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 July 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 July 1, 2000
Common Stock (par
value $1.00 per share) 50,987,331
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
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Revenues
Net revenues $ 721 $ 642 $ 1,445 $ 1,234
Financial services earnings 48 34 83 61
----- ----- ----- -----
769 676 1,528 1,295
Costs and Expenses
Cost of sales 580 515 1,156 1,006
Selling and administrative 65 64 135 128
----- ----- ----- -----
645 579 1,291 1,134
Operating Income 124 97 237 161
Interest expense (26) (22) (51) (44)
Other 2 3 5 6
----- ----- ----- -----
Income From Continuing
Operations Before Taxes 100 78 191 123
Taxes on income 38 30 74 49
----- ----- ----- -----
Income From Continuing
Operations 62 48 117 74
Discontinued operations - (7) - (14)
----- ----- ----- -----
Net Income $ 62 $ 41 $ 117 $ 60
===== ===== ===== =====
See notes to consolidated financial statements.
<PAGE>3
Summarized Balance Sheets
Parent Company (Temple-Inland Inc.)
Unaudited
Second
Quarter Year End
2000 1999
---- ----
(in millions)
ASSETS
Current Assets
Cash and cash equivalents $ 2 $ 51
Receivables, net of allowances of $10 in
2000 and $9 in 1999 372 328
Inventories:
Work in process and finished goods 78 71
Raw materials 202 216
------ ------
280 287
Prepaid expenses 20 16
------ ------
Total current assets 674 682
Investment in Temple-Inland Financial 1,063 1,023
Services
Property and Equipment 3,278 3,309
Less accumulated depreciation (1,767) (1,759)
------ ------
Total property and equipment 1,511 1,550
Timber and timberlands, net of depletion 505 502
Other Assets 182 184
------ ------
Total Assets $ 3,935 $ 3,941
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 144 $ 156
Other current liabilities 204 225
------ ------
Total current liabilities 348 381
Long-Term Debt 1,329 1,253
Other Long-Term liabilities 423 380
Shareholders' Equity 1,835 1,927
------ ------
Total Liabilities and Shareholders' $ 3,935 $ 3,941
Equity ====== ======
See notes to consolidated financial statements.
<PAGE>4
Summarized Statements of Cash Flows
Parent Company (Temple-Inland Inc.)
Unaudited
First Six Months
----------------
2000 1999
---- ----
(in millions)
Cash Provided by (Used for) Operations $ 109 $ 53
Cash Provided by (Used for) Investments
Capital expenditures for property and
equipment (102) (91)
Capital contributions to financial services (10) (239)
Dividends from financial services 30 -
Acquisitions, net of cash acquired, and
joint ventures (3) (4)
Other 5 13
----- -----
(80) (321)
Cash Provided by (Used for) Financing
Additions to debt 126 308
Payments of debt - (24)
Purchase of stock for treasury (172) -
Cash dividends paid to shareholders (34) (36)
Other 2 11
----- -----
(78) 259
----- -----
Net decrease in cash and cash equivalents (49) (9)
Cash and cash equivalents at beginning of 51 15
period ----- -----
Cash and cash equivalents end of period $ 2 $ 6
===== =====
See notes to consolidated financial statements.
<PAGE>5
Summarized Statements of Income
Financial Services Group
Unaudited
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Interest Income
Loans receivable and mortgage
loans held for sale $ 213 $ 166 $ 415 $ 326
Securities and other 57 29 102 63
----- ----- ----- -----
Total interest income 270 195 517 389
Interest Expense
Deposits 120 88 229 173
Borrowed funds 52 39 100 83
----- ----- ----- -----
Total interest expense 172 127 329 256
Net interest income 98 68 188 133
Provision for loan losses (10) (8) (25) (18)
----- ----- ----- -----
Net interest income after
provision for loan losses 88 60 163 115
Noninterest income 73 67 135 131
Noninterest expense
Compensation and benefits 43 41 85 83
Other 65 48 121 95
----- ----- ----- -----
Total noninterest expense 108 89 206 178
Income before taxes and minority
interest 53 38 92 68
Minority interest in income of
consolidated subsidiary (5) (4) (9) (7)
----- ----- ----- -----
Income before taxes 48 34 83 61
Taxes on income 12 6 19 13
----- ----- ----- -----
Net income $ 36 $ 28 $ 64 $ 48
===== ===== ===== =====
See notes to consolidated financial statements.
