Temple-Inland 2000 Annual Report NEW re Temple-Inland 2000 Annual Report
In the 1999 Annual Report, Temple-Inland renewed its pledge to stakeholders to focus on customers, provide quality products, position the Company to capitalize on its growing markets and sustain its commitment to the quality of the environment and the quality of life for Temple-Inland employees and communities. NEW
This 2000 Annual Report is dedicated to the progress on that renewed promise and provides insight to the new products, services, markets and technology that will power Temple-Inland in the future. FINANCIAL HIGHLIGHTS Temple-Inland is a holding company with operations in paper, building products Percent 2000 1999 Change and financial services. (in millions, except per share data)
Revenues ...... $ 4,286 $ 3,808 13 % The Paper Group produces containerboard and a complete line of corrugated Income from continuing operations (before special charge) ...... $204(a) $ 191 7 % containers, including shipping boxes, retail packaging and point-of-purchase displays Net income...... $ 195 $ 99 97 % Income from continuing operations per diluted share (before special charge)...... $ 4.01(a) $ 3.43 17 % The Building Products Group manufactures a wide range of building products Net income per diluted share ...... $ 3.83 $ 1.78 115 % including lumber, particleboard, medium density fiberboard, gypsum wallboard Dividends per share ...... $ 1.28 $1.28 –% Book value per share ...... $ 37.25 $ 35.55 5 % and fiberboard products. Weighted average diluted shares outstanding...... 50.9 55.8 (9)% Common shares outstanding at year end...... 49.2 54.2 (9)% Forest resources include approximately 2.2 million acres of timberland located (a) Excludes after-tax special charge of $9 million or $0.18 per diluted share. in Texas, Louisiana, Georgia and Alabama.
The Financial Services Group includes a full service bank, a mortgage banking company, an insurance agency and a real estate development firm.
Temple-Inland Inc. is a Delaware corporation that was organized in 1983 SELECTED BUSINESS SEGMENT DATA Its principal subsidiaries include Inland Paperboard and Packaging, Inc. Percent 2000 1999 Change Temple-Inland Forest Products Corporation; Temple-Inland Financial Services (in millions) Inc.; Guaranty Bank; and Temple-Inland Mortgage Corporation. Revenues Paper ...... $ 2,089 $1,869 12 % Temple-Inland’s common stock is listed on the New York Stock Exchange and Building Products ...... $ 828 $ 823 1 % Financial Services ...... $ 1,369 $1,116 23 % the Pacific Exchange under the ticker symbol TIN. Operating Income Paper...... $ 205 $ 103 99 % Building Products ...... $68 $ 174 (61)% Financial Services ...... $ 189 $ 138 37 %
This annual report contains forward-looking statements that involve risks and uncertainties. The actual results achieved by Temple-Inland may differ significantly from the results discussed in the forward- looking statements. Factors that might cause such differences include general economic, market or business conditions; the opportunities (or lack thereof) that may be presented to and pursued by Temple-Inland and its subsidiaries; the availability and price of raw materials used by Temple-Inland and its subsidiaries; competitive actions by other companies; changes in laws or regulations; and other circumstances, many of which are beyond the control of Temple-Inland and its subsidiaries. To our Shareholders,
At Temple-Inland, we are committed to creating shareholder value by focusing on customers and providing of financial services offered to individuals and businesses The long-term outlook for all our markets is positive, and quality products. In 2000, we realized benefits from these initiatives, and our financial performance and provide opportunities to jointly market services. we have positioned Temple-Inland to take advantage of Additionally, the bank acquired American Finance Group, future growth. At Temple-Inland, we believe our unique improved over 1999. Looking to the future, we renew our commitment to create value by remaining Inc., an equipment leasing and financing company, and combination of assets gives us significant earning capability focused on customers and products, which are the cornerstone principles of a market-driven company. more than doubled the size of its asset based lending portfolio. over an economic cycle. These transactions further the bank’s diversification strategy 2000 Financial Performance to reductions in inventory. For example, at year-end , and provide additional earnings capabilities. Our focus on ROI-based compensation will ensure Income for before special charges was million, our containerboard inventories were more than , tons that we use capital prudently and maintain efficient, low-cost or . per diluted share, compared with income from lower than at year-end as we improved our inventory Repurchase shares. During the third quarter , the Company operations. We will continue to actively look for opportunities continuing operations of million, or . per diluted management and forecasting capabilities. Throughout our completed its authorized share repurchase of million to grow each of our businesses, but only if such growth share in . Revenues for were . billion, com- company, compensation is based on return on capital. This shares, and the Board of Directors authorized the repurchase helps us drive earning power and returns. pared with revenues from continuing operations of has resulted in lower capital investment levels. of an additional . million shares. Since November , . billion. Results improved in despite a significant the Company has repurchased . million shares under Respect for the environment and responsible environmental decline in the earnings contribution from the Building Maintain low cost operations. Although we are a market- these authorizations. practices are core values at Temple-Inland. We are com- Products Group, which experienced a record year in . driven company, we are also committed to having low-cost mitted to continuously improving and expanding our operations. For example, despite the fact that our businesses Outlook environmental programs. 2000 Initiatives have grown substantially over the past four years, our Although the slowdown in the domestic economy and the While we made progress in improving earnings and returns in number of employees has remained constant. strength of the dollar have had an adverse effect on the We thank the Board of Directors for their leadership and , we took a number of steps during the year that will con- demand for corrugated containers and building products, welcome James A. Johnson, W. Allen Reed and James T. tinue to drive earning power and returns in and beyond. Modify Newport mill. In mid-, the Newport, Indiana, we are encouraged about the long-term outlook for all Hackett to our Board. Their backgrounds and experiences joint venture mill was modified to enable it to produce three of our businesses. bring unique and valuable perspectives to our company. Implement technology and e-commerce. Each of our three lightweight gypsum facing paper. This will improve the operating groups is implementing new information tech- Paper Group’s integration level, diversify its product line In paper, very little new containerboard capacity is expected We also welcome Dale E. Stahl as president and chief operating nology systems that will provide a foundation for better and ultimately lower industry containerboard capacity. within the next three years, and growth in demand for corru- officer of the Paper Group. Dale’s more than years of managing relationships and interactions with customers, gated containers is anticipated to return to trendline levels. experience in the paper industry, understanding of markets lower costs and facilitate our ability to take full advantage Dispose of Fortra Fiber-Cement. Our fiber-cement operation and focus on customers will be crucial as we continue to of e-commerce initiatives. Integrated Package and Point did not meet our return requirements. Therefore, we elected The demand for building products is driven by new housing implement and expand our market-driven strategy. Solutions (IPPS) provides state-of-the-art capabilities for to exit this business and entered into a long-term agreement and repair and remodeling markets, both of which slowed our Paper Group, including product configuration, finite to lease the Fortra Fiber-Cement LLC venture’s fiber-cement in . However, these markets are projected to grow in Thank you to all our employees for your commitment to scheduling, real time production data collection and product operation to James Hardie Building Products, Inc. the future due to an increase in home ownership resulting provide quality products and service to our customers. delivery. This system also provides the foundation for from certain demographic trends, including aging of the Each one of us makes a difference, and our collective effort making available, via the Internet, customer self-service, Modernize Pineland complex. We are modernizing our baby boomers, a fast growing minority population and an is key to creating shareholder value. We also appreciate the collaborative product design and information exchange Pineland, Texas, complex by adding a sawmill and closing increase in immigrants. The steady growth in the number significant amount of individual volunteer work performed with customer systems. Through a project called Update, a plywood facility. Each of our sawmills has now been of homeowners, together with the shift toward older, larger by our employees, which helps strengthen the communities the Building Products Group is upgrading its proprietary, modernized and utilizes new generation technology. and more expensive homes, should support increases in where we live and work. real-time Order-to-Cash customer interface system. Update remodeling spending in years ahead. Building products will provide on-line order entry, order status, invoicing, Increase forest growth. We continue to focus on growing markets are currently oversupplied, resulting in a chal- Finally, we thank our shareholders for your confidence in pricing and real time product availability, helping customers more fiber through improved silviculture practices. In lenging operating environment. However, several older, Temple-Inland. We are focused on creating value for you. manage their inventory more efficiently. As part of Customer , our nursery produced larger diameter and more inefficient sawmills and gypsum mills within the industry First, the Financial Services Group has developed a technology uniform seedlings. Specific seedlings were then matched have been shut down, and more closures are anticipated. Sincerely, enhanced customer relationship management system that with certain sites to create optimum growth. This resulted will provide a comprehensive profile of each customer, in an average tree growth of . feet in the first year, a The Financial Services Group had record earnings in . including financial needs and cross-selling opportunities. It percent increase compared with growth rates experienced The bank’s high-touch strategy should ensure continued will help ensure that each customer receives high-touch, before we began an intensive planting program in . growth of a low-cost deposit base. We continue to grow high-quality service through multiple delivery channels. and diversify the loan portfolio by geography and product. K ENNETH M. J ASTROW,II Launch Guaranty Financial Services. Late in ,we By growing its targeted customer base, diversifying its assets Chairman and Chief Executive Officer Lower capital investment. The improvement in return on decided to link the banking, mortgage and insurance and capitalizing on cross-sell opportunities, the Financial investment in resulted, in part, from lower capital operations under a common banner, Guaranty Financial Services Group is positioned to continue to provide steadily investment as working capital levels declined due primarily Services. This will increase awareness of the broad spectrum growing earnings in the future. 4 Temple-Inland 2000 Annual Report Delivering on the Promise to Focus on Customers
Temple-Inland measures success in terms of customer number and complexity of innovative packaging satisfaction. To deliver total solutions to its customers, solutions needed by Temple-Inland’s customers. the Company has initiated new processes, programs and Through its continuing investments in technology, technologies throughout its businesses. Temple-Inland the Company will be well positioned to meet these is now able to align itself with customers on a shared expanding customer requirements and capitalize on knowledge basis and become integrated into their the future benefits of e-commerce. overall business activities. Benefiting from market trends means anticipating “We don’t just sell what we make. We make customers’ needs and proactively taking steps to what you need.” This customer-focused philosophy meet those needs. This axiom has led the Building Products Group through an intensive effort to develop of Temple-Inland’s Paper Group extends a system that ensures the right tree goes to the right mill to produce products based on specific throughout the Company, driving the success customer needs. This system is referred to as the Value of new products and services and ensuring Web and achieves improved integration of customer requirements with manufacturing capabilities and
continued expansion in Temple-Inland’s markets. forest resources. The power of the Value Web will CUSTOM make it possible to match customers’ needs to specific During , the Temple-Inland Paper Group’s trees in the forest. customer focus was a key element in its percent revenue growth. The Paper Group’s network of Another tool the Building Products Group has imple- mills, converting plants and service locations brings mented to bring value to its customers is Update, an customers total solutions for moving their products upgrade to its proprietary Order-to-Cash interface to market safely, efficiently and with maximum system. Update is a hour per day, seven days a selling impact. The Paper Group’s new, technology- week online customer service system that provides based Integrated Package and Point Solutions, or customers with real-time product availability and IPPS, complements this system of physical facilities. information on order status, inventories and pricing. IPPS results from the initiative to streamline processes, lower costs, enhance responsiveness and improve The Financial Services Group’s Customer First rela- returns for all company stakeholders. This combina- tionship management system is designed to enhance tion of facilities and technology creates a unified customer service at every point of interaction. Extensive
solution of strategically located production capacity research confirms that the largest segment of the deposit er able to meet each individual customer’s unique market values high-touch service. This is Guaranty packaging needs. Bank’s target customer, and the people, processes and technology needed to serve these customers are in The future demands of the Paper Group’s customers place. The Customer First initiative will enable the will be significantly driven by technology, with bank to grow its customer base by delivering a broad e-business expected to have dramatic growth over range of products through superior, personalized the next ten years. This growth will increase the service at all levels of the organization. CUSTOM and 5 5 5 5 4 4 4 4 3 3 3 3 2 2 2 2 1 1 1 1 Inland’s ability to deliver the right packaging solution. Inland’s - Success is a happy customer. Customers benefit from customer. Success is a happy Temple delivery, Group is equipped to deliver turnkey the Paper packaging solutions. From initial concept and design to final production From Temple-Inland’s network of mills and converting plants went criteria and operated collectively to meet Compaq’s locations to provide into production in five different efficient, locations. cost delivery low to the customer’s Compaq needed its packaging to be produced in different regions of the country; however, Compaq also requires price. that each box be identical in appearance and The Paper Group excels at developing innovative solutions Group excels at developing innovative The Paper for customers’ packaging needs. When Compaq Computer Corporation required specialized packaging that ensured and reach the market fragile electronic products safely also met corporate guidelines, identity Temple-Inland’s network of mills and converting plants operated collectively to formulate a service and delivery solution. Clearly understanding customers’ needs and converting unique into innovative them market The end result is providing success. leading to Temple-Inland’s solutions is key customer service. value to its customers, By providing brings value to Temple-Inland its stakeholders. 6 Temple-Inland 2000 Annual Report Delivering on the Promise of Producing Quality Products
Temple -Inland is committed to producing quality Paper Group’s customers’ products – everything products that meet the changing needs of its customers. from fresh produce to household items –are delivered An important part of Temple-Inland’s commitment to retail outlets . The packages for these products must to product innovation is the Building Products Group’s meet the requirements of the retail outlet – ranging in-house Applied Research Center dedicated to devel- from the “big box” club stores to the neighborhood oping and testing new products. For example, in , grocer. Additionally, new products, seasonal offer- the Applied Research Center developed a unique water ings and promotions require innovative packaging resistant medium density fiberboard (MDF) panel for solutions. The Paper Group provides end-to-end a customer in the fast growing laminate flooring market. solutions for these ever-changing requirements, and the Company’s customers realize bottom-line Temple-Inland is the nation’s largest producer of benefits from effective packaging that maximizes the MDF and has a percent capacity share of the marketability of their products. North American market. Three of the Company’s four MDF plants utilize a continuous press process. Temple-Inland has an industry-respected This process allows the plants to efficiently produce history of producing innovative products. high-value MDF, including a premium thin product. The Company is committed to creating
The Company is also committed to maintaining ion efficient, low-cost production facilities. The Building products that bring value to its customers, Products Group has one of the most efficient sawmill systems in the nation, and technology plays a and have the potential for high growth and significant role in each sawmill’s production process. excellent rates of return. For example, scanned imaging data is obtained from logs entering the sawing process and , possible During , the Financial Services Group introduced product fits are immediately analyzed to select the cut- a number of new banking products. As an example, ting solution that optimizes the value of the log. the bank’s new FlexRate Fund money market account pays a competitive index-based interest rate, while The Building Products Group is a leader in the use providing the customer with extensive withdrawal of low-cost synthetic gypsum in its wallboard plants. capability. Similarly, MarketRate checking pays higher Synthetic gypsum is a by-product of the energy rates of interest based on larger balances while providing generation process. Using synthetic gypsum recycles the full access of traditional checking accounts. The waste previously destined for landfills into a reliable bank also introduced a number of new products resource for producing consistent, high-quality targeted to businesses. One such product, Guaranty wallboard. Today, the Company uses synthetic Select, allows companies to offer discounted banking, gypsum for percent of its gypsum raw material insurance and mortgage services to their employees. PRODUCT requirements. During , Temple-Inland completed a low-cost, joint-venture gypsum wallboard plant Early in , the bank began offering AirMiles in Cumberland City, Tennessee, that utilizes CheckingTM, an innovative product appealing to the percent synthetic gypsum. millions of frequent flyers program members. Additionally, the Company’s banking products became The Paper Group produces an outstanding line of more available to customers with the initiation of high-quality products meeting the rigors of shipping, on-line Internet access and the opening of branches in warehousing and merchandise display. Many of the selected grocery stores. to its customers andshareholders. to itscustomers the Company’s is commitmenttotheenvironment anditspromisetoprovide value ofTempleintegral part Delivering high - quality products to meet the needs of the changing market isan quality productstomeettheneedsofchangingmarket - Inland’s productdevelopment history. Atthecenterofnew through acontinuouspressandcutintofinishedpanels. run inwhichthefiberispulped, similar topapermaking Thin from sawmilloperations. MDF Temple With fourplants, MDF MDF Temple ( w of out products flooring, cabinet doors andfurniture. cabinetdoors flooring, including moulding, solid woodinavarietyofproducts, consistent quality. Itrepresentsalow inthe products markets MDF MDF in North Americawith a in North sapeitdfrisvraiiy ahnblt,and machinability, is appreciatedforitsversatility, enjoysoneofthefastestgrowingbuilding currently eisa hp,woodshavingsandsawdust ) beginsaschips, - Inland has a long history ofmakinguseful Inland hasalonghistory is mostefficientlyproducedthroughaprocess ood fiber. Medium - Inland isthelargestproducerof U . S . 20 percent capacityshare. - density fiberboard - cost alternative forcost alternative
