e10vk
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
|
|
|
(Mark One)
|
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the Fiscal Year Ended January 3, 2009
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the Transition Period
From to
|
Commission File Number
001-08634
Temple-Inland Inc.
(Exact Name of Registrant as
Specified in its Charter)
|
|
|
Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
75-1903917
(I.R.S. Employer
Identification No.)
|
1300 MoPac Expressway South,
3rd
Floor
Austin, Texas 78746
(Address of principal executive
offices, including Zip code)
Registrants telephone number, including area code:
(512) 434-5800
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class
|
|
Name of Each Exchange On Which Registered
|
|
Common Stock, $1.00 Par Value per Share,
|
|
New York Stock Exchange
|
non-cumulative
|
|
|
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of
1934. Yes o No þ
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o
|
Indicate by check mark whether the registrant is a shell
company (as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the Common Stock held by
non-affiliates of the registrant, based on the closing sales
price of the Common Stock on the New York Stock Exchange on
June 28, 2008, was approximately $892 million. For
purposes of this computation, all officers, directors, and five
percent beneficial owners of the registrant (as indicated in
Item 12) are deemed to be affiliates. Such
determination should not be deemed an admission that such
directors, officers, or five percent beneficial owners are, in
fact, affiliates of the registrant.
As of February 19, 2009, there were 106,503,626 shares
of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Companys definitive proxy statement to be
prepared in connection with the 2009 Annual Meeting of
Shareholders are incorporated by reference into Part III of
this report.
PART I
Introduction
Temple-Inland Inc. is a Delaware corporation that was organized
in 1983. We manufacture corrugated packaging and building
products, which we report as separate operating segments. The
following chart presents our corporate structure at year-end
2008. It does not contain all our subsidiaries, many of which
are dormant or immaterial entities. A list of our subsidiaries
is filed as an exhibit to this Annual Report on
Form 10-K.
All subsidiaries shown are 100 percent owned by their
immediate parent company listed in the chart, unless indicated
otherwise.
Our principal executive offices are located at 1300 MoPac
Expressway South,
3rd Floor,
Austin, Texas 78746. Our telephone number is
(512) 434-5800.
Financial
Information
Financial information about our principal operating segments and
revenues by geographic areas are shown in our notes to financial
statements contained in Item 8, and revenues and unit sales
by product line are contained in Item 7 of this Annual
Report on
Form 10-K.
Narrative
Description of the Business
Corrugated Packaging. Our corrugated packaging
segment provided 82 percent of our 2008 consolidated net
revenues. Our vertically integrated corrugated packaging
operation includes:
|
|
|
|
|
seven mills, and
|
|
|
|
63 converting facilities.
|
We manufacture containerboard and convert it into a complete
line of corrugated packaging. We converted 87 percent of
the containerboard we manufactured in 2008, in combination with
containerboard we purchased from other producers, into
corrugated containers at our converting facilities. We sold the
remainder of the containerboard we produced in the domestic and
export markets. We routinely buy and sell various grades of
containerboard depending on our product mix.
1
Our nationwide network of converting facilities produces a wide
range of products from commodity brown boxes to intricate die
cut containers that can be printed with multi-color graphics.
Even though the corrugated packaging business is characterized
by commodity pricing, each order for each customer is a custom
order. Our corrugated packaging is sold to a variety of
customers in the food, paper, glass containers, chemical,
appliance, and plastics industries, among others. We also
manufacture bulk containers constructed of multi-wall corrugated
board for extra strength, which are used for bulk shipments of
various materials.
We serve over 9,800 corrugated packaging customers with 15,000
shipping destinations. We have no single customer to which sales
equal ten percent or more of consolidated revenues or the loss
of which would have a material adverse effect on our corrugated
packaging segment.
Sales of corrugated packaging track changing population patterns
and other demographics. Historically, there has been a
correlation between the demand for corrugated packaging and
orders for nondurable goods.