<PAGE>6
Summarized Balance Sheets
Financial Services Group
Unaudited
Second
Quarter Year End
2000 1999
---- ----
(in millions)
ASSETS
Cash and cash equivalents $ 317 $ 233
Mortgage loans held for sale 173 252
Loans and leases receivable, net of
allowance for losses of $129 in 2000
and $113 in 1999 9,967 9,296
Securities available-for-sale 2,123 1,431
Securities held-to-maturity 952 1,061
Other assets 1,039 1,048
----- -----
TOTAL ASSETS $ 14,571 $ 13,321
====== ======
LIABILITIES
Deposits $ 9,602 9,027
Securities sold under repurchase
agreements 367 -
Federal Home Loan Bank advances 2,616 2,403
Other borrowings 221 212
Other liabilities 476 430
Stock issued by subsidiary 226 226
------ ------
TOTAL LIABILITIES 13,508 12,298
SHAREHOLDERS' EQUITY 1,063 1,023
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 14,571 $ 13,321
====== ======
See notes to consolidated financial statements.
<PAGE>7
Summarized Statements of Cash Flows
Financial Services Group
Unaudited
First Six Months
----------------
2000 1999
---- ----
(in millions)
Cash Provided by (Used for) Operations $ 221 $ 232
Cash Provided by (Used for) Investments
Maturities and redemptions of securities 255 329
Purchases of securities available-for-sale (769) (4)
Loans and leases originated or acquired, net
of principal collected (764) (804)
Proceeds from sale of loans 135 3
Capital expenditures for property and
equipment (18) (13)
Acquisitions, net of cash acquired (19) (109)
Other 12 (31)
----- -----
(1,168) (629)
Cash Provided by (Used for) Financing
Net increase in deposits 575 436
Securities sold under repurchase agreements
and short-term borrowings, net 580 36
Additions to debt 17 14
Payments of debt (137) (350)
Capital contributions from Parent Company 10 239
Dividends paid to Parent Company (30) -
Other 16 20
----- -----
1,031 395
----- -----
Net increase (decrease) in cash and cash
equivalents 84 (2)
Cash and cash equivalents at
beginning of period 233 229
----- -----
Cash and cash equivalents at
end of period $ 317 $ 227
===== =====
See notes to consolidated financial statements.
<PAGE>8
Consolidated Statements of Income
Temple-Inland Inc. and Subsidiaries
Unaudited
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions, except per share amounts)
Revenues
Manufacturing $ 721 $ 642 $1,445 $1,234
Financial services 343 262 652 520
----- ----- ----- -----
1,064 904 2,097 1,754
Costs and Expenses
Manufacturing 645 579 1,291 1,134
Financial services 295 228 569 459
----- ----- ----- -----
940 807 1,860 1,593
Operating income 124 97 237 161
Parent company interest (26) (22) (51) (44)
Other 2 3 5 6
----- ----- ----- -----
Income From Continuing
Operations Before Taxes 100 78 191 123
Taxes on income 38 30 74 49
----- ----- ----- -----
Income From Continuing
Operations 62 48 117 74
Discontinued operations - (7) - (14)
----- ----- ----- -----
Net Income $ 62 $ 41 $ 117 $ 60
===== ===== ===== =====
Weighted average shares outstanding:
Basic 51.7 55.8 52.3 55.7
===== ===== ===== =====
Diluted 51.7 56.1 52.3 56.0
===== ===== ===== =====
Earnings Per Share
Basic:
Income from continuing
operations $ 1.20 $ .88 $ 2.24 $ 1.35
Discontinued operations - (.14) - (.27)
----- ----- ----- -----
Net Income $ 1.20 $ .74 $ 2.24 $ 1.08
===== ===== ===== =====
Diluted:
Income from continuing
operations $ 1.20 $ .87 $ 2.24 $ 1.33
Discontinued operations - (.13) - (.26)
----- ----- ----- -----
Net Income $ 1.20 $ .74 $ 2.24 $ 1.07
===== ===== ===== =====
Dividends paid per share of
common stock $ .32 $ .32 $ .64 $ .64
===== ===== ===== =====
See notes to consolidated financial statements.