PRODUCT 8 Temple-Inland 2000 Annual Report Delivering on the Promise to Position the Company in Growing Markets
Temple-Inland’s primary focus is on customers in the throughout California. The group completed the United States, Mexico and Canada. The Company acquisition of American Finance Group, Inc., which delivers its products in large and growing markets provides leasing and financing of essential business where customer focus and product quality are equipment to Fortune and select middle-market important values. Additionally, Temple-Inland’s . companies. Trust services and cash management million acres of forestland are strategically located programs were also initiated in . near fast growing major markets and the Company’s manufacturing facilities. Temple-Inland is different from most other paper companies because it produces only one grade of Guaranty Bank, the primary component of the paper, containerboard. The Company believes that Financial Services Group, is positioned to serve the containerboard is the best-positioned paper grade
high-touch, high-service consumer market. Guaranty for a number of reasons. First, it is made from MARKET gathers deposits through banking centers in softwood fiber from pine trees. This allows Temple- Texas and banking centers in California, the two Inland to leverage its major resource of . million most populous states in the country. In addition, the acres of well-stocked pine forestland and avoid commercial and residential construction lending international competitive pricing pressures facing operations have expanded into more than major paper grades made from hardwood fiber. Secondly, metropolitan areas across the nation. The effectiveness industry containerboard capacity has declined in of this marketplace strategy was demonstrated in the recent years, and very little new domestic capacity is year with increased penetration into markets anticipated for the foreseeable future. U.S. corrugated and record earnings for the Financial Services Group. shipments have enjoyed a steady trendline growth of approximately . percent over the past years. Temple-Inland’s technology advances will help Finally, e-commerce is anticipated to drive demand expand its market presence by bringing the for corrugated packaging more than any other grade. A critical part of the burgeoning e-commerce Company closer to its customers, providing greater industry will be the shipment of products, and the brown box is the most cost-effective and widely-used place visibility to industry trends and enabling highly- shipping container. effective responses to growing market demands. Two key markets drive the demand for Temple-Inland’s Market knowledge is essential to the Financial Building Products Group: new housing and repair and Services Group. The lending group employs a sophis- remodeling. These markets each represent approxi- ticated, proprietary analysis system that provides mately billion in sales annually and, for a number comprehensive insight to real estate market cycles by of reasons, both are expected to continue to grow. geographic area and property type. This Early Warning Demographic trends, including aging of the U.S. System scores a complex array of supply, vacancy and baby boom population entering prime home-owning economic factors to project market conditions. years, the fast growing minority population and the Utilizing this system, Guaranty committed more than increase in immigrants, will continue to fuel future billion in loans across all product lines in .This housing starts. The Building Products Group will was an increase of about million over ,and also benefit as houses continue to get larger and the marked the tenth consecutive year of record growth. nation’s housing stock ages, requiring more homes to be improved or replaced. Over the past five years, The Financial Services Group also expanded into the Company has more than doubled its investment new geographic markets during , including in the Building Products Group to diversify mix of Boston, Washington, D.C., and major markets products, better serve customers and lower costs. MARKET 2000 Inland has invested - touch, - all designed to deliver – Inland’s Financial Inland’s - touch service. - service population. This research is the foundation - The overarching goal of Temple The overarching A deeper understanding of a customer’s needs helps A deeper understanding of a customer’s advice and offer bank representatives provide additional Guaranty products or services that will help the customer meet financial goals. Services Advisors Group is to become “Trusted for Customers.” Customer First supports the promise of “First time, every time, every touch point” when customers or prospective customers have contact with the bank. relationship management system unparalleled high to deliver high levels of personalized service to people who are attracted to this market segment. This initiative combines enhanced processes, extended services and employee training with a sophisticated customer Extensive research has identified that the largest segment Extensive research has identified of the bank customer markethigh is the The Customer First initiative was put in place in high for the Customer First initiative. Inland has made strategic marketplaceInland has made its businesses. decisions in each of - Temple These markets have significant opportunities growth, for and Temple in technology that it can serve and resources to ensure these markets into the future. 10 Temple-Inland 2000 Annual Report Delivering on the Promise of Environmental Stewardship and Community Involvement
Temple-Inland’s core values include environmental recycled content using a by-product of pollution control stewardship, sustaining and renewing its forest and technology. Additionally, in July , Temple-Inland community involvement. shipped its first load of MDF certified by the Forest Stewardship Council (FSC). Temple-Inland is one of a At Temple-Inland, environmental stewardship is few North American wood products manufacturers to part of each employee’s job responsibility. The produce MDF according to the international environ- Company has developed an Environmental Policy mental standards of the FSC. and Guidance Manual that defines and documents the framework of its Environmental Management Temple-Inland is committed to being System. It provides detailed guidance, processes and a leader in environmental stewardship and procedures whereby obligations and expectations of the Company’s environmental commitment are service to its communities. fulfilled. This Manual was patterned after the vol- untary standards of the International Standard Optimizing resources is a cornerstone of environmental Organization’s (ISO) series on environmental practices. As an example, Temple-Inland uses industry- management. Temple-Inland has now undertaken leading technology to utilize percent of each a further step and has started the formal ISO sawlog. The Company’s Paper Group recycles used Environmental Management System certification corrugated boxes as raw material for new product. process on its forest operations. This process is a natural Three of the Company’s mills operate exclusively result of the Company’s strong history of stewardship with percent recycled fiber. and underscores the commitment to sound environ- mental practices in the future. Eligibility for ISO Temple-Inland’s social responsibility extends into certification is anticipated in .Temple-Inland the communities in which it operates and where also manages its forestland in accordance with the employees live. Temple-Inland’s foundations con- Sustainable Forestry Initiative (SFI)sm program of the tributed approximately million last year in American Forest & Paper Association to ensure that educational scholarships, matching gifts and special its forest management is conducted in a scientifically grants providing funding to colleges, universities, sound and environmentally sensitive manner. independent secondary schools, art, cultural and health programs and organizations. The Financial
Forestry is more than growing and managing trees. It Services Group offers affordable mortgage products SERVE requires a careful balance of ecology by considering to low and moderate-income families that participate biological diversity of the forest, sustainability by in government lending programs, commercial loans assuring a perpetual and productive forest, and value for constructing affordable housing units and loans by providing the cost-effective delivery of wood fiber to minority and small-business owners located to Temple-Inland’s manufacturing facilities. in underserved areas. In addition, the volunteer activities of thousands of individual Temple-Inland Temple-Inland has received numerous prestigious employees have made immeasurable contributions con awards recognizing its commitment to sustain the to their communities. environment and has achieved certification for products meeting environmental standards. For instance, Temple-Inland believes that its environmental stew- during , Scientific Certification Systems certified ardship and community involvement yield positive that wallboard manufactured at the Company’s results to shareholders, communities, customers Tennessee and Arkansas facilities is produced with and employees. part of every employee’s ofevery jobandthisresponsibilityextendsthroughouttheorganization. part core valuesoftheCompany. Environmental andcommunityawarenessare stewardship Temple - Inland’s commitmenttoenvironmental andsocialresponsibilityare stewardship During of theCompany’s environmental practices. wesi safudto osrn,vibrantneighborhoods. asafoundationtostrong, ownership home supporting with theCommunityReinvestment Act, beenratedlessthan“Outstanding”in conjunction has never Groupisanexcellentexample.It Services The Financial itscommunities. to serving dedicated citizen, corporate Temple Temple percent ofthePaper Group’s annualfiberconsumption. Because ofTemple forest operations. process forits Management Systemcertification step asitbeganimplementingthe 2.2 andsustainTempleThe responsibilitytorenew the industry withrecycledboxes accountingforalmost the industry it isaleaderin and itscommitmenttotheenvironment, steRed as the such benefits manysensitiveplantandanimalspecies, combination ofecosystemandlandscapemanagement areas.TheCompany’sdistinctive sitesorconservation forest designatedaswildlife managementareas, million acresofforestholdingsisabedrockprinciple - - 2000 Inland proudlyassumesitsresponsibilityas a Inland hasmorethan - Cockaded Woodpecker. Temple , - Inland’s advancedrecyclingtechnology - Inland undertook asignificant Inland undertook 35,000 S 14001 ISO acres ofits Environmental - Inland’s 40
SERVE Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 3
Temple-Inland renews its commitment to stakeholders to provide excellent MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS customer service; create innovative, quality products; identify new markets with SUMMARY high growth potential; and continue the Company’s history of environmental stewardship and community support. Consolidated revenues were . billion in , . billion in and . billion in . Segment operating income was million in , million in and million in . Income from continuing operations was million in , million in and million in . Income from continuing operations per diluted share was . in , . in At Temple-Inland, we are focused on creating value for our shareholders. and . in . The year results include a million special charge related to the decision to exit the fiber-cement business. The year results include a million special charge related to work force reductions and asset impairment.
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.
For the year 2000 1999 1998 (in millions) Revenues Paper...... , , , Building Products...... Financial Services ...... , , , Total revenues...... , , ,
Income Before Taxes Paper...... Building Products...... Financial Services ...... Segment operating income ......
Corporate expense...... () ()() Special charge...... () ‒ () Parent company interest ...... () ()() Other ...... Income from continuing operations before taxes ...... Income taxes ...... () ()() Income from continuing operations ......
Each of these business segments is affected by the factors mill, box plants, eight specialty-converting plants and of supply and demand and changes in domestic and global an interest in a gypsum facing paper joint venture, which economic conditions. These conditions include, but are for some time also may continue to produce corrugating FINANCIAL TABLE OF CONTENTS not limited to, changes in interest rates, new housing medium. The Paper Group’s facilities are located throughout starts, home repair and remodeling activities, and the the United States and in Chile, Mexico and Puerto Rico. Management’s Discussion and Analysis...... strength of the U.S. dollar, some or all of which may have . Selected Financial Data ...... varying degrees of impact on the business segments. The Paper Group’s revenues were billion in , . billion in and . billion in . Compared with Summarized Financial Statements...... The Paper Group the preceding year, average domestic box prices were up Consolidated Financial Statements...... The Paper Group manufactures containerboard that it percent in , percent in and percent in . Report of Management ...... converts into a complete line of corrugated packaging and Domestic box shipments were . million tons in , . . Report of Independent Auditors ...... point of purchase displays. The Paper Group operations million tons in and million tons in .The consist of four linerboard mills, one corrugating medium increases in prices in and and the decrease in Directors and Officers ...... Shareholder Information ...... 4 Temple-Inland 2000 Annual Report Management’s Discussion and Analysis Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 5
shipments in were due in part to an upgrading and factors. During the fourth quarter , production was and an MDF joint venture, and two facilities, a particleboard fourth quarter , production averaged from a low of realignment of the customer base as part of the Paper curtailed by , tons including a shut down of the plant and a medium density fiberboard plant, operated percent to a high of percent of capacity in the various Group’s ongoing revenue enhancement initiatives. A slowing Ontario, California, mill for most of December .The under long-term lease agreements that began during product lines. In early , further production curtailments of demand beginning in the second quarter and Ontario mill was shut down due to higher energy prices December . The Building Products Group operates were announced including a temporary shut down of the continuing throughout the year also contributed to the and weaker box demand. The mill resumed production in throughout the United States and in Canada and manages MDF joint venture plant in El Dorado, Arkansas, due to decrease in box shipments in . Compared with the January . Year-end inventories were down about the company’s . million acres of owned and leased forest- market conditions, higher energy prices and reconstruction preceding year, average linerboard prices were up , tons compared with year-end , as the Paper lands located in Texas, Louisiana, Georgia and Alabama. of the plant’s heat energy system. The plant is anticipated percent in , percent in and percent in . Group continues to improve the balance between its supply to resume production in June following completion and the demand of its customers. Production curtailments The Building Products Group’s revenues were million of the reconstruction project. Production levels in will Compared with the third quarter , fourth quarter were minimal during and . in , million in and million in . depend on demand levels for the various products. revenues were down slightly with average box prices Average prices for lumber, plywood, particleboard and Production curtailments were minimal during and . and linerboard prices about even and box and linerboard The Paper Group’s joint venture conversion of its Newport, gypsum began to decline during the first quarter and shipments down slightly. During the first quarter , this Indiana, mill to enable it to produce lightweight gypsum continued to fall throughout the year. Average MDF prices Operating income was million, excluding the million trend of lower box and linerboard shipments continued. facing paper was completed during the third quarter rose slightly during due to improved product mix. special charge, in , million in and million, This trend, coupled with a decrease in the published price with start-up efforts continuing through fourth Average prices for all products manufactured by the Building excluding a million special charge for asset impair- for linerboard during January , may result in downward quarter . For both start-up and market reasons, the Products Group were higher during compared with ment, in . pressure on box prices. venture did not produce significant volumes of gypsum . For the year , shipments of lumber, particle- facing paper during fourth quarter . This conversion board and MDF were up compared with due to a full The Financial Services Group Production, distribution and administrative costs were reduced the Paper Group’s annualized productive capacity year’s operation of the Diboll sawmill and the Mt. Jewett The Financial Services Group operates a savings bank and . billion in , . billion in and . billion in by , tons. The mill remains capable of producing particleboard and MDF facilities. Other revenues were up engages in mortgage banking, insurance brokerage and . Costs for were up due to higher energy and old corrugating medium, and for a period of twelve months in due to deliveries under the long-term fiber supply real estate activities. corrugated containers (OCC) costs coupled with increased after the conversion of the mill, the Paper Group is agreement entered into in connection with the sale of the outside purchases of corrugating medium. Energy costs, obligated to purchase, at market rates, the medium bleached paperboard mill in December . Compared The savings bank, Guaranty Bank (Guaranty), conducts principally natural gas, began to rise during the second produced by the venture that meets the Paper Group’s with the third quarter , fourth quarter revenues business through banking centers in Texas and California. quarter and continued to rise throughout the year. specifications. During the third and fourth quarters were down percent with average prices and shipments The primary business of Guaranty includes providing deposit During , energy costs were up million compared , the Paper Group purchased , tons of medium down for all products. During the first quarter , these products to the general public, investing in single-family with . OCC accounted for about percent of the from the venture. trends of lower prices and shipments continued. adjustable-rate mortgages, lending for the construction of Paper Group’s fiber requirements in and percent real estate projects and the financing of business operations, in and . OCC costs rose dramatically during the The Paper Group has undertaken a number of initiatives Production, distribution and administrative costs were and providing a variety of other financial products to first quarter , but began to decline near the end of the to enhance return on investment. An important and ongoing million in , million in and million consumers and businesses. During , Guaranty acquired second quarter and continued to decline throughout initiative is the design and installation of new information in . Cost of sales for were up due to additional American Finance Group, Inc. (AFG), a commercial finance the year. OCC costs averaged per ton in , per systems, portions of which were installed during the fourth manufacturing facilities, higher energy costs, and million company engaged in leasing and secured financing of ton in and per ton in . OCC costs averaged quarter . It is anticipated that the remainder will be of operating losses from the fiber-cement joint venture, a variety of types of equipment. During , Guaranty per ton in second quarter , per ton in third installed during and . Other initiatives include the which the group exited in the third quarter . Energy acquired Hemet Federal Savings and Loan Association quarter and per ton in fourth quarter .Year-end December sale of the discontinued bleached paper- costs, principally natural gas, began to rise during the second (Hemet) and also acquired the assets of Fidelity Funding OCC prices were per ton in , per ton in and board operation, which resulted in a million loss; the quarter and continued to rise throughout the year. Inc. (Fidelity), an asset based lending company. Hemet per ton in . OCC costs remained at these levels early closing and dismantling of the Newark, California, During , energy costs were up approximately million operated branches in the Southern California markets in .However,OCC costs traditionally rise as box mill and the subsequent sale of the land, which resulted in compared with . During the third quarter , the of Riverside County, Palm Springs and northern San demand improves. Outside purchases of corrugating a million gain; and the sale of the Argentine operation Building Products Group completed the assessment of its Diego County. During February , Guaranty acquired medium increased in due to the conversion of the and domestic workforce reductions, which resulted in fiber-cement joint venture and decided to exit this business an asset based loan portfolio and two production offices Newport, Indiana, joint venture corrugating medium mill. a million special charge in . by assuming control of the joint venture and leasing for approximately million in cash. most of its production assets to a third party. As a result, Mill production was . million tons in , . million tons Operating income was million in , million a million special charge was recognized that included The mortgage banking operation arranges mortgage in and . million tons in . Of the mill production, in and million, excluding the million special million for assets excluded from the lease agreement financing of single-family homes, securitizes the mortgage percent in , percent in and percent in charge, in . that will be disposed of and million for other costs. loans, sells the resulting securities in the secondary market was sold in the domestic and export markets. The Following a six-month rental ramp-up period, the lease and services mortgage loans for Guaranty and unrelated third Paper Group’s converting operations used the remainder The Building Products Group agreement provides for payments of . million per year parties. The insurance brokerage operation sells a full range of the mill production. The decrease in production was The Building Products Group produces a variety of building over the balance of the ⁄ year lease term. of insurance products. The real estate operations include the due to curtailments throughout the year and the conversion products including lumber, plywood, particleboard, development of residential subdivisions and multi-family of the Newport, Indiana, corrugating medium mill during fiberboard, medium density fiberboard (MDF) and gypsum Beginning in the third quarter and continuing housing and the management and sale of income producing the third quarter . Production was curtailed by , wallboard. The Building Products Group operations consist through the balance of the year, production was curtailed properties. The real estate operations are principally located tons in due to market, maintenance and operational of facilities, including interests in a gypsum joint venture in all product lines due to market conditions. For the in Texas, Colorado, Florida, Tennessee and California. 6 Temple-Inland 2000 Annual Report Management’s Discussion and Analysis Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 7