In July 2008, our Premier Boxboard Limited LLC joint venture
became a wholly-owned subsidiary when we purchased the remaining
50 percent interest from our partner. Premier produces
light-weight gypsum facing paper and corrugating medium at a
mill in Newport, Indiana. Late in 2008, we also began producing
white-top linerboard at this mill.
Building Products. Our building products
segment provided 18 percent of our 2008 consolidated net
revenues. We manufacture a wide range of building products,
including:
|
|
|
|
|
lumber,
|
|
|
|
gypsum wallboard,
|
|
|
|
particleboard,
|
|
|
|
medium density fiberboard (or MDF), and
|
|
|
|
fiberboard.
|
We sell building products throughout the continental United
States, with the majority of sales occurring in the southern
United States. We have no single customer to which sales equal
ten percent or more of consolidated revenues or the loss of
which would have a material adverse effect on our building
products segment. Most of our products are sold by account
managers and representatives to distributors, retailers, and
original equipment manufacturers. Sales of building products are
heavily dependent upon the level of residential housing
expenditures, including the repair and remodeling market, and
commercial real estate construction.
We also own a 50 percent interest in Del-Tin Fiber LLC, a
joint venture that produces MDF at a facility in El Dorado,
Arkansas.
In 2008, we permanently ceased production of hardboard siding at
our fiberboard plant in Diboll, Texas.
Raw
Materials
Wood fiber, in various forms, is the principal raw material we
use in manufacturing our products. In 2008, we purchased
approximately 45 percent of our virgin wood fiber
requirements pursuant to long-term fiber supply agreements, the
most significant of which were entered into in connection with
our timberland sale in 2007. Purchases under these agreements
are at market prices. The balance of our virgin wood fiber
requirements was purchased at market prices from numerous
landowners and other timber owners, as well as other producers
of wood by-products.
Linerboard and corrugating medium are the principal materials
used to make corrugated boxes. Our mills at Rome, Georgia and
Bogalusa, Louisiana, only manufacture linerboard. Our Ontario,
California; Maysville, Kentucky; and Orange, Texas, mills are
traditionally linerboard mills, but can also manufacture
corrugating medium. Our Newport, Indiana, mill manufactures
gypsum facing paper, corrugating medium, and white-top
linerboard. Our New Johnsonville, Tennessee, mill only
manufactures corrugating medium. The principal raw material used
by the Rome, Georgia; Orange, Texas; and Bogalusa, Louisiana,
mills is virgin wood fiber, but
2
each mill is also able to use recycled fiber for up to
17 percent of its fiber requirements. The Ontario,
California; Newport, Indiana; and Maysville, Kentucky, mills use
only recycled fiber. The mill at New Johnsonville, Tennessee,
uses a combination of virgin wood and recycled fiber.
In 2008, recycled fiber represented approximately
42 percent of the total fiber needs of our mill system. We
purchase recycled fiber at market prices on the open market from
numerous suppliers. We generally produce more linerboard and
less corrugating medium than is used by our converting
facilities. The deficit of corrugating medium is filled through
open market purchases
and/or
trades, and we sell any excess linerboard in the open market.
We obtain gypsum for our wallboard operation in Fletcher,
Oklahoma, from one outside source through a long-term purchase
contract at market prices. At our gypsum wallboard plants in
West Memphis, Arkansas, and Cumberland City, Tennessee,
synthetic gypsum is used as a raw material. Synthetic gypsum is
a by-product of coal-burning electrical power plants. We have a
long-term supply agreement for synthetic gypsum produced at a
Tennessee Valley Authority electrical plant located adjacent to
our Cumberland City plant. Synthetic gypsum acquired pursuant to
this agreement supplies all the synthetic gypsum required by our
Cumberland City and West Memphis plants. Our gypsum wallboard
plant in McQueeney, Texas, uses a combination of gypsum obtained
from its own quarry and synthetic gypsum.
We believe the sources outlined above will be sufficient to
supply our principal raw material needs for the foreseeable
future. The wood fiber market is difficult to predict and there
can be no assurance of the future direction of prices for virgin
wood or recycled fiber. It is likely that prices for wood fiber
will continue to fluctuate in the future.