<PAGE>9
Consolidating Balance Sheets
Temple-Inland Inc. and Subsidiaries
Second Quarter 2000
Unaudited
Parent Financial
Company Services Consolidated
------- -------- ------------
(in millions)
ASSETS
Cash and cash equivalents $ 2 $ 317 $ 319
Mortgage loans held for sale - 173 173
Loans and leases receivable, net - 9,967 9,967
Securities available-for-sale - 2,123 2,123
Securities held-to-maturity - 952 952
Trade and other receivables 372 - 350
Inventories 280 - 280
Property and equipment 2,016 151 2,167
Other assets 202 888 1,050
Investment in Financial Services 1,063 - -
------ ------ ------
TOTAL ASSETS $ 3,935 $ 14,571 $ 17,381
====== ====== ======
LIABILITIES
Deposits $ - $ 9,602 $ 9,602
Securities sold under repurchase
agreements and Federal Home Loan
Bank advances - 2,983 2,983
Other liabilities 360 476 804
Long-term debt 1,329 221 1,550
Deferred income taxes 268 - 238
Post-retirement benefits 143 - 143
Stock issued by subsidiary - 226 226
----- ------ ------
TOTAL LIABILITIES $ 2,100 $ 13,508 $ 15,546
===== ======
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) (36)
Retained earnings 1,922
------
2,311
Cost of shares held in the treasury:
10,402,221 shares (476)
------
TOTAL SHAREHOLDERS' EQUITY 1,835
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,381
======
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 Six Months
----------------
2000 1999
---- ----
(in millions)
CASH PROVIDED (USED FOR) OPERATIONS $ 330 $ 285
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures for property and (120) (104)
equipment
Proceeds from sale of property and
equipment 12 13
Maturities of securities available-for-sale 148 127
Maturities and redemptions of securities
held-to-maturity 107 202
Purchases of securities available-for-sale (769) (4)
Loans and leases originated or acquired,
net of principal collected (764) (804)
Acquisitions, net of cash acquired, and
joint ventures (22) (113)
Proceeds from sales of loans 135 3
Other 5 (31)
----- -----
(1,268) (711)
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt 143 322
Payments of debt (137) (374)
Securities sold under repurchase agreements
and short-term borrowings, net 580 36
Purchase of stock for treasury (172) -
Cash dividends paid to shareholders (34) (36)
Net increase in deposits 575 436
Other 18 31
----- -----
973 415
----- -----
Net increase (decrease) in cash and
cash equivalents 35 (11)
Cash and cash equivalents at
beginning of period 284 244
----- -----
Cash and cash equivalents at end of period $ 319 $ 233
===== =====
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:
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Denominator for basic earnings
per share - weighted average
shares outstanding 51.7 55.8 52.3 55.7
Dilutive effect of stock options - .3 - .3
----- ----- ----- -----
Denominator for diluted earnings
per share 51.7 56.1 52.3 56.0
===== ===== ===== =====
<PAGE>13
NOTE C - COMPREHENSIVE INCOME
Comprehensive income is as follows:
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Net income $ 62 $ 41 $ 117 $ 60
Other comprehensive income,
net of income taxes:
Unrealized gains (losses) on
available-for-sale securities - (8) (4) (9)
Foreign currency translation
adjustments (2) - (1) 1
---- ---- ---- ----
Other comprehensive income (2) (8) (5) (8)
---- ---- ---- ----
Comprehensive income $ 60 $ 33 $ 112 $ 52
==== ==== ===== =====
NOTE D - ACQUISITIONS, JOINT VENTURES AND DISCONTINUED OPERATIONS
The company has entered into a joint venture to produce
lightweight gypsum facing paper. The joint venture has been
modifying the Company's 285,000-ton corrugating medium mill in
Newport, Indiana, to add production capacity for this gypsum
facing paper. The conversion is expected to be completed during
the third quarter of 2000. For a period of twelve months after
the conversion, the Company will purchase, at market rates, all
of the joint venture's production of corrugating medium. Near
the end of the second quarter of 2000, the Company transferred
ownership of the mill 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.
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.
<PAGE>14
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.