The Financial Services Group revenues, consisting of interest and noninterest income, were . billion in , During , the Financial Services Group continued to based on cash flow, collateral, market conditions, prevailing . billion in and . billion in . Selected financial information for the Financial Services Group follows: securitize portions of the mortgage loans held in its portfolio, economic trends, leverage capacity of the borrower and ending the year with million in securitized mortgage capital and investment in a particular property, if applicable. For the year 2000 1999 1998 loans. Average loans receivable, mortgage loans held for sale Most small business and consumer loans are underwritten (in millions) and securitized mortgage loans as a percentage of average using credit-scoring models that consider factors including Operating Income earning assets were percent in , percent in payment capacity, credit history and collateral. In addition, Net interest income ...... and percent in . market conditions and economic trends are considered. Provision for loan losses ...... () ()() The credit policy, including the underwriting criteria for Noninterest income...... The Financial Services Group’s lending activities are subject loan categories, is reviewed on a regular basis and adjusted Noninterest expense ...... () ()() to underwriting standards and liquidity considerations. when warranted. Minority interest ...... () ()() The Financial Services Group continued to increase the size Total...... and alter the mix of the loan portfolio through increased Average mortgage-backed and other securities totaled construction and development lending, and commercial . billion in , . billion in and . billion By Activity and business loans and the introduction of new products. in . The increase in average mortgage-backed and other Savings Bank ...... These changes to the loan portfolio provide further product securities in was the result of purchases of . billion Mortgage Banking...... and geographic diversification. offset by maturities and prepayments. The decrease in Real Estate...... average mortgage-backed and other securities in was Insurance Brokerage...... Specific underwriting criteria for each type of loan are primarily the result of maturities and prepayments on Total...... outlined in a credit policy approved by the Board of Directors mortgage-backed securities. of Guaranty. In general, commercial loans are evaluated
Operations Noninterest expense, which consists primarily of compen- Net interest income was million in , million sation and benefits, occupancy and data processing was Asset Quality in and million in . The increases in net 4 million in , million in and million Several key measures are used to evaluate and monitor the asset quality of the Financial Services Group. These measures include interest income in each successive year were primarily the in . Approximately million of the increase in the level of loan delinquencies, nonperforming loans, nonperforming assets and net loan charge-offs compared to average result of growth in average earning assets and a change in noninterest expense in compared with was the loans and are summarized in the following table. the mix of earning assets. Average earning assets were result of the Hemet, Fidelity and AFG acquisitions. After At year end 2000 1999 1998 . . billion in , compared with billion in adjusting for the impact of these acquisitions, noninterest (in millions) and . billion in . expense increased million, or percent, in compared - with . Approximately million of the increase in Accruing loans past due days...... The provision for loan losses was million in , noninterest expense in compared with was the Accruing loans past due days or more...... million in and million in . The increase in result of the Hemet and Fidelity acquisitions. Accruing loans past due days or more ...... the provision in compared with was the result of growth, a change in the mix of the loan portfolio and Earning Assets Nonaccrual loans ...... ‒ ‒‒ a decline in asset quality related to several mortgage Interest income from earning assets is the main source of Restructured loans ...... warehouse loans. income for the Financial Services Group. Average earning Nonperforming loans ...... assets totaled . billion in , . billion in and Foreclosed property...... Noninterest income, which consists primarily of income . billion in . A portion of the increase in average Nonperforming assets...... from real estate and insurance activities, loan related fees and earning assets was the result of the Hemet and Fidelity service charges on deposits, was million in , acquisitions, which occurred in mid-. In addition, the Allowance for loan losses...... Net charge-offs...... unchanged from , and was million in .The AFG acquisition in increased average earning assets. noninterest income was affected by increases in real The remainder of the increases in earning assets was due . . . estate and insurance activities and the savings bank’s focus on to internally generated growth, primarily in construction Nonperforming loan ratio ...... % % % Nonperforming asset ratio ...... .% .% .% fee-based products such as operating leases through the AFG and development loans and in commercial and business . . . acquisition, alternative investments and cash management loans, resulting in a change in the mix of average loans Allowance for loan losses/total loans...... % % % . . . services. However, these increases were offset by a decline in and improved spreads. Allowance for loan losses/nonperforming loans...... % % % noninterest income from mortgage banking activities due to the . . . impact of the higher interest rate environment on mortgage Loan demand remained strong throughout .Average Net loans charged off/average loans ...... % % % financing and refinancing activities. The decrease in noninterest loans receivable and mortgage loans held for sale totaled . income in compared with was primarily the billion in , $9.5 billion in and . billion in . result of the sale of a large commercial property in . Average loans receivable and mortgage loans held for sale as a percentage of average earning assets were percent in , compared with percent in and percent in . 8 Temple-Inland 2000 Annual Report Management’s Discussion and Analysis Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 9
Accruing delinquent loans past due days or more were Management continuously evaluates the allowance for necessary due to changes in economic conditions, CORPORATE, INTEREST AND OTHER . percent of total loans at year-end , . percent at loan losses to ensure the level is adequate to absorb losses assumptions as to future delinquencies or loss rates and year-end and . percent at year-end .Accruing inherent in the loan portfolio. The allowance is increased by intent with regard to asset disposition options. In addition, Parent company interest expense was million in , delinquent loans past due days or more were . percent charges to income and by the portion of the purchase price regulatory authorities periodically review the allowance for million in and million in . Parent company of total loans at year-end , . percent at year-end related to credit risk on bulk purchases of loans and by loan losses as a part of their examination process. Based interest expense for and was reduced by million and . percent at year-end . acquisitions, and decreased by charge-offs, net of recoveries. on their review, the regulatory authorities may require each year to reflect an allocation of parent company debt to adjustments to the allowance for loan losses based on their the bleached paperboard operation, which was sold at year- Nonperforming loans consist of nonaccrual loans (loans on Specific allowances are established based on a thorough judgment about the information available to them at the end . The changes in parent company interest expense which interest income is not currently recognized) and review of the financial condition of the borrower, general time of their review. were due to fluctuating debt levels and interest rates. restructured loans (loans with below market interest rates economic conditions affecting the borrower, collateral values or other concessions due to deteriorated financial condition and other factors. General allowances are established based Funding Sources PENSION CREDITS of the borrower). Interest payments received on nonper- on historical loss trends and management’s judgment Deposits are the Financial Services Group’s primary funding forming loans are applied to reduce principal if there is concerning those trends and other relevant factors, including source. Guaranty offers a variety of deposit products Non-cash pension credits were million in , million doubt as to the collectibility of contractually due principal delinquency rates, current economic conditions, loan size, designed to attract and retain customers. Average deposits in and million in . The increase in reflects and interest. The level of nonperforming loans declined in industry competition and consolidation, and the effect of totaled . billion in , . billion in and cumulative performance of the pension plan assets in both dollars and as a percent of total loans in compared government regulation. The unallocated allowance is estab- . billion in . Growth in average deposits totaled that resulted in an excess of plan assets over liabilities at with , while the allowance for loan losses as a percent lished for inherent loss exposures that are not yet specifically . billion or percent in and million or percent year-end . Based upon the actuarial valuation as of year- of nonperforming loans increased. identified in the loan and lease portfolio. The evaluation of in . A portion of the increase in both and end , the pension credit for will approximate the appropriate level of unallocated allowance considers was the result of the Hemet acquisition, which occurred in million, due mainly to continued better than expected Allowance for Loan Losses current risk factors that may not be reflected in historical mid-. The remainder of the increase was the result of performance of the pension plan assets in . The allowance for loan losses is comprised of specific factors used to determine the specific and general internally generated growth through new products and allowances (assessed for loans that have known credit weak- allowances. These factors include inherent delays in obtaining marketing campaigns. INCOME TAXES nesses), general allowances and an unallocated allowance. information and the volatility of economic conditions. Borrowings are another source of funding. The Financial The effective tax rate was percent in , percent in Services Group’s borrowings consist primarily of advances and percent in . The difference between the from the Federal Home Loan Bank and securities sold effective tax rate and the statutory rate is due to state The allowance for loan losses by loan type and related loan balance follows: under repurchase agreements. Average borrowings were income taxes, nondeductible goodwill amortization and . . . 2000 1999 1998 billion in , billion in and billion in losses in certain foreign operations for which no financial Allowance Allowance Allowance . The increase in average borrowings in both and benefit was recognized. The effective tax rate reflects Loan for Loan Loan for Loan Loan for Loan a one time, two percent financial benefit realized as the result At year end Balance Losses Balance Losses Balance Losses resulted from funding needs as average earning asset (in millions) growth outpaced average deposit growth. of the sale of the Argentine operation. The effective tax rate reflects the effects of lower overall earnings and Real estate mortgage...... , , , Mortgage Bank Activities larger losses in foreign operations for which no financial Construction and development Higher interest rates during resulted in a significant benefit was recognized. (including residential) ...... , , , industry wide reduction in mortgage refinancing activity, Commercial and business...... , , , contributing to a reduction in both mortgage loan AVERAGE SHARES OUTSTANDING Consumer and other...... , , origination volume and prepayments. Mortgage origination Premiums, discounts and volume was . billion in , . billion in and Average diluted shares outstanding were . million in deferred fees, net ...... ‒ ‒ ‒ . billion in . Mortgage servicing portfolio runoff , down nine percent due mainly to the effects of share Unallocated ...... ‒ ‒‒ was . percent in , . percent in and . percent repurchases under the stock repurchase programs authorized Total...... , , , in . The mortgage servicing portfolio was . billion during the fourth quarter and the third quarter . at year-end and . billion at year-end .The Average diluted shares outstanding were . million in decline in mortgage origination volume and servicing has and . million in . necessitated staff reductions, branch closures and consoli- The decrease in allowance for loan losses during was business portfolio increased million in due to dations. The workforce engaged in mortgage bank activities primarily the result of net charge-offs. The increase during provisions recorded relating to several large syndicated was reduced by about during . was the result of the change in the mix of the loan port- commercial loans. The increase in the unallocated folio, the Hemet acquisition and a decline in asset quality. allowance in is reflective of the slowing economic activity and an increase in the size of the loan portfolio. The allowance allocated to the real estate mortgage portfolio decreased million in , primarily due to the charge-off of While the Financial Services Group considers the allowance mortgage warehouse loans for which provision had previously for loan losses to be adequate based on information been made. The allowance allocated to the commercial and currently available, adjustments to the allowance may be 10 Temple-Inland 2000 Annual Report Management’s Discussion and Analysis Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 11
CAPITAL RESOURCES AND LIQUIDITY FOR THE YEAR 2000 company obtained control over million of assets that Cash Equivalents The company has been designated as a potentially responsible were subject to million of debt. A majority of these Cash equivalents increased million to million. party at nine Superfund sites, excluding sites as to which The consolidated net assets invested in the Financial Services assets were subsequently leased to a third party. the company’s records disclose no involvement or as to Group are subject, in varying degrees, to regulatory rules Other which the company’s potential liability has been finally and regulations. Accordingly, Parent Company and the Cash Equivalents The Financial Services Group has sufficient liquidity and determined. In addition, other claims and proceedings have Financial Services Group capital resources and liquidity At year-end , million of the proceeds from the sale of capital resources to meet its anticipated needs. At year end, been asserted against the company seeking remediation of are discussed separately. the bleached paperboard operation was temporarily invested the savings bank exceeded all applicable regulatory capital alleged environmental impairments at four facilities. At year in cash equivalents. These were used during the year in requirements. The parent company expects to maintain the end , the company estimated that the undiscounted Parent Company investing and financing activities. savings bank’s capital at a level that exceeds the minimum total costs it could probably incur for the remediation and Operating Activities required for designation as “well capitalized” under the capital toxic tort actions at Superfund sites and other sites to be Cash from operations was million, up percent. The Other adequacy regulations of the Office of Thrift Supervision. From about million, which has been accrued. increase was due to more efficient use of working capital The parent company has sufficient liquidity and capital time to time, the parent company may make capital and an increase in the dividends received from the Financial resources to meet its anticipated needs. contributions to the savings bank or receive dividends from The company utilized landfill operations to dispose of Services Group. the savings bank. During the year, the parent company non-hazardous waste at three paperboard and two building The Financial Services Group contributed $10 million to the savings bank and received product mill operations. At year-end , the company Depreciation and amortization was million, about The principal sources of cash for the Financial Services $110 million in dividends from the savings bank. estimated that the undiscounted total costs it could probably equal to last year. Group are operating cash flows, deposits and borrowings. incur to ensure proper closure of these landfills over the The Financial Services Group uses these funds to invest in Selected financial and regulatory capital data for the savings next twenty-five years to be about million, which is Investing Activities earning assets, generally loans and securities. bank follows: being accrued over the estimated lives of the landfills. Capital expenditures were million, up percent. About half of this increase was due to a million increase in Operating Activities At year end 2000 1999 On April , , the U.S. Environmental Protection (in millions) expenditures for information technology and systems. Capital Cash provided by operations was million, down percent. Agency (EPA) issued the Cluster Rule regulations governing expenditures are expected to approximate million for . The decrease in the change in mortgage loans held for sale air and water emissions from the pulp and paper industry. Balance sheet data was partially offset by an increase in earnings and a decrease The company has spent approximately million toward Total assets...... , , Capital contributions to the Financial Services Group were in the change in cash for mortgage loans serviced for others. Cluster Rule compliance through , and will expend Total deposits...... , , million. Dividends received from the Financial Services an additional million to satisfy requirements relating Shareholder’s equity...... Group were million. Investing Activities to the initial compliance deadline of April , .Future . expenditures for environmental control facilities will depend Loans and securities increased billion. The increase in Savings Bank Regulatory Financing Activities loans and securities was primarily attributable to increased Actual Minimum on additional Maximum Available Control Technology In the fourth quarter , the Board of Directors authorized construction and development and commercial and business Regulatory capital ratios (MACT) II regulations for hazardous air pollutants relating the repurchase of up to . million shares of the company’s lending activities and purchases of securities. Tangible capital...... .