factors
discussed above.
Building Products
The Building Products Group revenues were $223 million, up 30
percent. Average prices for particleboard and MDF products were
up more than ten percent continuing trends that began during 1999.
Fiber products and gypsum prices were up more than five percent.
Gypsum prices, however, are down ten percent from fourth quarter
1999. This downward trend in gypsum prices will likely continue
during second quarter 2000. Lumber prices were down three
percent, continuing a trend from the fourth quarter 1999 and will
likely continue during second quarter 2000. Shipments of
particleboard and MDF were significantly higher due to the new
facilities in Mt. Jewett, Pennsylvania. Shipments of gypsum were
down as demand slowed during the quarter. The Diboll sawmill was
down for renovation during first quarter 1999, but operated at
full production during this quarter. As a result, solid wood
shipments were up almost 50 percent. Also during the quarter, the
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<PAGE>17
Building Products Group began providing fiber at market prices
under a long-term supply agreement entered into in connection with
the sale of the bleached paperboard mill in December 1999.
Production, distribution, and administrative costs were $188
million, up 36 percent due mainly to new manufacturing facilities
and higher production costs in the fiber cement joint venture.
The Building Products Group is currently negotiating to acquire
the interests of its partner in the fiber cement joint venture.
During the first quarter 2000, the Building Products Group began
recognizing all of this venture's operating losses, which totaled
$6.0 million.
Operating income was $35 million, up slightly due to the factors
discussed above.
Financial Services
The Financial Services Group revenues, which consist of interest
and non-interest income, were $309 million, up 20 percent due
mainly to the growth of earning assets.
Within the savings bank, interest income was $247 million, up 27
percent and net interest income was $90 million, up 38 percent.
These increases were mainly due to the growth and change in the
mix of the loan portfolio. The average loan portfolio was $10.4
billion, up 16 percent. About 60 percent of this increase 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 was due to internally generated
growth principally in construction and development lending and
commercial and business lending activities. The provision for
loan losses was $15 million, up $5 million due mainly to the
growth and change in the mix of the loan portfolio. At quarter
end, the allowance for loan losses was $119 million compared with
$96 million at first quarter 1999 and $113 million at year-end
1999.
Non-interest income was $62 million, down three percent. Mortgage
loan originations decreased significantly due mainly to higher
interest rates and a realignment of production facilities. This
was partially offset by an increase in real estate related income.
Non-interest expense was $98 million, up ten percent due mainly to
the effect of the acquired operations. At quarter end, the
mortgage-servicing portfolio totaled $21 billion, down five
percent.
Operating income was $35 million, up 30 percent due to the factors
discussed above.
Corporate, Interest, and Other
Parent Company interest expense is up $3 million due to higher
interest rates.
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<PAGE>18
Income Taxes
The effective tax rate is 39.5 percent and is based on current
expectations of income and expenses for the year 2000. The
effective tax rate includes federal and state income taxes and
the effects of non-deductible goodwill amortization and other
items.
Discontinued Operation
The 1999 discontinued operation is the bleached paperboard
operation, which was sold during December 1999.
Average Shares Outstanding
Average diluted shares outstanding are 52.9 million, down five
percent. This reflects the effects of the stock repurchase plan
started during the fourth quarter 1999.
Capital Resources and Liquidity
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 $24 million, up 114 percent. The
increase was due to greater earnings offset in part by increased
working capital needs.
Investing Activities
Capital expenditures were $54 million. Capital expenditures are
expected to approximate $240 million for the year 2000. A $10
million capital contribution was made to Financial Services.
Financing Activities
In the fourth quarter 1999, the Board of Directors authorized the
repurchase of up to 6.0 million shares. During the first quarter
2000, 1.9 million shares were repurchased at a cost of $102
million. At quarter-end, 3.5 million shares have been repurchased
at a cost of $202 million. Dividends paid were $17 million or
$.32 per share. Debt increased $108 million from year-end
levels.
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 quarter in investing and
financing activities.
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<PAGE>19
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.
Cash provided by operations was $173 million, up 276 percent,
mainly due to greater earnings and a reduction in mortgage
servicing activities. Since year-end 1999, deposits have increased
$315 million and borrowings have increased $793 million. These
funds were primarily used to increase earning assets, loans, and
securities. The increase in earning assets was in line with
expectations. It is likely that the rate of increase in earning
assets will decline during second quarter 2000.
The Financial Services Group has sufficient liquidity and capital
resources to meet its anticipated needs. At quarter- end, 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." From time to time, the Parent
Company may make capital contributions to the savings bank or
receive dividends from the savings bank. For the quarter, the
Parent Company contributed $10 million to the savings bank and
received no dividends.
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; 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.
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
-19-
<PAGE>20
period at the end of the first quarter of 2000, with comparative
information at year-end 1999:
Increase (Decrease) Income
Before Taxes
--------------------------
(in millions)
First Quarter Year End
Change in Interest Rates 2000 1999
- ------------------------ ---------------------------
+2% $(10) $ (1)
+1% (5) -
0% - -
-1% 5 (1)
-2% (3) (16)
The change in exposure to interest rate risk from year-end 1999 is
due to growth in the Financial Services Group longer duration
assets and slower prepayments in downward rate environments.
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 $30
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.
-20-
<PAGE>21
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.
The Company held its annual meeting of stockholders on
May 5, 2000, 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
or and Broker
Matter For Withheld Non-votes
- ------ ------- -------- ----------
1. Election of four directors
(a) Robert Cizik 41,313,764 291,406 -
(b) James T. Hackett 41,345,465 289,705 -
(c) Arthur Temple III 39,756,652 1,848,518 -
(d) Larry E. Temple 41,312,126 293,044 -
2. Ratification of appointment
of Ernst & Young LLP. 41,461,022 24,024 120,124
3. Stockholder proposal regarding
a spin off of the Company's
financial services businesses. 10,496,060 26,927,334 4,181,776
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
April 1, 2000, the Company did not file a current report
on Form 8-K.
-21-
<PAGE>22
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: May 15, 2000 By /s/ Louis R. Brill
-----------------------
Louis R. Brill
Vice President and
Chief Accounting Officer
-22-
<PAGE>23
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 24
-23-
<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> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 228
<SECURITIES> 0
<RECEIVABLES> 354
<ALLOWANCES> 0
<INVENTORY> 296
<CURRENT-ASSETS> 0
<PP&E> 2,191
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,344
<CURRENT-LIABILITIES> 0
<BONDS> 1,580
0
0
<COMMON> 61
<OTHER-SE> 1,800
<TOTAL-LIABILITY-AND-EQUITY> 17,344
<SALES> 724
<TOTAL-REVENUES> 1,033
<CGS> 646
<TOTAL-COSTS> 920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 91
<INCOME-TAX> 36
<INCOME-CONTINUING> 55
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.04
</TABLE>