Energy
Electricity and steam requirements at our manufacturing
facilities are either supplied by a local utility or generated
internally through the use of a variety of fuels, including
natural gas, fuel oil, coal, petroleum coke, tire derived fuel,
wood bark, and other waste products resulting from the
manufacturing process. By utilizing these waste products and
other wood by-products as a biomass fuel to generate electricity
and steam, we were able to generate approximately
84 percent of our energy requirements in 2008 at our mills
in Rome, Georgia; Bogalusa, Louisiana; and Orange, Texas. In
some cases where natural gas or fuel oil is used, our facilities
possess a dual capacity enabling the use of either fuel as a
source of energy.
The natural gas needed to run our natural gas fueled power
boilers, package boilers, and turbines is acquired pursuant to a
multiple vendor solicitation process that provides for the
purchase of gas, primarily on a firm basis with a few locations
on an interruptible basis, at rates favorable to spot market
rates. It is likely that prices of natural gas will continue to
fluctuate in the future. We hedge very little of our energy
costs.
3
Employees
We have approximately 11,000 employees, of which
approximately 4,650 are covered by collective bargaining
agreements. These agreements generally run for a term of three
to six years and have varying expiration dates. The following
table summarizes certain information about our principal
collective bargaining agreements:
|
|
|
|
|
|
|
|
|
|
|
Approximate Number of
|
|
|
Location
|
|
Bargaining Unit(s)
|
|
Employees Covered
|
|
Expiration Dates
|
|
Linerboard Mill,
Orange, Texas
|
|
United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy,
Allied Industrial and
Service Workers International Union (or
USW), Local 1398, and USW, Local 391
|
|
198 hourly production employees and 90 hourly
maintenance employees
|
|
July 31, 2008
|
Linerboard Mill,
Bogalusa, Louisiana
|
|
USW, Local 189, and International
Brotherhood of Electrical Workers (or
IBEW), Local 1077
|
|
222 hourly production employees
and 102 hourly
maintenance employees
|
|
July 31, 2009
|
Linerboard Mill,
Rome, Georgia
|
|
USW, Local 804, IBEW, Local 613, United
Association of Journeymen &
Apprentices of the Plumbing &
Pipefitting Industry Local 72, and
International Association of Machinists & Aerospace
Workers,
Local 414
|
|
244 hourly production employees, 24 electrical maintenance
employees,
25 pipefitter
maintenance employees, and 58 mechanical maintenance employees
|
|
August 31, 2010
|
Evansville, Indiana
and Middletown,
Ohio, Box Plants
(or Northern
Multiple)
|
|
USW, Local 1046 and USW, Local 114,
respectively
|
|
77 and 78 hourly production and
maintenance employees,
respectively
|
|
April 30, 2011
|
Paper Mill,
Newport, Indiana
|
|
USW, Local 7-154
|
|
32 hourly maintenance employees
and 77 hourly production
employees
|
|
July 14, 2010
|
We are currently negotiating a new contract for the Orange,
Texas mill and expect the union will vote on the contract in
first quarter 2009. We have additional collective bargaining
agreements with employees at various other manufacturing
facilities. These agreements each cover a relatively small
number of employees and are negotiated on an individual basis at
each such facility.
We consider our relations with our employees to be good.
Environmental
Protection
We are committed to protecting the health and welfare of our
employees, the public, and the environment and strive to
maintain compliance with all state and federal environmental
regulations in a manner that is also cost effective. When we
construct new facilities or modernize existing facilities, we
generally use best
4
available technology for air and water emissions. This
forward-looking approach is intended to minimize the effect that
changing regulations have on capital expenditures for
environmental compliance.
Our operations are subject to federal, state, and local
provisions regulating discharges into the environment and
otherwise related to the protection of the environment.
Compliance with these provisions, primarily the Federal Clean
Air Act, Clean Water Act, Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (or CERCLA), as amended
by the Superfund Amendments and Reauthorization Act of 1986 (or
SARA), and Resource Conservation and Recovery Act (or RCRA),
requires us to invest substantial funds to modify facilities to
assure compliance with applicable environmental regulations.