% .% to pulp mill combustion sources and the upcoming common stock. This repurchase was completed during the Leverage capital ...... .% .% plywood and composite wood products MACT proposal, third quarter . In August , the Board of Directors Capital expenditures were million, and cash paid for Risk-based capital ...... .% .% as well as changing laws and regulations and technological authorized the repurchase of an additional . million acquisitions was million. advances. Given these uncertainties, the company estimates shares. During the year, . million shares were repurchased that capital expenditures for environmental purposes during at a cost of million. At year-end , an aggregate Financing Activities Of the million in subsidiary preferred stock outstanding at the period through will average approximately of . million shares had been repurchased since the Deposits increased million, and borrowings increased year-end , million qualifies as regulatory capital. million each year. inception of these programs at a cost of million. . billion. Borrowings consist primarily of advances from The remaining million is available for inclusion in the Federal Home Loan Bank and securities sold under regulatory capital as the savings bank increases its total EFFECTS OF INFLATION In the third quarter , new bank credit facilities were repurchase agreements and resulted from funding needs as non-preferred core capital. Inflation has had minimal effects on operating results the arranged including a three year revolving credit agreement the growth in earning assets outpaced the growth in deposits. last three years, except for the increase in energy costs and a five year term loan. These facilities may be used to ENVIRONMENTAL MATTERS during . During , energy costs were up approx- refund the million of long-term debt scheduled to A subsidiary of the savings bank that qualifies as a real estate The company is committed to protecting the health and imately million compared with . Energy costs mature in or to fund other needs. Dividends paid investment trust (REIT) sold million of preferred stock welfare of its employees, the public and the environment, began rising during the second quarter and have were million or . per share. during December in a private placement. At year-end and strives to maintain compliance with all state and federal continued to rise throughout the year. In some instances, , an aggregate of million of subsidiary preferred environmental regulations. When constructing new facilities the company elected to curtail production at certain of As required by its joint venture agreement, the company stock was outstanding. or modernizing existing facilities, the company uses state of its manufacturing facilities rather than pay significantly contributed its Newport, Indiana, medium mill and the art technology for controlling air and water emissions. higher energy prices. The company expects this trend of associated debt of million to the venture to maintain Dividends, net of capital contributions, paid to the parent These forward-looking programs should minimize the effect higher energy costs to continue. The company is exploring its percent ownership interest. In connection with company totaled million. that changing regulations have on capital expenditures for alternative arrangements and fuel sources in an effort to assuming control of the fiber-cement joint venture, the environmental compliance. contain energy costs. 12 Temple-Inland 2000 Annual Report Management’s Discussion and Analysis Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 13
The parent company’s fixed assets, including timber and hedge risks, including those associated with changes in STATISTICAL AND OTHER DATA (a) timberlands, are reflected at their historical costs. At product pricing, manufacturing cost and interest rates. The For the year 2000 1999 1998 current replacement costs, depreciation expense and the company does not use derivatives for trading purposes. (in millions) cost of timber harvested would be significantly higher The cumulative effect of adoption will be to reduce first than amounts reported. quarter net income by million. Additionally, as Revenues permitted by this Statement, the Financial Services Group Paper Group...... , , , NEW ACCOUNTING PRONOUNCEMENTS changed the designation of its portfolio of held-to-maturity AND PROSPECTIVE CHANGES IN ESTIMATES securities, which are carried at unamortized cost, to available- Building Products Group for-sale, which are carried at fair value. As a result, the Pine lumber...... During , the company adopted the consensus of the carrying value of these securities was adjusted to their Plywood ...... Emerging Issues Task Force Issue -, Accounting for fair value with a corresponding after tax reduction of Particleboard ...... Shipping and Handling Fees and Costs. This consensus stated million in other comprehensive income, a component of Medium density fiberboard ...... that shipping and handling costs could not be offset shareholders’ equity. Gypsum wallboard ...... against related revenues. Shipping and handling costs have Fiberboard ...... been reclassified and are now included as a component of Beginning January , the company began computing Other...... cost of sales instead of as a reduction of revenue. This depreciation of certain production equipment using revised Total Building Products...... reclassification had no effect on net income. useful lives. These revisions ranged from a reduction of several years to a lengthening of up to five years and were Financial Services Group Beginning January , the company adopted Statement based on an assessment performed by the manufacturing Savings bank ...... , of Financial Accounting Standards No. , Accounting for groups, which indicated that revisions of the estimated useful Mortgage banking ...... Derivative Instruments and Hedging Activities. This statement lives of certain production equipment were warranted. The Real estate ...... requires that derivative instruments be recognized on the maximum estimated useful lives for production equipment Insurance brokerage ...... balance sheet at fair value with the changes in their fair is years. As a result of this change in the estimated useful Total Financial Services...... , , , value reflected in net income or other comprehensive lives, the company expects to reduce its annual depreci- income, depending upon the classification of the derivative ation expense between million to million per year Unit Sales instrument. The company uses derivative instruments to beginning in and continuing for several years thereafter. Paper Group Corrugated packaging, thousands of tons (b)...... , , ,
Building Products Group COMMON STOCK PRICES AND DIVIDEND INFORMATION Pine lumber, mbf...... Plywood, msf...... 2000 1999 Particleboard, msf...... Price Range Price Range High Low Dividends High Low Dividends Medium density fiberboard, msf...... Gypsum wallboard, msf...... Fiberboard, msf ...... First quarter...... ⁄ ⁄ . ⁄ ⁄ . Second quarter...... ⁄ ⁄ . ⁄ ⁄ . Financial Services Group Third quarter...... ⁄ ⁄ . ⁄ . Assets at year end Fourth quarter...... ⁄ ⁄ . ⁄ ⁄ . Savings bank ...... , , , For the year...... ⁄ ⁄ . ⁄ ⁄ . Mortgage banking ...... Real estate ...... Insurance brokerage ...... Eliminations...... () ()() Total Financial Services assets ...... , , ,
Equity at year end Savings bank ...... Mortgage banking ...... Real estate ...... Insurance brokerage ...... Total Financial Services equity ...... , ,
(a) Revenues and unit sales do not include joint venture operations. (b) Includes boxes sold and open market sales of linerboard. 14 Temple-Inland 2000 Annual Report Management’s Discussion and Analysis Management’s Discussion and Analysis 2000 Annual Report Temple-Inland 15
QUANTITATIVE AND QUALITATIVE bank’s assets at year-end have adjustable rates, this SELECTED FINANCIAL DATA DISCLOSURES ABOUT MARKET RISK risk is significantly mitigated. However, the savings bank For the year 2000 1999 1998 1997 1996 is also subject to prepayment risk inherent in a portion of Interest Rate Risk its single-family adjustable-rate mortgage-backed assets. The company is subject to interest rate risk from the A substantial portion of the savings bank’s investment in Revenues (a) , , , , , utilization of financial instruments such as adjustable-rate adjustable-rate mortgage-backed assets have annual and Paper...... debt and other borrowings, as well as the lending and lifetime caps that subject the savings bank to interest rate Building Products...... , , , deposit-gathering activities of the Financial Services Group. risk should rates rise above certain levels. From time to Financial Services ...... , , , , , The following table illustrates the estimated effect on pre-tax time, to optimize net interest income while maintaining Total revenues...... income of immediate, parallel and sustained shifts in interest acceptable levels of interest rate and liquidity risk, the savings rates for the subsequent -month period at year-end , bank may enter into various interest rate contracts to better Segment Operating Income with comparative information at year-end : match assets and liabilities. Paper...... ( ) Building Products...... Change in Interest Rates Increase (Decrease) in Income Before Taxes Financial Services...... (b) 2000 1999 Additionally, the fair value of the Financial Services Group’s (in millions) mortgage servicing rights (estimated at million at year- Segment operating income ...... end ) is also affected by changes in interest rates. The +% ...... () () company estimates that a percent decline in interest rates Income from continuing operations ...... (c) (d) ‒ +% ...... () ‒ from current levels would decrease the fair value of the Discontinued operations...... ( )()()() ‒ ‒ ‒‒ % ...... ‒ ‒ mortgage servicing rights by approximately million. Cumulative effect of accounting change...... ( ) -% ...... () () Net income...... -% ...... () () Foreign Currency Risk The company’s exposure to foreign currency fluctuations Capital expenditures: on its financial instruments is not material because most Manufacturing...... The change in exposure to interest rate risk from year of these instruments are denominated in U.S. dollars. Financial Services...... end is primarily due to increases in the company’s Depreciation and depletion: adjustable-rate debt obligations and growth in the Commodity Price Risk Manufacturing...... Financial Services Group loan and mortgage-backed From time to time, the company uses commodity derivative Financial Services...... securities portfolios, funded by short-term borrowings instruments to mitigate its exposure to changes in product Earnings per share–continuing operations: . . . . . and growth in deposits. pricing and manufacturing costs. These instruments cover Basic...... . . . . . a small portion of the company’s volume and range in Diluted...... The operations of the Financial Services Group’s savings duration from three months to three years. Based on the Earnings per share–net income (e): . . . . . bank are subject to interest rate risk to the extent that fair value of these instruments at year-end , the Basic...... . . . . . interest-earning assets and interest-bearing liabilities potential loss in fair value resulting from a hypothetical Diluted...... . . . . . mature or reprice at different times or in differing percent change in the underlying commodity prices Dividends per common share...... amounts. Because approximately percent of the savings would not be significant. Weighted average shares outstanding: Basic...... . . . . . Diluted...... . . . . . Common shares outstanding at year end ...... . . . . .
At year end Total assets...... , , , , , Long-term debt: Parent company...... , , , , , Financial Services...... Stock issued by subsidiaries ...... ‒ Shareholders’ equity...... , , , , , Ratio of total debt to total capitalization–Parent company...... % % % % %
(a) Restated to reflect the reclassification of shipping and handling costs from revenues to cost of sales. (b) 1996 includes a one-time assessment of $44 million to recapitalize the Savings Association Insurance Fund. (c) 2000 includes a pre-tax special charge of $15 million. (d) 1998 includes a pre-tax special charge of $47 million. (e) 1998 includes $.06 per share charge from cumulative effect of accounting change. 1999, 1998, 1997 and 1996 include a loss from discontinued operation of $1.65, $.38, $.14 and $.40 per share, respectively. 16 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 27
SUMMARIZED STATEMENTS OF INCOME SUMMARIZED BALANCE SHEETS Parent Company (Temple-Inland Inc.) Parent Company (Temple-Inland Inc.)
For the year 2000 1999 1998 At year end 2000 1999 (in millions) (in millions)
Net Revenues...... , , , Assets Current Assets Costs and Expenses Cash...... Cost of sales ...... , , , Receivables, less allowances of in and in ...... Selling and administrative ...... Inventories: Special charge...... ‒ Work in process and finished goods...... , , , Raw material...... Financial Services Earnings...... Prepaid expenses and other...... Operating Income...... Total current assets ...... Interest–net ...... () ()() Other...... Investment in Temple-Inland Financial Services ...... , , Income From Continuing Operations Before Taxes...... Income taxes ...... () ()() Property and Equipment Income From Continuing Operations...... Land and buildings...... Discontinued operations ...... ‒ ()() Machinery and equipment ...... , , Income Before Accounting Change...... Construction in progress ...... Effect of accounting change ...... ‒ ‒ () Less allowances for depreciation ...... (,) (,) Net Income ...... , , Timber and timberlands–less depletion...... Total property and equipment ...... , ,
Other Assets......
Total Assets ...... , ,
Liabilities and Shareholders’ Equity Current Liabilities Accounts payable...... Accrued expenses and other ...... Employee compensation and benefits...... Current portion of long-term debt ...... Total current liabilities......
Long-Term Debt ...... , , Deferred Income Taxes...... Postretirement Benefits ...... Other Liabilities...... Shareholders’ Equity ...... , ,
Total Liabilities and Shareholders’ Equity ...... , ,
See the notes to the parent company summarized financial statements. See the notes to the parent company summarized financial statements. 18 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 19
SUMMARIZED STATEMENTS OF CASH FLOWS NOTES TO THE PARENT COMPANY (TEMPLE-INLAND INC.) Certain machinery and production equipment is depreciated Parent Company (Temple-Inland Inc.) SUMMARIZED FINANCIAL STATEMENTS based on operating hours or units of production because depreciation occurs primarily through use rather than For the year 2000 1999 1998 NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (in millions) through elapsed time.
Cash Provided By (Used For) Operations Basis of Presentation The parent company has completed an assessment of the Net income ...... The summarized financial statements include the accounts of estimated useful lives of certain production equipment Adjustments: Temple -Inland Inc. and its manufacturing subsidiaries (the and believes that a revision of these estimated useful ‒ ‒ Loss on disposal of discontinued operation...... parent company). The net assets invested in Temple-Inland lives is warranted. Accordingly, beginning January , ‒ ‒ Cumulative effect of accounting change...... Financial Services are subject, in varying degrees, to regu- the parent company will begin computing depreciation ‒ Special charge ...... latory rules and restrictions. Accordingly, the investment of certain production equipment using revised estimated Depreciation and depletion ...... in Temple-Inland Financial Services is reflected in the useful lives. These revisions ranged from a reduction of Deferred taxes...... summarized financial statements on the equity basis. several years to a lengthening of up to five years. As Unremitted earnings from financial services ...... ( ) ( )() Related earnings, however, are presented before tax to be a result of this change in estimated useful lives, the parent Dividends from financial services...... consistent with the consolidated financial statements. All company expects to reduce its annual depreciation Receivables ...... ( )() material intercompany amounts and transactions have expense between million to million per year for Inventories ...... ( ) been eliminated. These financial statements should be read the next several years. Accounts payable and accrued expenses ...... ( ) ( ) in conjunction with the Temple-Inland Inc. consolidated ‒ Change in net assets of discontinued operation...... financial statements and the Temple-Inland Financial Timber and timberlands are stated at cost, minus accu- Other...... ( ) Services summarized financial statements. mulated cost of timber harvested. Cost attributed to standing timber is charged against income as timber is harvested at Cash Provided By (Used For) Investments Certain amounts have been reclassified to conform to the rates determined annually, based on the relationship Capital expenditures...... ( ) ( )() current year’s classifications. of unamortized timber costs to the estimated volume of ‒ ‒ Proceeds from sale of discontinued operations ...... recoverable timber. The costs of seedlings and reforestation Proceeds from sale of property and equipment...... Inventories of timberlands are capitalized. Acquisitions, net of cash acquired, and joint ventures ...... ( ) ( )() Inventories are stated at the lower of cost or market. Capital contributions to financial services ...... ( ) ( )() The cost of additions and betterments is capitalized, and ( ) ( ) The cost of inventories amounting to million at year- the cost of maintenance and repairs is expensed. Cash Provided By (Used For) Financing end and million at year-end was determined Additions to debt...... by the last-in, first-out method (LIFO). The cost of the Start-up Costs and Cumulative Effect of Accounting Change Payments of debt...... ( ) ( )() remaining inventories was determined principally by the Effective with the beginning of the year , start-up costs Purchase of stock for treasury...... ( ) ( )() average cost method, which approximates the first-in, are expensed as incurred, instead of being deferred and Cash dividends paid to shareholders ...... ( ) ( )() first-out method (FIFO). amortized over a five-year period. The cumulative effect of Other...... applying this change was a charge of million, net of tax ( ) ( ) If the FIFO method of accounting had been applied to those benefit of million, and was recognized as of the beginning Net increase (decrease) in cash and cash equivalents...... ( ) inventories that were determined by the LIFO method, of the year . Cash and cash equivalents at beginning of year...... inventories would have been million and million Cash and cash equivalents at end of year ...... more than reported at year-end and , respectively. Environmental Liabilities When environmental assessments or cleanups are probable Property and Equipment and the costs can be reasonably estimated, remediation Property and equipment are stated at cost minus liabilities are recorded on an undiscounted basis and are allowances for depreciation and depletion. Depreciation is adjusted as further information develops or circumstances generally provided on the straight-line method based on change. The estimated undiscounted cost to close and estimated useful lives as follows: remediate company-operated landfills are accrued over the estimated useful life of the landfill. Classification Estimated Useful Lives Revenue Recognition Buildings...... to yrs Revenue is recognized upon passage of title to the customer. Machinery and equipment: Manufacturing and production equipment ...... to yrs Transportation equipment ...... to yrs Office and other equipment...... to yrs
See the notes to the parent company summarized financial statements. 20 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 21
New Accounting Pronouncements NOTE C JOINT VENTURES During the fourth quarter , the parent company adopted the consensus of the Emerging Issues Task Force Issue -, Accounting for Shipping and Handling Fees and Costs, that shipping and handling costs cannot be netted against revenues. The parent company’s significant joint venture investments at year-end are: Accordingly, for all periods presented, shipping and handling costs have been reclassified and are now included as a component of costs of sales instead of as a reduction of revenues. This reclassification had no effect on net income. Del-Tin Fiber LLC–a percent owned venture that produces medium density fiberboard in El Dorado, Arkansas.