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 second quarter 2000
Revenues from external
customers $ 511 $ 210 $ 343 $ - $ 1,064
Operating income 56 28 48 (8) 124
Financial Services, net
interest income - - 98 - 98
Depreciation, depletion and
amortization 34 14 9 2 59
-----------------------------------------------------------------------------
For the first six months of 2000
Revenues from external
customers $ 1,012 $ 433 $ 652 $ - $ 2,097
Operating income 107 63 83 (16) 237
Financial Services, net
interest income - - 188 - 188
Depreciation, depletion and
amortization 67 31 15 3 116
-----------------------------------------------------------------------------
For the second quarter 1999
Revenues from external
customers $ 444 $ 198 $ 262 $ - $ 904
Operating income 22 49 34 (8) 97
Financial Services, net
interest income - - 68 - 68
Depreciation, depletion and
amortization 34 14 5 1 54
-----------------------------------------------------------------------------
For the first six months of 1999
Revenues from external
customers $ 864 $ 370 $ 520 $ - $ 1,754
Operating income 32 83 61 (15) 161
Financial Services, net
interest income - - 133 - 133
Depreciation, depletion and
amortization 68 28 10 2 108
-----------------------------------------------------------------------------
<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.
<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 six months ended June 2000 and
1999.
Summary
Consolidated revenues for the second quarter 2000 were $1,064
million, up 18 percent over second quarter 1999. Income from
continuing operations for the second quarter 2000 was $62 million
or $1.20 per diluted share compared with $48 million or $.87 per
diluted share for the second quarter 1999. Consolidated revenues
for the first six months 2000 were $2,097 million, up 20 percent
over the first six months 1999. Income from continuing
operations for the first six months 2000 was $117 million, or
$2.24 per diluted share compared with $74 million or $1.33 per
diluted share for the first six months 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.
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Revenues
Paper $ 511 $ 444 $ 1,012 $ 864
Building Products 210 198 433 370
Financial Services 343 262 652 520
----- ----- ----- -----
Total revenues $1,064 $ 904 $ 2,097 $1,754
====== ===== ====== =====
Income
Paper $ 56 $ 22 $ 107 $ 32
Building Products 28 49 63 83
Financial Services 48 34 83 61
----- ----- ----- -----
Segment operating income 132 105 253 176
Corporate expense (8) (8) (16) (15)
Parent Company interest (26) (22) (51) (44)
Other 2 3 5 6
----- ----- ----- -----
Income from continuing
operations before taxes 100 78 191 123
Taxes on income 38 30 74 49
----- ----- ----- -----
Income from continuing
operations 62 48 117 74
Discontinued operations - (7) - (14)
----- ----- ----- -----
Net income $ 62 $ 41 $ 117 $ 60
===== ===== ===== =====
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, and home repair and remodeling activities.
Unless otherwise noted, increases or decreases refer to second
quarter 2000 amounts compared with second quarter 1999 amounts
and first six months 2000 amounts compared with first six months
1999 amounts. The 1999 amounts have been restated to reflect the
<PAGE> 17
discontinued bleached paperboard operation, which was sold in
December 1999.
For the second quarter 2000
Paper
The Paper Group revenues were $511 million, up 15 percent.
Average domestic box prices were up 19 percent while box
shipments were 564,000 tons, down two 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.
Average linerboard prices were up 27 percent. Mill production
was 629,000 tons, down six 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.
As compared with the first quarter 2000, Paper Group revenues
were up two percent with average box prices up six percent, box
shipments down less than one percent, and linerboard prices up
ten percent.
Production, distribution, and administrative costs were $455
million, up eight percent due mainly to higher delivered costs
for old corrugated containers (OCC), which accounts for
approximately 45 percent of the Paper Group's fiber requirements,
and to higher fuel prices. OCC costs were up 85 percent or $63
per ton. OCC costs continued to rise in the first two months of
the quarter, but declined in June and have continued to decline
into the third quarter. At quarter-end, OCC costs were $139 per
ton compared to $112 per ton at the end of the first quarter
2000.
During the quarter, production was curtailed by 43,000 tons due
to market, maintenance, and operational factors. The Paper
Group may curtail more production in future quarters for these
reasons. The Paper Group has entered into a joint venture to
convert its 285,000 ton corrugating medium mill in Newport,
Indiana, to produce lightweight gypsum facing paper. The
conversion is expected to be completed during the third quarter
of 2000. For a period of twelve months after this conversion, the
Paper Group has agreed to purchase at market rates all of the
joint venture's corrugating medium production.
Operating income was $56 million up 2.5 times due to the factors
discussed above.
