-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BuKndzz7k0wgvZ6WgePGJ7ik73IVU1Xn3N8zMTw02kw9tNNEyKHV8tHmqlMz45b4 IXCwvTD3oJmtIKJb0cWIoA== 0000731939-00-000007.txt : 20000516 0000731939-00-000007.hdr.sgml : 20000516 ACCESSION NUMBER: 0000731939-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLE INLAND INC CENTRAL INDEX KEY: 0000731939 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 751903917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08634 FILM NUMBER: 633898 BUSINESS ADDRESS: STREET 1: 303 S TEMPLE DR STREET 2: PO DRAWER N CITY: DIBOLL STATE: TX ZIP: 75941 BUSINESS PHONE: 4098295511 MAIL ADDRESS: STREET 1: 303 SOUTH TEMPLE DR CITY: DIBOLL STATE: TX ZIP: 75941 10-Q 1 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. 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. -2- 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. -3- 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. -4- 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. -5- 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. -6- 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. -7- 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- 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. -9- 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. -10- 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. -11- 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. -12- 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. -13- 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. -14- 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 -15- 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 -16- 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. -17- 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. -18- 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- 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- 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- 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- 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- EX-27 2
5 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. 1,000,000 3-MOS DEC-30-2000 APR-01-2000 228 0 354 0 296 0 2,191 0 17,344 0 1,580 0 0 61 1,800 17,344 724 1,033 646 920 0 0 25 91 36 55 0 0 0 55 1.04 1.04
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