Standard Gypsum LP–a percent owned venture that produces gypsum wallboard at facilities in McQueeny, Texas, NOTE B LONG-TERM DEBT and Cumberland City, Tennessee. Long-term debt consists of the following: Premier Boxboard Ltd.– a percent owned venture that produces corrugating medium and gypsum facing paper in At year end 2000 1999 Newport, Indiana. (in millions) Commercial paper, other short-term borrowings, and Combined summarized financial information for these joint ventures follows: borrowing under bank credit agreements —average interest rate was .% in and .% in ...... ‒ At year end 2000 1999 .% Notes payable due ...... (in millions) . . % to % Notes payable due ...... Current assets ...... . % Notes payable due ...... Total assets ...... . % Debentures due ...... Current liabilities ...... . % Notes payable due ...... Long-term debt ...... Private placement debt Equity ...... —.% to .% notes due through ...... Revenue bonds due through —average interest rate was .% in and .% in ...... For the year 2000 1999 1998 Term note due (in millions) — .% ...... ‒ average interest rate was in Net revenues ...... Other indebtedness due through Operating income...... — .% .% ...... average interest rate was in and in Net income (loss)...... () () , , Parent company’s equity in net income (loss)...... () () Less: Current portion of long-term debt...... () () , , The parent company provides marketing and management to maintain a percent interest in the venture. The fair services to these ventures. Fees for such services aggregated value of the assets contributed exceeded their carrying million, million, and million during , and value. This difference will be recognized in earnings over At year-end , the parent company had credit agree- Stated maturities of the parent company’s long-term debt , respectively, and are reported as a reduction of cost of the life of the venture. In the third quarter , the venture ments with banks totaling million with final maturities during the next five years are as follows (in millions): sales and selling expense. The parent company purchases, completed its conversion of the mill so that it could produce at various dates in and that support commercial –; –; –; –; –; at market rates, finished products from these joint ventures. lightweight gypsum facing paper as well as corrugating paper and other short-term borrowings. Commercial paper and thereafter–. These purchases aggregated million during . medium. For a period of twelve months after the transfer, and other short-term borrowings totaling million the parent company is obligated to purchase, at market and current maturities of medium-term notes totaling Capitalized construction period interest in , and In connection with the operations of these joint ventures, rates, all of the corrugating medium produced by the venture million are classified as long-term debt in accordance was million, million and million, respectively, the parent company has guaranteed certain obligations and that meets the parent company’s specifications. with the parent company’s intent and ability to refinance and is deducted from interest expense. Parent company letters of credit aggregating million at year-end . such obligations on a long-term basis. interest paid during , and was million, During the third quarter , the parent company decided to million and million, respectively. Near the end of second quarter , the parent company exit its fiber-cement joint venture. See Note D for information transferred ownership of its corrugating medium mill in about this transaction and a related special charge. Operating Newport, Indiana, and associated debt of million to losses of this venture were million for the nine months Premier Boxboard Ltd. This was done as part of its agreement ended September and million for the year . 22 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 23
NOTE D SPECIAL CHARGES AND DISCONTINUED OPERATIONS In connection with the sale of the bleached paperboard mill, SUMMARIZED STATEMENTS OF INCOME the parent company has agreed, subject to certain limitations, Financial Services Group During the third quarter , the parent company decided to indemnify the purchaser from certain liabilities and to exit its fiber-cement joint venture by assuming control contingencies associated with the company’s operation and For the year 2000 1999 1998 (in millions) and leasing most of the venture’s assets to a third party. ownership of the mill. The parent company does not believe As a result, the parent company obtained control over that the resolution of these matters will have a material Interest Income million of assets, which were subject to million of adverse effect on its operations or financial position. Loans receivable and mortgage loans held for sale...... liabilities, and recorded a million special charge that Mortgage-backed and other securities available-for-sale...... includes million for assets excluded from the lease During the fourth quarter of , the parent company Mortgage-backed and other securities held-to-maturity...... agreement that will be disposed of and million of other recorded a special charge of million. The charge included Other earning assets ...... costs. Following a six-month ramp-up period, the lease million related to work force reductions in the Paper Total interest income ...... , agreement provides for payments of . million per year Group, million related to asset impairments principally over the balance of the ⁄ year lease term. related to the Paper Group’s Argentine operation, and Interest Expense million of asset impairments related to the Building Deposits ...... During the third quarter , the parent company decided Products Group. Substantially all of the charge for work Borrowed funds...... to discontinue its bleached paperboard operation. force reductions was utilized or paid in . The Argentine Total interest expense...... Accordingly, the results of the bleached paperboard oper- operation was sold during the second quarter of ,for ation have been classified as discontinued operations, and its carrying value. The sale proceeds included million in Net Interest Income...... prior periods have been restated. The bleached paperboard cash and million in promissory notes. The promissory Provision for loan losses...... ()()() mill was sold in December for approximately notes were subsequently sold with recourse. Of the remaining million in cash and the assumption of million of million in asset impairments, million was for manu- Net Interest Income After Provision for Loan Losses...... debt. The eucalyptus fiber project in Mexico, which was to facturing assets abandoned in , and million was for be a source of hardwood fiber for the bleached paperboard property and equipment still in use. Noninterest Income mill, is expected to be sold during at a price that Loan origination, marketing and servicing fees, net ...... approximates its carrying value. NOTE E COMMITMENTS Other...... Total noninterest income ...... Information related to the discontinued operations follows: The parent company leases timberlands, equipment and facilities under operating lease agreements. Future Noninterest Expense For the year 1999 1998 minimum rental commitments under non-cancelable Compensation and benefits ...... (in millions) operating leases having a remaining term in excess of one Other...... year, exclusive of related expenses are as follows (in millions): Total noninterest expense...... Revenues...... –; –; –; –; –; Loss from operations...... ()() and thereafter–. Income Before Taxes And Minority Interest...... Loss on disposal ...... () ‒ Minority interest in income of consolidated subsidiaries...... () ()() Total rent expense was million, million and Income Before Taxes ...... , million during and , respectively. Income taxes ...... () ()() Interest expense of million per year was allocated to the discontinued operations, based on debt allocated to the In connection with its joint venture operations, the parent Net Income ...... operations. The loss from operations is net of income tax company has guaranteed certain obligations and letters of benefits of million in both and . The loss on credit aggregating million at year-end . disposal is net of income tax benefits of million. Included in the loss on disposal are estimated operating The parent company has unconditional purchase obligations, losses of the eucalyptus fiber project through the antici- principally for gypsum and timber, aggregating million pated date of disposal of million. at year-end .
See the notes to Financial Services Group summarized financial statements. 24 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 25
SUMMARIZED BALANCE SHEETS SUMMARIZED STATEMENTS OF CASH FLOWS Financial Services Group Financial Services Group
At year end 2000 1999 For the year 2000 1999 1998 (in millions) (in millions) Assets Cash Provided By (Used For) Operations Cash and cash equivalents...... Net income...... Mortgage loans held for sale...... Adjustments: Loans receivable, net of allowance for loan losses Amortization, depreciation and accretion...... of in and in ...... , , Mortgage loans held for sale...... () Mortgage-backed and other securities available-for-sale ...... , , Collections and remittances on loans serviced Mortgage-backed and other securities held-to-maturity ...... , for others, net...... () () Other assets ...... , , Other...... () Total Assets...... , ,
Liabilities Cash Provided By (Used For) Investments Deposits...... , , Purchases of securities available-for-sale ...... (,) ()() Federal Home Loan Bank advances ...... , , Maturities of securities available-for-sale...... Securities sold under repurchase agreements...... ‒ Sales of securities available-for-sale...... ‒ Other borrowings...... Maturities and redemptions of securities Other liabilities ...... held-to-maturity...... Stock issued by subsidiaries...... Loans originated or acquired, net of principal collected ...... (,) (,)(,) Total Liabilities...... , , Sales of loans...... Acquisitions, net of cash acquired of in Shareholder’s Equity ...... , , and in ...... () () ‒ Capital expenditures...... () ()() Total Liabilities and Shareholder’s Equity...... , , Other...... () () (,) ()(,)
Cash Provided By (Used For) Financing Net increase (decrease) in deposits...... () Securities sold under repurchase agreements and short-term borrowings, net...... , () Additions to debt...... Payments of debt...... () ()() Sale of stock by subsidiaries...... Capital contributions from parent company ...... Dividends paid to parent company ...... () ()() Other...... () ()() , ,
Net increase in cash and cash equivalents...... Cash and cash equivalents at beginning of year......
Cash and cash equivalents at end of year......
See the notes to the Financial Services Group summarized financial statements. See the notes to Financial Services Group summarized financial statements. 26 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 27
NOTES TO SUMMARIZED FINANCIAL STATEMENTS status. The allowance for loan losses is comprised of specific The cost of securities classified as held-to-maturity or with similar attributes, such as loan type, size, escrow and FINANCIAL SERVICES GROUP allowances for criticized graded loans, general allowances available-for-sale is adjusted for amortization of premiums geographic location. Purchased mortgage servicing rights for pass graded loans and an unallocated allowance based on and accretion of discounts by a method that approximates are recorded at cost. NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES analysis of other economic factors. the interest method over the estimated lives of the securities. Should any such assets be sold, gains and losses are To evaluate possible impairment of mortgage servicing rights, Basis of Presentation Specific allowances established on the outstanding principal recognized based on the specific-identification method. the portfolio is periodically stratified based on the predominant Temple-Inland Financial Services Group (group) summarized balance of criticized graded loans range from percent to risk characteristics and the capitalized basis of each stratum is financial statements include savings bank, mortgage banking, percent on Substandard classified loans, percent to Derivative Financial Instruments compared to fair value. Predominant risk characteristics real estate and insurance brokerage operations. All material percent on Doubtful classified loans and percent on The operations of Guaranty Bank (Guaranty) are subject considered include loan type and interest rate. Should the intercompany amounts and transactions have been elimi- Loss classified loans. These allowance percentages are based to the risk of interest rate fluctuations to the extent that net capitalized mortgage servicing rights exceed fair value, nated. Certain amounts have been reclassified to conform to in part on estimated cash flows to be received on the loans interest-earning assets and interest-bearing liabilities impairment is recognized through a valuation allowance. the current year’s classification. These financial statements or estimated market values of the underlying collateral. mature or reprice at different times or in differing amounts. should be read in conjunction with the Temple-Inland Inc. The group uses general allowances for pools of loans with To maintain acceptable levels of interest rate and liquidity Amortization expense and changes to the valuation (the company) consolidated financial statements. relatively similar risks based on management’s assessment risk, Guaranty from time to time enters into various types allowance are included in loan origination, marketing and of homogenous attributes, such as product types, markets, of interest rate contracts for purposes other than trading. servicing fees, net, in the summarized statements of income. Mortgage Loans Held for Sale aging and collateral. The group uses information on historic Mortgage loans originated and held for sale are carried at trends in delinquencies, charge-offs and recoveries to The net amount payable or receivable on interest rate contracts Income Taxes the lower of cost or estimated market value in the aggregate. identify unfavorable trends. The analysis considers adverse is recorded as an adjustment to interest income or expense. The group is included in the consolidated income tax return Net unrealized losses are recognized in a valuation allowance trends in the migration of classifications to be an early Premiums paid for interest rate contracts, net of premiums filed by the parent company. Under an agreement with the by charges to income. warning of potential problems that would indicate a need received for those sold, are included in the carrying value of parent company, the group provides a current income tax to increase loss allowances over historic levels. the related interest-earning assets or interest-bearing liabilities, provision that takes into account the separate taxable income Loans Receivable and Allowance for Loan Losses and amortized as an adjustment to the yield of the designated of the group. Deferred income taxes are recorded by the group. Loans receivable are stated at unpaid net principal balances The unallocated allowance for loan losses is determined assets or liabilities over the contract periods. minus any allowance for loan losses. Interest on loans based on management’s assessment of general economic NOTE B ACQUISITIONS receivable is credited to income as earned. The accrual of conditions as well as specific economic factors in individual Real Estate interest ceases when collection of principal or interest markets. The evaluation of the appropriate level of unallo- Real estate consists primarily of land and commercial On March , , the group acquired all of the outstanding becomes doubtful. When interest accrual ceases, uncollected cated allowance considers current risk factors that may not properties held for development and sale, although certain stock of American Finance Group, Inc. (AFG) for million interest previously credited to income is reversed. Certain be reflected in the historical trends used to determine the properties are held for the production of income. Interest on cash. AFG, an industrial and commercial equipment leasing loan fees and direct loan origination costs are deferred. allowance on criticized and pass graded loans. These factors indebtedness and property taxes during the development and financing operation, had total assets (primarily financing These net fees or costs, as well as premiums and discounts may include inherent delays in obtaining information period, as well as improvements and other development leases, loans, and equipment under operating leases) of on loans, are amortized to income using the interest regarding a borrower’s financial condition or changes in costs, are generally capitalized. The cost of land sales is million and total liabilities (primarily debt) of million, method over the remaining period to contractual maturity their unique business conditions; the judgmental nature of determined using the relative sales value method. Real estate of which million was repaid after acquisition. The excess and adjusted for anticipated prepayments. Any unamortized individual loan evaluations, collateral assessments and the also includes properties acquired through loan foreclosure. of the purchase price over the fair value of the identifiable loan fees or costs, premiums, or discounts are taken to interpretation of economic trends; volatility of economic net assets acquired of million is being amortized on the income in the event a loan is sold or repaid. conditions affecting the identification and estimation of Real estate held for future development and real estate projects straight-line method over years. losses for larger non-homogeneous loans; and the sensitivity being developed are evaluated for impairment in accordance The allowance for loan losses is increased by charges to of assumptions used to establish general allowances for with the recognition and measurement provisions governing On June , , the group acquired all of the outstanding income and by the portion of the purchase price related to homogenous groups of loans. In addition, the unallocated long-lived assets to be held and used in operations. Real stock of HF Bancorp, Inc., the parent company of Hemet credit risk on bulk purchases of loans and on acquisitions. allowance recognizes that ultimate knowledge of the loan estate projects that are substantially completed and ready Federal Savings & Loan Association (Hemet) for million The allowance is decreased by charge-offs, net of recoveries. portfolios may be incomplete. for their intended use are measured at the lower of carrying cash. Hemet had total assets of . billion (primarily loans Management’s periodic evaluation of the adequacy of the amount or estimated fair value minus the cost to sell in and securities) and total liabilities of . billion (primarily allowance is based on the group’s past loan loss experience, Mortgage-Backed and Other Securities accordance with the provisions governing long-lived assets deposits). The excess of the purchase price over the fair known and inherent risks in the portfolio, adverse situations The group determines the appropriate classification of that are to be disposed of. value of the identifiable net assets acquired of million is that may affect the borrowers’ ability to repay, estimated value mortgage-backed and other securities at the time of purchase being amortized on the straight-line method over years. of any underlying collateral, and current economic conditions. and confirms the designation of these debt securities as of Mortgage Loan Servicing Rights each balance sheet date. Debt securities are classified as The group allocates a portion of the cost of originating a On June , , the group acquired the assets of Fidelity Loans receivable are assigned a rating to distinguish levels of held-to-maturity and stated at amortized cost when the mortgage loan to the mortgage servicing right based on its Funding, Inc. (Fidelity) for million in cash. Fidelity, an credit risk and loan quality. These risk ratings are categorized group has both the intent and ability to hold the securities fair value relative to the loan as a whole. Capitalized mortgage asset based lending operation, had assets (primarily as pass or criticized grade with the resultant allowance for to maturity. Otherwise, debt securities and marketable loan servicing rights are amortized in proportion to, and loans) of million. The excess of the purchase price loan losses based on this distinction. Certain loan portfolios equity securities are classified as available-for-sale and are over the period of, estimated net servicing revenues. The over the fair value of the identifiable net assets acquired of are considered to be performance based and are graded by stated at fair value with any unrealized gains and losses, net fair market value of originated mortgage servicing rights is million is being amortized on the straight-line method analyzing performance through assessment of delinquency of tax, reported as a component of shareholder’s equity. estimated using buyers’ quoted prices for servicing rights over years. 28 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 29
The acquisitions were accounted for under the purchase method of accounting and, accordingly, the acquired NOTE D MORTGAGE-BACKED AND OTHER SECURITIES assets and liabilities were adjusted to their estimated fair values at the date of the acquisitions. The operating results of the acquisitions are included in the accompanying summarized financial statements from the acquisition dates. The The amortized cost and fair values of mortgage-backed and other securities consists of the following: unaudited pro forma results of operations, assuming the acquisitions had been effected as of the beginning of the applicable Gross Gross fiscal year, would not have been materially different from those reported. Amortized Unrealized Unrealized Fair Cost Gains Losses Value (in millions) NOTE C LOANS RECEIVABLE At year end 2000 Available-for-sale The outstanding principle balances of loans receivable consists of the following: Mortgage-backed securities: At year end 2000 1999 FNMA certificates...... , () , (in millions) FHLMC certificates...... ‒ GNMA certificates...... ‒ ‒ Real estate mortgage...... , , Collateralized mortgage obligations ...... ‒ () Construction and development ...... , , Private issuer pass-through securities...... ‒ ‒ Commercial and business...... , , , () , Consumer and other ...... , , Debt securities: Premiums, discounts and deferred fees, net ...... ‒ ‒ , , Corporate securities...... Equity securities, primarily Federal Less: Allowance for loan losses...... ( ) ( ) ‒ ‒ , , Home Loan Bank stock...... , () , Held-to-maturity Mortgage-backed securities: FNMA certificates...... ‒ () Real estate mortgages are primarily single-family adjustable-rate loans secured by properties located throughout the FHLMC certificates...... ‒ () United States, primarily in California and Texas. Construction and development loans consist primarily of office, Collateralized mortgage obligations ...... ‒ () multi-family, retail, industrial and assisted living properties and are predominantly located in Texas, California, Florida, Private issuer pass-through securities...... ‒ () Georgia, Colorado, Illinois and Arizona. Commercial and business loans include working capital, equipment financing ‒ () and other business loans primarily in Texas. Consumer and other loans include a variety of products and are primarily At year end 1999 secured by real estate and automobiles. Available-for-sale Mortgage-backed securities: At year-end , the group had unfunded commitments on outstanding loans totaling approximately . billion. In FNMA certificates...... () addition, at year-end , the group had issued letters of credit totaling approximately million. The portion of FHLMC certificates...... ‒ () these amounts to be ultimately funded is uncertain. GNMA certificates...... ‒ ‒ Collateralized mortgage obligations ...... ‒ () - ‒ Activity in the allowance for loan losses was as follows: Private issuer pass through securities...... ( ) , () , For the year 2000 1999 1998 Debt securities: (in millions) US Government ...... ‒ ‒ ‒ ‒ Balance, beginning of year...... Corporate securities...... Provision for loan losses ...... Equity securities, primarily Federal Additions related to acquisitions and bulk Home Loan Bank stock...... ‒ ‒ , , purchases of loans ...... ‒ ( ) Charge-offs, net of recoveries...... () ()() Held-to-maturity Balance, end of year...... Mortgage-backed securities: FNMA certificates...... ‒ () FHLMC certificates...... ‒ () Collateralized mortgage obligations ...... ‒ () Private issuer pass-through securities...... ‒ () , ‒ () , 30 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 31
The amortized cost and estimated fair value by maturity of mortgage-backed and other securities are shown in the Scheduled maturities of time deposits at year-end are as follows: following table. Securities are classified according to their contractual maturities without consideration of principal $100,000 or Less than amortization, potential prepayments or call options. Accordingly, actual maturities may differ from contractual maturities. More $100,000 Total (in millions) Amortized Fair At year end 2000 Cost Value months or less...... , , (in millions) Over through months ...... , , Due in year or less...... ‒ ‒ Over through months ...... , , Due after year through years ...... Over months ...... Due after years through years ...... , , , Due after years ...... , , Total mortgage-backed and other securities ...... , ,
At year-end , time deposits maturity dates were as follows There were million of securities sold under repurchase (in millions): –,; –; –; –; agreements outstanding at year-end and no securities The mortgage loans underlying mortgage-backed securities have adjustable interest rates and generally have contractual –; and thereafter–. sold under repurchase agreements at year-end . At year- maturities ranging from to years with principal and interest installments due monthly. The actual maturities of mortgage- end , the fair value of securities sold under repurchase backed securities may differ from the contractual maturities of the underlying loans because issuers or mortgagors may have the NOTE F SECURITIES SOLD UNDER REPURCHASE AGREEMENTS agreements was million of FNMA certificates and right to call or prepay their securities or loans. million of FHLMC certificates. Securities sold under repurchase agreements were delivered Certain mortgage-backed and other securities are guaranteed directly or indirectly by the U.S. government or its agencies. to brokers/dealers who retained such securities as collateral NOTE G FEDERAL HOME LOAN BANK ADVANCES Other mortgage-backed securities not guaranteed by the U.S. government or its agencies are senior subordinated securities for the borrowings and have agreed to resell the same considered investment grade quality by third-party rating agencies. The collateral underlying these securities is primarily securities back to Guaranty at the maturities of the agree- Pursuant to collateral agreements with the Federal Home residential properties located in California. ments. The agreements generally mature within days. Loan Bank of Dallas (FHLB), advances are secured by a blanket floating lien on Guaranty’s assets and by securities The group securitized and continued to hold million and million of mortgage loans previously held in the loan Information concerning borrowings under repurchase on deposit at the FHLB. The weighted average interest rate portfolio during and , respectively. The transfer to mortgage-backed securities was recorded at the carrying agreements is summarized as follows: of FHLB advances was . percent and . percent at year- value of the mortgage loans at the time of securitization. The market value of the securities generated through these secu- end and , respectively. At year-end , the ritization activities are obtained through active market quotes. The group held million and million in such For the year 2000 1999 advances had maturity dates as follows (in millions): securities at year-end and , respectively. (in millions) –, and –. Average daily balance...... NOTE E DEPOSITS Maximum month-end balance......
Deposits consists of the following: 2000 1999 Average Average Stated Rate Amount Stated Rate Amount NOTE H OTHER BORROWINGS (in millions)
Noninterest bearing demand ...... ‒ ‒ Other borrowings, which represent borrowings of non-savings bank entities, consists of the following: Interest bearing demand...... .% , .% , Savings deposits...... .% .% At year end 2000 1999 (in millions) Time deposits...... .% , .% , , , Long-term debt with an average rate of .% and .% during and , respectively, due through ...... Long-term debt at various rates which approximate prime, secured primarily by real estate...... 32 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 33
At year-end ,a non-savings bank subsidiary had a these shares may be redeemed in whole or in part for , Amortization expense related to mortgage loan servicing NOTE L COMMITMENTS million credit facility, which expires in , with million per share cash. rights totaled million, million and million for remaining unused. , and , respectively. The valuation allowance The group leases equipment and facilities under various At inception in December , GPCC II issued , was reduced million in and million in by operating lease agreements. Future minimum rental At year-end , maturities of other borrowings are as shares of floating rate preferred stock and , shares a credit to operations and increased million in by payments, net of related sublease income and exclusive of follows (in millions): –; –; –; of . percent fixed rate preferred stock for an aggregate a charge to operations. related expenses, under non-cancelable operating leases –; –; and thereafter–. consideration of million cash. Prior to May ,at with a remaining term in excess of one year are as follows the option of GPCC II, these shares may be redeemed in The estimated fair value of the capitalized mortgage servicing (in millions): –; –; –; –; NOTE I PREFERRED STOCK ISSUED BY SUBSIDIARIES whole or in part for , per share cash plus, under rights at year-end was approximately million. Fair –; and thereafter–. certain circumstances, a make-whole premium. value was determined utilizing market-driven assumptions Guaranty has two subsidiaries that qualify as real estate for prepayment speeds, discount rates and other variables. Total rent expense under these lease agreements was investment trusts, Guaranty Preferred Capital Corporation NOTE J MORTGAGE LOAN SERVICING million, million and million for , and (GPCC) and Guaranty Preferred Capital Corporation II NOTE K INTEREST RATE RISK MANAGEMENT , respectively. (GPCC II). Both are authorized to issue floating rate and The group services mortgage loans that are owned primarily fixed rate preferred stock. These preferred stocks have a by independent investors. The group serviced approximately Guaranty is a party to various interest rate corridor agree- At year-end , the group had commitments to originate liquidation preference of , per share, dividends that , and , mortgage loans aggregating . billion ments, which reduce the impact of increases in interest rates or purchase loans totaling approximately . billion and are non-cumulative and payable when declared, and are and . billion as of year-end and , respectively. on its investments in adjustable-rate mortgage-backed commitments to sell mortgage loans of approximately convertible into Guaranty preferred stock upon the occur- securities that have lifetime interest rate caps. Under these million. To the extent mortgage loans at the appro- rence of certain regulatory events. The group is required to advance, from group funds, escrow agreements with notional amounts totaling million priate rates are not available to fulfill the sales commitments, and foreclosure costs on loans it services. The majority of these and million at year-end and , respectively, the group is subject to market risk resulting from interest In , GPCC issued an aggregate of , shares of advances are recoverable, except for certain amounts for loans Guaranty simultaneously purchased and sold caps whereby rate fluctuations. floating rate preferred stock for an aggregate consideration serviced for GNMA. A reserve has been established for unre- it receives interest if the variable rate based on FHLB Eleventh of million cash. GPCC issued an additional , coverable advances. Market risk is assumed related to the District Cost of Funds (EDCOF) Index (. percent at year NOTE M REGULATORY CAPITAL MATTERS shares in for an aggregate consideration of million disposal of certain foreclosed VA loans. No significant losses were end ) exceeds an average strike rate of . percent and cash. Within ten years of issuance, at the option of GPCC, incurred during , or in connection with this risk. pays interest if the same variable rate exceeds a strike rate of Guaranty is subject to various regulatory capital require- . percent. These agreements mature through . ments administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate Guaranty is also a party to an interest rate cap agreement certain mandatory and possibly additional discretionary Capitalized mortgage loan servicing rights, net of accumulated amortization, were as follows: to reduce the impact of interest rate increases on certain actions by regulators that, if undertaken, could have a direct Purchased Originated adjustable rate investments with lifetime caps. Under this material effect on Guaranty’s financial statements. The Loan Servicing Loan Servicing agreement, with a notional amount of million, Guaranty payment of dividends from Guaranty is subject to proper For the year 2000 Rights Rights Total (in millions) would receive payments if the EDCOF exceeds the strike regulatory notification. rate of percent. This agreement matures in . Balance, beginning of year...... Under capital adequacy guidelines and the regulatory frame- Additions...... The amounts subject to credit risk are the streams of payments work for prompt corrective action, Guaranty must meet ()()() Amortization expense...... receivable by Guaranty under the terms of the contracts not specific capital guidelines that involve quantitative measures ()()() Sales...... the notional amounts used to express the volumes of these of Guaranty’s assets, liabilities and certain off-balance-sheet Subtotal...... transactions. Guaranty minimizes its exposure to credit risk items as calculated under regulatory accounting practices. Valuation allowance...... ‒ by entering into contracts with major U.S. securities firms. Capital amounts and classification are also subject to Balance, end of year...... qualitative judgments by the regulators about components, The mortgage banking operation enters into forward sales risk weightings and other factors. At year-end , For the year 1999 commitments to deliver mortgage loans to third parties. These Guaranty met all of its capital adequacy requirements. (in millions) forward sales commitments hedge volatility of interest rates between the time a mortgage loan commitment is made and Balance, beginning of year...... the subsequent funding and sale of the loan to a third party. Additions...... Amortization expense...... ()()() Sales...... ‒ ()() Subtotal...... Valuation allowance...... () Balance, end of year...... 34 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 35
At year-end , the most recent notification from regulators categorized Guaranty as “well capitalized.” The following CONSOLIDATED STATEMENTS OF INCOME table sets forth Guaranty’s actual capital amounts and ratios along with the minimum capital amounts and ratios Temple-Inland Inc. and Subsidiaries Guaranty must maintain in order to meet capital adequacy requirements and to be categorized as “well capitalized.” No For the year 2000 1999 1998 amounts were deducted from capital for interest-rate risk at year-end or .