Capital expenditures directly related to environmental
compliance totaled $10 million in 2008. This amount does
not include capital expenditures for environmental control
facilities made as a part of major mill modernizations and
expansions or capital expenditures made for another purpose that
have an indirect benefit on environmental compliance.
Future expenditures for environmental control facilities will
depend on new laws and regulations and other changes in legal
requirements and agency interpretations thereof, as well as
technological advances. We expect the prominence of
environmental regulation and compliance to continue for the
foreseeable future. Given these uncertainties, we currently
estimate that capital expenditures for environmental purposes,
excluding expenditures related to the Maximum Achievable Control
Technology (or MACT) programs and landfill closures discussed
below, will be $9 million in 2009, $7 million in 2010,
and $9 million in 2011. The estimated expenditures could be
significantly higher if more stringent laws and regulations are
implemented.
The U.S. Environmental Protection Agency (or EPA) has
issued extensive regulations governing air and water emissions
from the forest products industry. Compliance with these MACT
regulations will be required as they become enacted.
On September 13, 2004, EPA published the Boiler MACT
regulations affecting industrial boilers and process heaters
burning all fuel types with the exception of small gas-fired
units. On July 30, 2007, the U.S. Court of Appeals for
the D.C. Circuit remanded and vacated the Boiler MACT. In order
to gauge our liability accurately regarding future related
regulations, we continue to monitor and are actively engaged in
the process the EPA is undertaking to develop new standards for
industrial boilers and process heaters.
The Plywood and Composite Wood Panel (or PCWP) MACT standards
were published July 30, 2004. Compliance with PCWP MACT was
required by October 1, 2008. We have 12 building products
facilities affected by the regulation, all of which are now in
compliance. Capital expenditures to comply with PCWP MACT were
approximately $6 million, of which we spent $3 million
in 2008.
We own landfills used for disposal of non-hazardous waste at
four containerboard mills and two building products facilities.
Based on third-party cost estimates, we expect to spend, on an
undiscounted basis, $23 million over the next 25 years
to ensure proper closure of these landfills. We also have two
additional sites that we are remediating. We expect to spend, on
an undiscounted basis, $6 million for the remediation of
these two sites, for which we have established a reserve.
In 2007, we began work with environmental consultants and the
Louisiana Department of Environmental Quality (DEQ) at one of
the remediation sites to identify and remediate the source of
contaminated water discovered in a manhole adjacent to our
facility in Bogalusa, Louisiana. Our investigation report,
including a final remediation plan, was approved by the
Louisiana DEQ in December 2007. We incurred $12 million in
costs to complete this project, which is subject to a continuing
obligation to treat within the mills effluent treatment
system any contaminated groundwater captured by the system
installed pursuant to the project. The amount of these ongoing
expenditures is not significant.
In addition to the expenditures discussed above, we incur
significant expenditures for maintenance costs to continue
compliance with environmental regulations. We do not believe,
however, that these costs will have a material adverse effect on
our earnings. In addition, expenditures for environmental
compliance should not have a material effect on our competitive
position because our competitors are also subject to these
regulations.
Our facilities are periodically inspected by environmental
authorities. We are required to file with these authorities
periodic reports on the discharge of pollutants. Occasionally,
one or more of these facilities may
5
operate in violation of applicable pollution control standards,
which could subject the company to fines or penalties. We
believe that any fines or penalties that may be imposed as a
result of these violations will not have a material adverse
effect on our earnings or competitive position. No assurance can
be given, however, that any fines levied in the future for any
such violations will not be material.
Under CERCLA, liability for the cleanup of a Superfund site may
be imposed on waste generators, site owners and operators, and
others regardless of fault or the legality of the original waste
disposal activity. While joint and several liability is
authorized under CERCLA, as a practical matter, the cost of
cleanup is generally allocated among the many waste generators.