Building Products
The Building Products Group revenues were $210 million, up six
percent. Lower lumber prices, down 16 percent, and gypsum
prices, down 14 percent, offset higher prices for particleboard
and MDF, both up nine percent. Particleboard and MDF shipments
were up due to the operations of the Mt. Jewett facilities in
2000. Lumber shipments were up due to the reopening of the Diboll
sawmill in mid-1999. Solid wood revenues were up due to
deliveries under the long-term fiber supply agreement entered
into in connection with the sale of the bleached paperboard mill
in December 1999. As compared with the first quarter 2000,
Building Products Group revenues were down six percent due in
part to lower lumber and gypsum prices, down seven percent and 13
percent, respectively,
<PAGE> 18
and lower lumber, particleboard, and MDF shipments. These trends of
lower prices and shipments will likely continue during the third quarter.
Production, distribution, and administrative costs were $182
million, up 22 percent due mainly to new manufacturing
facilities, higher fuel costs, 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 while continuing its efforts to
achieve profitability and assessing its alternatives for this
operation.
During the quarter, production was curtailed at several
manufacturing and production facilities due to market conditions.
The Building Products Group may curtail more production in future
quarters for this reason.
Operating income was $28 million down 43 percent due to the
factors discussed above.
Financial Services
The Financial Services Group revenues, which consist of interest
and non-interest income, were $343 million, up 31 percent.
Interest income was $270 million, up 38 percent and net interest
income was $98 million, up 44 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 20
percent. Of the increase, 60 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 loan losses was $10 million, up $2 million due
mainly to the growth and change in the mix of the loan portfolio.
At quarter end, the allowance for losses was $129 million
compared with $111 million at the end of the second quarter 1999
and with $119 million at the end of the first quarter 2000.
Non-interest income was $73 million, up nine percent due in part
to higher loan fees offset by a decline in mortgage loan
originations. Non-interest expense was $108 million, up 21
percent, mainly due to the acquired operations. At quarter end,
the mortgage-servicing portfolio totaled $21 billion, down six
percent from year-end 1999.
As compared with the first quarter 2000, Financial Services
revenues were up 11 percent with net interest income up nine
percent, non-interest income up 18 percent, and non-interest
expenses up ten percent.
Operating income was $48 million, up 41 percent due to the
factors discussed above.
<PAGE>19
Corporate, Interest, and Other
Parent Company interest expense was up $4 million due to higher
interest rates and higher average outstanding debt during the
quarter.
Income Taxes
The effective tax rate was 38 percent compared to 39.5 percent in
the first quarter 2000. This reflects the effect of adjusting the
estimated annual effective tax rate from 39.5 percent to 39
percent based on current expectations of income and expenses for
the year 2000.
Average Shares Outstanding
Average diluted shares outstanding were 51.7 million, down eight
percent due mainly to the effects of the stock repurchase program
started during the fourth quarter 1999.
For the first six months 2000
Paper
The Paper Group revenues were $1,012 million, up 17 percent.
Average domestic box prices were up 19 percent while box
shipments were 1,131 thousand tons, down two 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.
Average linerboard prices were up 27 percent. Mill production
was 1,279 thousand tons, down five percent. The box plants used
89 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 $905
million, up nine percent due mainly to higher delivered costs for
OCC, production issues, and higher fuel prices. OCC costs were
up 71 percent or $52 per ton.
During the first six months, production was curtailed by 85,000
tons due to market, maintenance, and operational factors. The
Paper Group may curtail production in the future for these
reasons.
Operating income was $107 million up three times due to the
factors discussed above.
Building Products
The Building Products Group revenues were $433 million, up 17
percent. Lower lumber prices, down nine percent, and gypsum
prices, down three percent, offset higher prices for
particleboard, up ten percent, and MDF, up 12 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. Solid wood revenues
were up due to deliveries under the long-term fiber supply
agreement entered into in connection with the sale of the
bleached paperboard mill in December 1999.
<PAGE>20
Production, distribution, and administrative costs were $370
million, up 29 percent due mainly to additional manufacturing
facilities, higher fuel costs, and higher production costs in the
fiber cement joint venture. During the first six months of 2000,
the Building Products Group began recognizing all of the fiber
cement joint venture's operating losses, which totaled $10
million for the period.
During the first six months, production was curtailed at several
manufacturing and production facilities due to market conditions.
The Building Products Group may curtail production in the future
for this reason.
Operating income was $63 million, down $20 million due to the
factors discussed above.
Financial Services
The Financial Services Group revenues were $652 million up 25
percent.