For For Capital Adequacy Categorization as Revenues Actual Requirements “Well Capitalized” Manufacturing ...... , , , Amount Ratio Amount Ratio Amount Ratio Financial Services ...... , , , (dollars in millions) , , , Costs and Expenses At year end 2000: Manufacturing ...... , , , Total Risk-Based Ratio Special charge...... ‒ (Risk-based capital / Financial Services ...... , Total risk-weight assets)...... , .% ≥ ≥ .% ≥ , ≥ .% , , , Tier (Core) Risk-Based Operating Income Ratio (Core capital / ...... Parent Company interest...... () ()() Total risk-weight assets)...... , .% ≥ ≥ .% ≥ ≥ .% Other...... Tier (Core) Leverage Ratio Income From Continuing Operations Before Taxes (Core capital / Adjusted ...... Income taxes ...... () ()() tangible assets)...... , .% ≥ ≥ .% ≥ ≥ .% Income From Continuing Operations Tangible Ratio ...... Discontinued operation...... ‒ ()() (Tangible equity / Income Before Accounting Change ...... Tangible assets)...... , .% ≥ ≥ .% N/A N/A Effect of accounting change ...... ‒ ‒ () Net Income At year end 1999: ...... Total Risk-Based Ratio Earnings Per Share (Risk-based capital / Basic: Total risk-weight assets)...... , .% ≥ ≥.% ≥ , ≥ .% Income from continuing operations ...... . . . Tier (Core) Risk-Based Discontinued operation ...... ‒ (.)(.) Ratio (Core capital / Effect of accounting change ...... ‒ ‒ (.) Total risk-weight assets)...... , .% ≥ ≥.% ≥ ≥ .% Net income...... . . . Tier (Core) Leverage Ratio Diluted: (Core capital / Adjusted Income from continuing operations...... . . . tangible assets)...... , .% ≥ ≥.% ≥ ≥ .% Discontinued operation ...... ‒ (.)(.) Tangible Ratio Effect of accounting change ...... ‒ ‒ (.) (Tangible equity / Net income...... . . . Tangible assets)...... , .% ≥ ≥.% N/A N/A
See the notes to the consolidated financial statements. 36 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 47
CONSOLIDATING BALANCE SHEETS CONSOLIDATING BALANCE SHEETS Temple-Inland Inc. and Subsidiaries Temple-Inland Inc. and Subsidiaries
Parent Financial Parent Financial At year end 2000 Company Services Consolidated At year end 1999 Company Services Consolidated (in millions) (in millions)
Assets Assets Cash and cash equivalents ...... Cash and cash equivalents...... Mortgage loans held for sale...... ‒ Mortgage loans held for sale...... ‒ Loans receivable, net...... ‒ , , Loans receivable, net ...... ‒ , , Mortgage-backed and other securities Mortgage-backed and other securities available-for-sale...... ‒ , , available-for-sale ...... ‒ , , Mortgage-backed and other securities Mortgage-backed and other securities held-to-maturity...... ‒ held-to-maturity ...... ‒ , , Trade and other receivables ...... ‒ Trade and other receivables ...... ‒ Inventories ...... ‒ Inventories...... ‒ Property and equipment ...... , , Property and equipment ...... , , Other assets...... , Other assets ...... , Investment in Financial Services...... , ‒ ‒ Investment in Financial Services...... , ‒ ‒ Total Assets...... , , , Total Assets...... , , ,
Liabilities Liabilities Deposits...... ‒ , , Deposits...... ‒ , , Federal Home Loan Bank advances ...... ‒ , , Federal Home Loan Bank advances...... ‒ , , Securities sold under repurchase agreements ...... ‒ Other liabilities ...... Other liabilities ...... Long-term debt...... , , Long-term debt...... , , Deferred income taxes...... ‒ Deferred income taxes...... ‒ Postretirement benefits ...... ‒ Postretirement benefits...... ‒ Stock issued by subsidiaries...... ‒ Stock issued by subsidiaries...... ‒ Total Liabilities...... , , , Total Liabilities...... , , , Shareholders’ Equity Shareholders’ Equity Preferred stock – par value per share: authorized Preferred stock – par value per share: authorized ,, shares; none issued ...... ‒ ,, shares; none issued ...... ‒ Common stock – par value per share: authorized Common stock – par value per share: authorized ,, shares; issued ,, shares ,, shares; issued ,, shares including shares held in the treasury...... including shares held in the treasury...... Additional paid-in capital ...... Additional paid-in capital ...... Accumulated other comprehensive income (loss)...... () Accumulated other comprehensive income (loss) ...... () Retained earnings ...... , Retained earnings...... , , , Cost of shares held in the treasury: ,, shares...... () Cost of shares held in the treasury: ,, shares...... () Total Shareholders’ Equity...... , Total Shareholders’ Equity ...... , Total Liabilities and Shareholders’ Equity...... , Total Liabilities and Shareholders’ Equity...... ,
See the notes to the consolidated financial statements. See the notes to the consolidated financial statements. 38 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 39
CONSOLIDATED STATEMENTS OF CASH FLOWS CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Temple-Inland Inc. and Subsidiaries Temple-Inland Inc. and Subsidiaries Accumulated Other For the year 2000 1999 1998 Common Paid-in Comprehensive Retained Treasury (in millions) Stock Capital Income (Loss) Earnings Stock Total (in millions) Cash Provided By (Used For) Operations 1997 , , Net income ...... Balance at year end ...... ( ) ( ) Adjustments: Comprehensive income Loss on disposal of discontinued operations...... ‒ ‒ Net income...... ‒‒ ‒ ‒ Cumulative effect of accounting change...... ‒ ‒ Other comprehensive income Special charge...... ‒ Unrealized gains on securities...... ‒‒ ‒ ‒ Depreciation and depletion ...... Minimum pension liability ...... ‒‒() ‒‒() Amortization of goodwill ...... Total comprehensive income...... ‒‒ ‒ ‒ ‒ Deferred taxes ...... Dividends paid on common stock – Amortization and accretion on . per share...... ‒ ‒ ‒ () ‒⁽) financial instruments...... Stock issued for stock plans – Mortgage loans held for sale ...... () , shares...... ‒‒ ‒ Receivables ...... ()() Inventories ...... () Stock acquired for treasury – , ‒‒ ‒ ‒ Accounts payable and accrued expenses...... () () shares ...... ( )() Collections and remittances on loans serviced Balance at year end 1998 ...... () , () , for others, net...... () () Comprehensive income Change in net assets of discontinued operations ...... ‒ Net income...... ‒‒ ‒ ‒ Other...... () Other comprehensive income Unrealized losses on securities ...... ‒‒() ‒‒() Cash Provided By (Used For) Investments Foreign currency Capital expenditures...... () ()() translation adjustment ...... ‒‒ ‒ ‒ Proceeds from sale of discontinued operations ...... ‒ ‒ Total comprehensive income...... ‒‒ ‒ ‒ ‒ Proceeds from sale of property and equipment...... Dividends paid on common stock – Purchase of securities available-for-sale ...... (,) ()() . ‒‒ ‒ ‒ Maturities of securities available-for-sale ...... per share ...... ( ) ( ) Proceeds from sale of securities available-for-sale ...... ‒ Stock issued for stock plans – Maturities and redemptions of securities , shares...... ‒ ‒ ‒ held-to-maturity...... Stock acquired for treasury – Loans originated or acquired, net of principal ,, shares ...... ‒‒ ‒ ‒()() , , , collected on loans...... ( ) ( )() Balance at year end 1999 ...... () , () , Proceeds from sale of loans...... Comprehensive income Acquisitions, net of cash acquired, and joint ventures ...... () ()() Net income...... ‒ ‒ ‒ ‒ Other ...... () ()() , , Other comprehensive income ( ) ( )() ‒‒ ‒ ‒ Cash Provided By (Used For) Financing Unrealized gains on securities...... Minimum pension liability...... ‒‒() ‒‒() Additions to debt ...... , Payments of debt ...... () (,)() Foreign currency Securities sold under repurchase agreements and translation adjustment ...... ‒‒ ‒ ‒ short-term borrowings, net ...... , () Total comprehensive income...... ‒‒ ‒ ‒ ‒ Net increase (decrease) in deposits ...... () Dividends paid on common stock – Purchase of deposits...... ‒‒ 1.28 per share ...... ‒‒ ‒ () ‒ () Purchase of stock for treasury...... () ()() Stock issued for stock plans – Cash dividends paid to shareholders ...... ( ) ( )() 57,999 shares ...... ‒‒ ‒ Proceeds from sale of subsidiaries stock ...... Stock acquired for treasury – Other ...... () () 5,095,906 shares...... ‒‒ ‒ ‒()() , () , Balance at year end 2000 ...... () , () ,
Net increase in cash and cash equivalents...... Cash and cash equivalents at beginning of year ...... Cash and cash equivalents at end of year......
See the notes to the consolidated financial statements. See the notes to the consolidated financial statements. 40 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Income and expense items are translated into U.S. dollars NOTE 2 TAXES ON INCOME at average rates of exchange prevailing during the year. NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Gains and losses resulting from foreign currency transactions Taxes on income from continuing operations consisted of the following: are included in earnings and are not material. Basis of Presentation For the year 2000 1999 1998 (in millions) The consolidated financial statements include the accounts Income Taxes of Temple-Inland Inc. and its manufacturing and financial Deferred income taxes are provided for temporary differences Current tax provision: services subsidiaries (the company). Investments in joint between the carrying amounts of assets and liabilities for U.S. Federal ...... ventures and other subsidiaries in which the company has financial reporting purposes and the amounts used for tax State and other ...... between a percent and percent equity ownership are purposes computed using current tax rates. reflected using the equity method. All material inter- Deferred tax provision: company amounts and transactions have been eliminated. Stock Based Compensation U.S. Federal ...... Certain amounts have been reclassified to conform to The company uses the intrinsic value method in accounting State and other ...... - current year’s classifications. for its stock based employee compensation plans. Provision for income taxes ...... The consolidated net assets invested in financial services Long-Lived Assets activities are subject, in varying degrees, to regulatory rules Impairment losses are recognized on assets held for use when and restrictions. Accordingly, included as an integral part of indicators of impairment are present and the estimated the consolidated financial statements are separate summa- undiscounted cash flows are not sufficient to recover the Earnings or losses from operations consisted of the following: rized financial statements and notes for the company’s assets’ carrying amount. Assets held for disposal are manufacturing and financial services groups, as well as the recorded at the lower of carrying value or estimated fair For the year 2000 1999 1998 significant accounting policies unique to each group. value less costs to sell. (in millions) Earnings (Losses): The preparation of the consolidated financial statements in Capitalized Software U.S...... accordance with generally accepted accounting principles The company capitalizes purchased software costs as well Non-U.S...... ()() requires management to make estimates and assumptions. as the direct costs, both internal and external, associated These estimates and assumptions affect the amounts with software developed for internal use. Such costs are reported in the financial statements and accompanying amortized using the straight-line method over estimated notes, including disclosures related to contingencies. useful lives of three to seven years. Costs capitalized were Actual results could differ from these estimates. million in , million in and million in . Amortization of these costs was million in , The difference between the consolidated effective income tax rate and the federal statutory income tax rate include the following: Cash and Cash Equivalents million in and million in . Cash and cash equivalents include cash on hand and other For the year 2000 1999 1998 short-term liquid instruments with original maturities of New Accounting Pronouncements (in millions) three months or less. The company will be required to adopt Statement of Financial Taxes on income at statutory rate...... Accounting Standards No. , Accounting for Derivatives State net of federal benefit ...... Translation of International Currencies Instruments and Hedging Activities, beginning .This Foreign operations...... Balance sheets of the company’s international operations statement will require derivative positions to be recognized Sale of foreign subsidiary...... ‒ () ‒ where the functional currency is other than the U.S. dollar in the balance sheet at fair value. The effect of adopting Goodwill ...... are translated into U.S. dollars at year-end exchange rates. this statement will not materially affect the company’s Other...... Adjustments resulting from financial statement translation earnings or financial position. As permitted by this statement, are reported as a component of shareholders’ equity. For the company will change the designation of its portfolio other international operations where the functional cur- of held-to-maturity securities, which are carried at rency is the U.S. dollar, inventories and property, plant and unamortized cost, to available-for-sale, which are carried at equipment values are translated at the historical rate of fair value. As a result, the carrying value of these securities exchange, while other assets and liabilities are translated at will be adjusted to their fair value with a corresponding year-end exchange rates. Translation adjustments for these after tax reduction of million in other comprehensive operations are included in earnings and are not material. income, a component of shareholders’ equity. 42 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 43
Significant components of the company’s consolidated deferred tax assets and liabilities are as follows: NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS
At year end 2000 1999 The carrying amounts and the estimated fair values of financial instruments were as follows: (in millions) 2000 1999 Carrying Fair Carrying Fair Deferred Tax Liabilities: At year end Amount Value Amount Value Depreciation...... (in millions) Timber and timberlands ...... Pensions ...... Financial Assets Originated mortage servicing rights...... Loans receivable ...... , , , , Other...... Mortgage-backed and other securities ...... , , , , Total deferred tax liabilities ......
Deferred Tax Assets: Financial Liabilities , , , , Alternative minimum tax credits ...... Deposits ...... , , , , Net operating loss carryforwards ...... FHLB advances...... , , , , OPEB obligations ...... Total debt ...... Bad debt reserve ...... Other...... Off-Balance-Sheet Instruments Total deferred tax assets ...... Interest rate contracts ...... ‒ () ‒ Valuation Allowance...... () () Commodity futures contracts ...... ‒ () ‒‒ Net deferred tax liability...... Commitments to extend credit ...... ‒ ‒
The valuation allowance represents accruals for deductions In , the Internal Revenue Service (IRS) concluded its Differences between fair value and carrying amounts are Participating Preferred Stock at an exercise price of . and credits that are uncertain and, accordingly, have not examination of the company's consolidated tax returns primarily due to instruments that provide fixed interest Rights will be exercisable only if a person or group been recognized for financial reporting purposes. The for the years through . As a result of this exam- rates or contain fixed interest rate elements. Inherently, such acquires beneficial ownership of percent or more of the change in the valuation allowance is primarily the result of ination, the company agreed to pay approximately instruments are subject to fluctuations in fair value due to company’s common shares or commences a tender or increased foreign net operating losses, the future realization million in taxes and interest for those years, of which subsequent movements in interest rates. The fair value of exchange offer, upon consummation of which such person of which is not assured. million was paid in and the remainder in .The cash and cash equivalents, trade and other receivables, trade or group would beneficially own percent or more of the IRS is currently examining the company’s consolidated payables, securities sold under agreements to repurchase company’s common shares. The company will generally be The company has domestic net operating loss carryforwards tax returns for the years through . The resolution and mortgage loans held for sale consistently approximate entitled to redeem the Rights at . per Right at any time of million that expire in . In addition, the company has of these examinations is not expected to have a material the carrying amount due to their short-term nature and until the th business day following public announcement foreign net operating loss carryforwards of million that adverse impact on the company's financial condition or are excluded from the above table. The fair value of that a percent position has been acquired. The Rights will expire from the year through the year and results of operations. mortgage-backed and other securities and off-balance- will expire on February , . million that may be carried forward indefinitely. Alternative sheet instruments are based on quoted market prices. minimum tax credits may be carried forward indefinitely. Cash income tax payments, net of refunds received, Other financial instruments are valued using discounted NOTE 5 EMPLOYEE BENEFIT PLANS In accordance with generally accepted accounting principles, including the payments related to the IRS exam were cash flows. The discount rates used represent current rates the company has not provided deferred taxes on approxi- million, million and million during , and for similar instruments. The company has pension plans covering substantially all mately million of pre- tax bad debt reserves. , respectively. employees. Plans covering salaried and nonunion hourly The company has guaranteed certain joint venture obligations employees provide benefits based on compensation and principally related to variable-rate debt instruments at years of service, while union hourly plans are based on nego- year-end . It is not practicable to estimate the fair tiated benefits and years of service. The company’s policy is to value of these guarantees. fund amounts on an actuarial basis in order to accumulate assets sufficient to meet the benefits to be paid in accordance NOTE 4 SHAREHOLDER RIGHTS PLAN with the requirements of ERISA. Contributions to the plans are made to trusts for the benefit of plan participants. The company has a Shareholder Rights Plan in which one-half of a preferred stock purchase right (Right) was declared as The company provides, as a postretirement benefit, medical a dividend for each common share outstanding. Each Right and insurance coverage to eligible salaried and hourly entitles shareholders to purchase, under certain conditions, employees who reach retirement age while employed by one one-hundredth of a share of newly issued Series A Junior the company. 44 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 45
The change in benefit obligation, plan assets and the funded status of employee benefit plans follows: Significant assumptions used for the employee pension plans follow:
Pension Benefits Postretirement Benefits Pension Benefits Postretirement Benefits At year end 2000 1999 2000 1999 For the year 2000 1999 1998 2000 1999 1998 (in millions) Weighted Average Assumptions: Benefit obligation at beginning of year...... Discount rate...... .% . % .% . % . % .% Service cost...... Expected long-term rate of return...... .% .% .% – ‒‒ Interest cost ...... Rate of compensation increase...... .% .% .% – ‒‒ Change in assumptions...... ‒ () - ‒ Plan amendments ...... - () Actuarial (gain)/loss...... () Termination benefits...... ‒ ‒ - ‒ A . percent annual rate of increase in the per capita cost of covered health care benefits was assumed for . The rate Benefits paid...... () () () () was assumed to decrease gradually to percent for and remain at that level thereafter. Retiree contributions ...... ‒ ‒ Benefit obligation at end of the year...... Net periodic benefit cost (credit) for pension and postretirement plans include the following:
Fair value of plan assets at beginning of year...... ‒ ‒ Actual return...... ‒ ‒ Pension Benefits Postretirement Benefits For the year 2000 1999 1998 2000 1999 1998 Benefits paid...... () () ‒ ‒ (in millions) Contributions...... ‒ ‒ Fair value of plan assets at end of year...... ‒ ‒ Charges (Credits) Service cost-benefits earned Funded status ...... () () during the period...... Unrecognized net loss/(gain) ...... () () () Interest cost on projected Prior service costs not yet recognized...... () () benefit obligation...... Unrecognized net transition obligation/(asset)...... ‒ () ‒ ‒ Expected return on plan assets...... () ()() ‒‒‒ Additional minimum liability...... () () ‒ ‒ Net amortization and deferral...... () ()() () ()() Prepaid (accrued) benefit cost...... () () Net periodic benefit cost (credit)(a) ...... () () ()