We are named as a potentially responsible party in seven
proceedings relating to the cleanup of hazardous waste sites
under CERCLA and similar state laws, excluding sites for which
our records disclose no involvement or for which our potential
liability has been finally determined. In all but one of these
sites, we are either designated as a de minimus potentially
responsible party or believe our financial exposure is
insignificant. We have conducted investigations of all seven
sites, and currently estimate that the remediation costs to be
allocated to us are about $2 million and should not have a
material effect on our earnings or competitive position. There
can be no assurance that we will not be named as a potentially
responsible party at additional Superfund sites in the future or
that the costs associated with the remediation of those sites
would not be material.
Climate
Change
There is an increasing likelihood that our manufacturing sites
could be affected in some way over the next few years by
regulation or taxation of greenhouse gas, or GHG, emissions.
Although the U.S. is not a signatory to the Kyoto Protocol
to the United Nations Framework Convention on Climate Change,
several states, including California, are implementing their own
GHG regulatory programs, and a federal program in the
U.S. is a possibility for the future. Several of our sites
are subject to existing GHG legislation, but few have
experienced or anticipate significant cost increases as a
result, although it is likely that GHG emission restrictions
will increase over time. Potential consequences of such
restrictions include capital requirements to modify assets used
to meet GHG restriction and increases in energy costs above the
level of general inflation, as well as direct compliance costs.
Currently, however, it is not possible to estimate the likely
financial impact of potential future GHG regulation on any of
our sites.
Climate change also presents our operations with certain
opportunities. As discussed above, many of our facilities use
biomass fuels to produce electricity to power the facilities.
The Texas Legislature passed legislation in 2007 that authorizes
grants to new facilities that use biomass to generate electrical
energy. Legislation currently pending would extend grants to
existing biomass plants. Other state and federal legislation
could provide similar benefits for facilities that use biomass
to generate electrical energy.
Competition
We operate in highly competitive industries. The commodity
nature of our manufactured products gives us little control over
market pricing or market demand for our products. The level of
competition in a given product or market may be affected by
economic factors, including production of nondurable goods,
interest rates, housing starts, home repair and remodeling
activities, and the strength of the dollar, as well as other
market factors including supply and demand for these products,
geographic location, and the operating efficiencies of
competitors. Our competitive position is influenced by varying
factors depending on the characteristics of the products
involved. The primary factors are product quality and
performance, price, service, and product innovation.
The corrugated packaging industry is highly competitive with
over 1,300 box plants in the United States. Our box plants
accounted for approximately 12.8 percent of total industry
shipments in 2008, making us the third largest producer of
corrugated packaging in the United States. Although corrugated
packaging is dominant in the national distribution process, our
products also compete with various other packaging materials,
including products made of paper, plastics, wood, and metals.
In building products markets, we compete with many companies
that are substantially larger and have greater resources in the
manufacturing of building products.
6
Executive
Officers of the Registrant
The names, ages, and titles of our executive officers are:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Office
|
|
Doyle R. Simons
|
|
|
45
|
|
|
Chairman of the Board and Chief Executive Officer
|
J. Patrick Maley III
|
|
|
47
|
|
|
President and Chief Operating Officer
|
Jack C. Sweeny
|
|
|
62
|
|
|
Group Vice President
|
Larry C. Norton
|
|
|
49
|
|
|
Group Vice President
|
Dennis J. Vesci
|
|
|
61
|
|
|
Group Vice President
|
Randall D. Levy
|
|
|
57
|
|
|
Chief Financial Officer and Treasurer
|
J. Bradley Johnston
|
|
|
53
|
|
|
Chief Administrative Officer
|
C. Morris Davis
|
|
|
66
|
|
|
General Counsel
|
Scott Smith
|
|
|
54
|
|
|
Chief Information Officer
|
Grant F. Adamson
|
|
|
50
|
|
|
Chief Governance Officer
|
Leslie K. ONeal
|
|
|
53
|
|
|
Vice President, Assistant General Counsel and Secretary
|
Carolyn C. Sloan
|
|
|
48
|
|
|
Vice President, Internal Audit
|
Troy L. Hester
|
|
|
52
|
|
|
Principal Accounting Officer and Corporate Controller
|
Doyle R. Simons became Chairman of the Board and Chief Executive
Officer on December 29, 2007. He was previously named
Executive Vice President in February 2005 following his service
as Chief Administrative Officer since November 2003. Since
joining the Company in 1992, Mr. Simons has served as Vice
President, Administration from November 2000 to November 2003
and Director of Investor Relations from 1994 through 2000.