Interest income was $517 million, up 33 percent, and net interest
income was $188 million, up 41 percent. These increases were
mainly due to the growth and change in the mix of the loan
portfolio. The average loan portfolio was $11 billion, up 20
percent. Of the increase, 60 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 $25 million, up $7 million, due mainly
to the growth and change in the mix of the loan portfolio.
Non-interest income was $163 million, up 42 percent due mainly to
higher loan fees offset by a decline in mortgage loan
originations. Non-interest expense was $206 million, up 16
percent, mainly due to the acquired operations.
Operating income was $83 million, up 36 percent due to the
factors discussed above.
Corporate, Interest, and Other
Parent Company interest expense was up $7 million due to higher
interest rates and higher average outstanding debt during this
period.
Income Taxes
The effective tax rate was 39 percent compared to 40 percent in
1999. The effective tax rate 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.
<PAGE>21
Average Shares Outstanding
Average diluted shares outstanding were 52.3 million, down seven
percent due mainly to the effects of the stock repurchase program
started during the fourth quarter 1999.
Capital Resources and Liquidity
For the first six months ended June 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 $109 million, up 106 percent. The
increase was due to greater earnings offset in part by increased
working capital needs. Depreciation and amortization was $101
million and is expected to approximate $205 million for the year
2000.
Investing Activities
Capital expenditures were $102 million and are expected to
approximate $240 million for the year 2000. A $30 million
dividend was received from Financial Services in the second
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. During the first six
months 2000, 3.3 million shares were repurchased at a cost of
$172 million. By the end of the second quarter, an aggregate of
5.0 million shares had been repurchased since the inception of
this program at a cost of $272 million. It is likely that this
repurchase authorization will be completed during the third
quarter 2000. In August 2000, the Board of Directors authorized
the repurchase of an additional 2.5 million shares. Dividends
paid were $34 million or $.32 per share per quarter. Debt
increased $126 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.
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 six months in
investing and financing activities.
Other
The Parent Company has sufficient liquidity and capital resources
to meet its anticipated needs.
<PAGE>22
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 $221 million, down five percent.
The increase in earnings and a reduction in mortgage servicing
activities were offset by a decrease in originations of mortgage
loans held for sale.
Investing Activities
Loans and securities, increased $1,143 million and was in line
with expectations. Capital expenditures were $18 million and
cash paid for acquisitions was $19 million.
Financing Activities
Deposits increased $575 million and borrowings increased $460
million. Dividends, net of capital contributions paid to the
Parent Company totaled $20 million.
Cash Equivalents
Cash equivalents increased $84 million to $317 million.
Other
The Financial Services Group has sufficient liquidity and capital
resources to meet its anticipated needs. At the end of the
second 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." 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 six months 2000, the Parent Company contributed
$10 million to the savings bank and received $30 million in
dividends from the savings bank.
Selected financial and regulatory capital data for the savings
bank follows:
June Year End
2000 1999
------ ------
(in millions of dollars)
Balance sheet data
Total assets $14,130 $12,892
Total deposits 9,912 9,329
Shareholders' equity 912 857
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%
<PAGE>23
Statistical and other data
Second Quarter First Six Months
-------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net revenues (in millions)
Paper $ 511 $ 444 $ 1,012 $ 864
Building products: (a)
Pine lumber $ 72 $ 66 $ 156 $ 116
Plywood 15 18 30 36
Particleboard 58 42 115 84
Medium density fiberboard 22 14 44 25
Gypsum wallboard 25 38 54 72
Fiberboard 18 20 34 37
---- ---- ---- ----
Total Building products $ 210 $ 198 $ 433 $ 370
==== ==== ==== ====
Unit sales
Paper (in thousands tons) (b) 685 720 1,398 1,424
Building products: (a)
Pine lumber - MBF 167 157 345 289
Plywood - MSF (3/8" basis) 70 79 141 159
Particleboard - MSF (3/4" basis) 178 141 359 239
Medium density fiberboard-MSF
(3/4" basis) 68 47 137 88
Gypsum wallboard - MSF 174 232 352 457
Fiberboard - MSF (1/2" basis) 106 125 203 231
(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; 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 second quarter of
2000, with comparative information at year-end 1999:
Increase (Decrease) Income
Before Taxes
---------------------------
(in millions)
Second Quarter Year End
Change in Interest Rates 2000 1999
------------------------ ---------------------------
+2% $ 1 $ (1)
+1% 5 -
0% - -
-1% (3) (1)
-2% (18) (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 July 1, 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: August 15, 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