The net prepaid benefit cost of million at year-end is comprised of pension plans with prepaid benefit cost totaling million and accrued benefit liability totaling million. Amounts applicable to the company’s pension plans with (a) In addition to the above, in the company recognized an additional . million expense relating to postretirement benefits for special termination accumulated benefit obligations in excess of plan assets are as follows: benefits resulting from restructuring of the Pineland operation. In , the company recognized an additional $4 million credit relating to pension benefits and a million credit relating to postretirement benefits for curtailments resulting from the sale of the bleached paperboard operation.In , the company recognized an additional million credit relating to pension benefits and a million credit relating to postretirement benefits for curtailments
At year end 2000 1999 resulting from employee terminations. (in millions)
Projected benefit obligation ...... Accumulated benefit obligation ...... Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefits. Fair value of plan assets...... ‒ ‒ A one percentage point change in assumed health care cost trend rates would have the following effects:
1 Percentage 1 Percentage Point Increase Point Decrease (in millions)
Effect on total of service and interest cost components in ...... () Effect on postretirement benefit obligation at year-end ...... () 46 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 47
NOTE 6 STOCK OPTION PLANS NOTE 7 EARNINGS PER SHARE
The company has established stock option plans for key employees and directors. The plans provide for the granting of Numerators and denominators used in computing earnings per share are as follows: nonqualified stock options and/or incentive stock options, and prior to , of stock appreciation rights with all or part of For the year 2000 1999 1998 any options so granted. Options granted after generally have a ten-year term and become exercisable in steps from (in millions) one to five years. Numerators for basic and diluted earnings per share: A summary of stock option activity follows: Income from continuing operations ...... ...... ‒ ()() For the year 2000 1999 1998 Discontinued operations ‒ ‒ (shares in thousands) Weighted Weighted Weighted Effect of accounting change...... ( ) Average Average Average Net income...... Exercise Exercise Exercise Options Price Options Price Options Price Denominator for basic earnings per share: Weighted average shares outstanding...... . . . ‒ . . Outstanding beginning of year...... , , , Dilutive effect of stock options ...... . . . Granted ...... Denominator for diluted earnings per share ...... Exercised ...... () () () Forfeited ...... () () () Outstanding end of year ...... , , , Weighted average NOTE 8 ACCUMULATED OTHER COMPREHENSIVE INCOME fair value of options . . . granted during the year...... The components of other comprehensive income are as follows: Unrealized Currency Gains on Minimum Translation Available-for-Sale Pension Adjustments Securities Liability Total ; Options exercisable at year end were (in thousands): - - ; and - . The weighted average exercise (in millions) price for options exercisable was per share and per share for year-end and , respectively. Exercise prices for options outstanding at year-end range from to . The weighted average remaining contractual life of these Balance at year end ...... () () () options is eight years. An additional , and ,, shares of common stock were available for grants at year- Unrealized gains on end and ,respectively.Under the restricted stock plan, at year-end , awards of , shares of restricted available-for-sale securities ...... ‒ () ‒ () common stock were outstanding. The restricted stock plan provided for a maximum of , shares of restricted Deferred taxes relating to unrealized gains common stock to be reserved for awards. Under this plan, at year-end , awards of , shares of restricted common on available-for-sale securities ...... ‒‒ stock were outstanding and an additional , shares were available for grants. Foreign currency translation adjustments...... ‒ ‒ Balance at year end ...... ()()()() Unrealized gains available-for-sale securities ...... ‒‒ The fair value of the options granted in , and was estimated on the date of grant using the Black-Scholes Deferred taxes relating to unrealized gains option pricing model with the following assumptions: on available-for-sale securities ...... ‒ () ‒ () Minimum pension liability...... ‒‒()() For the year 2000 1999 1998 Deferred taxes relating to minimum pension liability...... ‒‒ . . . Expected dividend yield...... % % % Deferred taxes relating relating to Expected stock price volatility...... . . . % % % foreign currency translation adjustment ...... ‒ ‒ Risk-free interest rate...... . . . % % % Balance at year end ...... () () () Expected life of options...... . years . years . years
Assuming that the company had accounted for its employee stock options using the fair value method and amortized such to expense over the options vesting period, pro forma net income and diluted earnings per share would have been million and . per diluted share in ; million and . per diluted share in ; and million and . per diluted share in . The pro forma disclosures may not be indicative of future amounts due to changes in subjective input assumptions and because the options vest over several years with additional future option grants expected. 48 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 49
NOTE 9 CONTINGENCIES The building products segment manufactures a variety The following table includes revenues and property and equipment based on the location of the operation: of building materials and manages the company’s timber There are pending against the company and its subsidiaries resources. The financial services segment operates a savings GEOGRAPHIC INFORMATION lawsuits, claims and environmental matters arising in the bank and engages in mortgage banking, real estate and 2000 1999 1998 regular course of business. insurance brokerage activities. All prior periods have been (in millions) restated to reflect the discontinued operations of the For the year In the opinion of management, recoveries and claims, if bleached paperboard operation. Revenues from external customers any, by plaintiffs or claimants resulting from the foregoing United States ...... , , , litigation will not have a material adverse effect on its These segments are managed as separate business units. The Canada...... operations or the financial position of the company. company evaluates performance based on operating income Mexico ...... before special charges, corporate expenses and income taxes. South America...... NOTE 10 SEGMENT INFORMATION Parent company interest expense is not allocated to the Total...... , , , business segments. The accounting policies of the segments The company has three reportable segments: paper, build- are the same as those described in the accounting policy notes At year end ing products and financial services. The paper segment to the financial statements. Corporate and other includes cor- Property and Equipment manufactures containerboard and corrugated packaging. porate expenses, special charges and discontinued operations. United States ...... , , , Canada...... Mexico ...... Corporate Building Financial and Other South America...... Paper Products Services Eliminations Total Total...... , , , (in millions)
For the year or at year end : Revenues from external customers...... , , ‒ , Depreciation, depletion and amortization...... Operating income ...... ()(a) Financial Services net interest income...... –– – Total assets ...... , , , , Investment in equity method investees ...... – Capital expenditures......
For the year or at year end : Revenues from external customers...... , , – , Depreciation, depletion and amortization...... Operating income ...... () Financial Services net interest income...... –– – Total assets ...... , , , , Investment in equity method investees ...... – Capital expenditures......
For the year or at year end : Revenues from external customers...... , , – , Depreciation, depletion and amortization...... Operating income ...... ()(b) Financial Services net interest income...... –– – Total assets ...... , , , (c) , Investment in equity method investees ...... – Capital expenditures......
(a) Includes a special charge of million applicable to the building products segment. (b) Includes a special charge of million of which million applies to the paper segment and million applies to the building products segment. (c) Includes net assets of discontinued operations. 50 Temple-Inland 2000 Annual Report Financial Statements Financial Statements 2000 Annual Report Temple-Inland 51
NOTE 11 SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS
Selected quarterly financial results for the years and are summarized below. Quarterly financial results have Management has prepared and is responsible for the company’s financial statements, including the notes thereto. They been restated to reflect the reclassification of shipping and handling costs. have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates by management. All financial information in this annual report is consistent with that in the First Second Third Fourth Quarter Quarter Quarter Quarter financial statements. (in millions except per share amounts) The company maintains internal accounting control systems and related policies and procedures designed to provide 2000 reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management’s , , , , Total revenues...... authorization and properly recorded, and that accounting records may be relied upon for the preparation of financial Manufacturing net revenues...... statements and other financial information. The design, monitoring and revision of internal accounting control systems Manufacturing gross profit...... involve, among other things, management’s judgment with respect to the relative cost and expected benefits of specific Financial Services operating income control measures. The company also maintains an internal auditing function that evaluates and formally reports on the before taxes...... adequacy and effectiveness of internal accounting controls, policies and procedures. Income from continuing operations...... (a) Net income...... (a) The company’s financial statements have been examined by Ernst & Young LLP, independent auditors, who have Earnings per Share: expressed their opinion with respect to the fairness of the presentation of the statements. Basic: . . . . Income from continuing operations...... The Audit Committee of the Board of Directors, composed solely of outside directors, meets with the independent . . . . Net income ...... auditors and internal auditors to evaluate the effectiveness of the work performed by them in discharging their respective Diluted: responsibilities and to assure their independent and free access to the committee. Income from continuing operations...... . . . . Net income...... . . . .
1999 K ENNETH M. J ASTROW,II LOUIS R. BRILL , Total revenues...... Chairman and Chief Executive Officer Vice President, Chief Accounting Officer Manufacturing net revenues ...... Manufacturing gross profit ...... Financial Services operating income REPORT OF INDEPENDENT AUDITORS before taxes ...... To the Board of Directors and Shareholders of Temple-Inland Inc.: Income from continuing operations...... ()()() Discontinued operations...... We have audited the accompanying consolidated balance sheets of Temple-Inland Inc. and subsidiaries as of December () Net income...... , and January , , and the related consolidated statements of income, shareholders’ equity, and cash flows for Earnings per Share: each of the three years in the period ended December , . These financial statements are the responsibility of the Basic: company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. Income from continuing operations...... . . . . (.)(.)(.) . Discontinued operations ...... We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards . . (.) . Net income...... require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free Diluted: of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures . . . . Income from continuing operations...... in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made (.)(.)(.) . Discontinued operations ...... by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide . . (.) . Net income...... a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Temple-Inland Inc. and subsidiaries at December , and January , , and the consolidated results of their operations and their cash flows for each of the three years in the period ended December , , in conformity with accounting principles generally accepted in the United States.
Austin, Texas (a) Includes a $15 million special charge related to the discontinued fiber-cement operation. January , 52 Temple-Inland 2000 Annual Report Directors and Officers
BOARD OF DIRECTORS Charlotte Temple...... , Richard L. Reisenweber SHAREHOLDER INFORMATION Temple-Inland Inc. President, Temple Vineyards Vice President, Environmental Affairs Transfer Agent and Register () Audit Committee Larry E. Temple...... , , Scott Smith First Chicago Trust Company of New York () Management Development and Executive Washington Blvd. Compensation Committee Attorney Chief Information Officer Jersey City, New Jersey () Executive Committee ADVISORY DIRECTOR Leslie K. O’Neal .. () Corporate Governance Committee () Public Policy/Environmental Committee Secretary and Assistant General Counsel Paul M. Anderson Independent Auditors () Finance Committee Managing Director and Chief Executive Officer, David W. Turpin Ernst & Young LLP Broken Hill Proprietary Company, Ltd. Treasurer Austin, Texas Robert Cizik...... , , OFFICERS PAPER GROUP Annual Meeting Anthony M. Frank...... , , The annual meeting of shareholders of Temple-Inland Inc. will be held at South Temple Drive, Diboll, Texas, on Chairman, Belvedere Capital Partners, Inc. Kenneth M. Jastrow, II William B. Howes May , , at : a.m. CDT. Chairman and Chief Executive Officer Chairman and Chief Executive Officer, , James T. Hackett...... Inland Paperboard and Packaging, Inc. Stock Listing Chairman, President and William B. Howes Temple -Inland Inc. common stock is listed on the New York Stock Exchange and the Pacific Exchange under the ticker Chief Executive Officer, Ocean Energy, Inc. Executive Vice President Dale E. Stahl symbol TIN. President and Chief Operating Officer, , , , William B. Howes Harold C. Maxwell Inland Paperboard and Packaging, Inc. As of December there were shareholders of record of the Company’s common stock. Chairman and Chief Executive Officer, Executive Vice President Inland Paperboard and Packaging, Inc. Bart J. Doney Dividend Reinvestment Plan Kenneth R. Dubuque Executive Vice President, Packaging Group, Temple -Inland offers its shareholders a convenient and economical way to increase their investment in the Company’s , , Bobby R. Inman...... Group Vice President, Financial Services Inland Paperboard and Packaging, Inc. common stock through the purchase of additional shares with quarterly dividends and optional cash payments. Under Managing Director, Inman Ventures the Temple-Inland Inc. Dividend Reinvestment Plan, administered by First Chicago Trust Company of New York, Dale E. Stahl James C. Foxworthy Temple -Inland pays the brokerage fees and service charges, and the shareholder receives the benefit of larger quantity , , , , Kenneth M. Jastrow, II... Group Vice President, Paper Executive Vice President, Paperboard Group, purchases and optional free custodial services. For more information about the plan, contact First Chicago Trust -, .. . Chairman and Chief Executive Officer, Inland Paperboard and Packaging, Inc. Company of New York, Dividend Reinvestment Plans, P. O. Box , Jersey City, New Jersey, Temple-Inland Inc. Bart J. Doney Group Vice President, Packaging BUILDING PRODUCTS GROUP A copy of Temple-Inland Inc.’s annual report on Form -K, as filed with the Securities and Exchange Commission, James A. Johnson...... , will be sent without charge upon written request made to the Company’s Investor Relations Department. Chairman and Chief Executive Officer, James C. Foxworthy Harold C. Maxwell Johnson Capital Partners Group Vice President, Paperboard Chairman and Chief Executive Officer, Mailing Address Temple-Inland Forest Products Corporation Temple -Inland Inc. W. Allen Reed...... , Jack C. Sweeny P.O.Box President and Chief Executive Officer,General Group Vice President Jack C. Sweeny Austin, Texas . . Motors Investment Management Corporation Executive Vice President, Forest/Solid Wood Randall D. Levy Temple-Inland Forest Products Corporation , , Herbert A. Sklenar...... Chief Financial Officer Company Web Site Chairman Emeritus, FINANCIAL SERVICES GROUP Additional information regarding Temple-Inland may be obtained from Temple-Inland’s home page on the Internet, the Vulcan Materials Company M. Richard Warner address of which is http://www.temple-inland.com. Chief Administrative Officer Kenneth R. Dubuque , , Walter P. Stern...... President and Chief Executive Officer, Vice Chairman, Louis R. Brill Temple-Inland Financial Services Inc. Capital Group International, Inc. Vice President, Chief Accounting Officer
Arthur Temple III...... , Doyle R. Simons Chairman and Chief Executive Officer, Vice President, Administration Exeter Investment Company
<...... Turn this page for a detailed map of Temple-Inland’s facilities. TEMPLE-INLAND FACILITIES Corrugating Medium Consumer Packaging New Johnsonville, Tennessee Buena Park, California Corporate Headquarters Ontario, California CANADA Austin, Texas Gypsum Facing Sante Fe Springs, California () Newport, Indiana* (Crockett Container Corporation) Subsidiary Headquarters Harrington, Delaware Inland Paperboard and Packaging, Inc. Packaging Plants Indianapolis, Indiana () Indianapolis, Indiana Corrugated Packaging Leominster, Massachusetts Fort Smith, Arkansas () Linden, New Jersey Temple-Inland Forest Bell, California Rural Hall, North Carolina Products Corporation El Centro, California Diboll, Texas Ontario, California Financial Services Sante Fe Springs, Consumer Banking Regions Temple-Inland Financial Services Inc. California Central Valley of California Austin, Texas Tracy, California Southern California Wheat Ridge, Colorado Austin, Texas, and Adjacent Cities UNITED STATES Building Products Orlando, Florida Dallas, Texas, and Adjacent Cities Fiberboard Operation Rome, Georgia East Texas Diboll, Texas Chicago, Illinois Houston, Texas, and Crawfordsville, Indiana Adjacent Cities Gypsum Wallboard Operations Evansville, Indiana San Antonio, Texas, and West Memphis, Arkansas Garden City, Kansas Adjacent Cities Fletcher, Oklahoma Kansas City, Kansas McQueeney, Texas* Louisville, Kentucky Mortgage Banking Operations Cumberland City, Tennessee* Minden, Louisiana Alabama Minneapolis, Minnesota Arizona Lumber Operations Hattiesburg, Mississippi Arkansas Rome, Georgia St. Louis, Missouri California DeQuincy, Louisiana Milltown, New Jersey Colorado Buna, Texas Spotswood, New Jersey Florida Diboll, Texas Middletown, Ohio Georgia Pineland, Texas Streetsboro, Ohio Illinois MEXICO Biglerville, Pennsylvania Indiana Medium Density Gettysburg, Pennsylvania Louisiana Fiberboard Operations Hazleton, Pennsylvania Minnesota El Dorado, Arkansas* Lexington, South Carolina Nevada Clarion, Pennsylvania Rock Hill, South Carolina New Mexico
Mt. Jewett, Pennsylvania Ashland City, Tennessee New Jersey PUERTO RICO Pembroke, Ontario, Canada Elizabethon, Tennessee () New York Dallas, Texas Ohio Particleboard Operations Edinburg, Texas Oklahoma Monroeville, Alabama Petersburg, Virginia () Pennsylvania Hope, Arkansas Vega Alta, Puerto Rico South Dakota Thomson, Georgia Santiago, Chile Tennessee Mt. Jewett, Pennsylvania San Jose Iturbide, Texas Diboll, Texas Guanajuato, Mexico Utah CHILE Guadalajara, Wisconsin Paper Mills Jaliscao, Mexico
Linerboard Monterrey, Leon, Mexico LEGEND Ontario, California Los Mochis, Rome, Georgia Sinaloa, Mexico Paper Mills Maysville, Kentucky Packaging Plants Orange, Texas *( percent joint venture) Building Products
Financial Services P.O. Box 40 Austin Texas 78767 512. 434. 8000 www.temple-inland.com