J. Patrick Maley III became President and Chief
Operating Officer on December 29, 2007. He was previously
named Executive Vice President Paper in November
2004 following his appointment as Group Vice President in May
2003. Prior to joining the Company, Mr. Maley served in
various capacities from 1992 to 2003 at International Paper.
Jack C. Sweeny became Group Vice President in May 1996. Since
November 1982, Mr. Sweeny has served in various capacities
in our building products segment.
Larry C. Norton joined the Company as Vice President in May 2007
and became Group Vice President in May 2008. Prior to joining
the Company, Mr. Norton was at International Paper, which
he joined in 1981, serving most recently as Vice President,
Manufacturing, Printing & Communications Paper.
Dennis J. Vesci became Group Vice President in August 2005.
Mr. Vesci joined the Company in 1975 and has served as an
officer of our corrugated packaging segment since 1998.
Randall D. Levy became Chief Financial Officer in May 1999 and
was named Treasurer in November 2008. Mr. Levy joined the
Company in 1989 serving in various capacities in our former
financial services segment before being named Chief Financial
Officer.
J. Bradley Johnston became Chief Administrative Officer in
February 2005. Prior to that, Mr. Johnston served as
General Counsel from August 2002 through May 2006 and in various
capacities in our former financial services segment since 1993.
C. Morris Davis became General Counsel in May 2006.
Mr. Davis joined Temple-Inland after 39 years with the
law firm of McGinnis, Lochridge & Kilgore in Austin,
where he served seven years as the firms managing partner.
Scott Smith became Chief Information Officer in February 2000.
Prior to that, Mr. Smith served in various capacities
within our former financial services segment since 1988.
Grant F. Adamson became Chief Governance Officer in May 2006.
Mr. Adamson joined the Company in 1991 and has served in
various capacities including Assistant General Counsel.
7
Leslie K. ONeal was named Vice President in August 2002
and became Secretary in February 2000 after serving as Assistant
Secretary since 1995. Ms. ONeal also serves as
Assistant General Counsel, a position she has held since 1985.
Carolyn C. Sloan was named Vice President, Internal Audit, in
August 2005. Ms. Sloan joined the Company in 2001 as
Director, Internal Audit.
Troy L. Hester was named Principal Accounting Officer in August
2006. Mr. Hester has been with Temple-Inland since 1999 and
has served in various capacities including Controller-Financial
Services, Vice President Accounting Center, and was named
Corporate Controller in May 2006.
The Board of Directors annually elects officers to serve until
their successors have been elected and have qualified or as
otherwise provided in our Bylaws.
Available
Information
From our Internet website,
http://www.templeinland.com,
you may obtain additional information about us including:
|
|
|
|
|
our annual reports on
Form 10-K,
quarterly reports on Form
10-Q,
current reports on
Form 8-K,
including amendments to these reports, and other documents as
soon as reasonably practicable after we file them with the
Securities and Exchange Commission (or SEC);
|
|
|
|
beneficial ownership reports filed by officers, directors, and
principal security holders under Section 16(a) of the
Securities Exchange Act of 1934, as amended (or the Exchange
Act); and
|
|
|
|
corporate governance information that includes our
|
|
|
|
|
|
corporate governance principles,
|
|
|
|
audit committee charter,
|
|
|
|
management development and executive compensation committee
charter,
|
|
|
|
nominating and governance committee charter,
|
|
|
|
standards of business conduct and ethics,
|
|
|
|
code of ethics for senior financial officers, and
|
|
|
|
information on how to communicate directly with our board of
directors.
|
We will also provide printed copies of any of these documents to
any shareholder upon request. In addition, the materials we file
with the SEC may be read and copied at the SECs Public
Reference Room at 100 F Street, NE, Washington, DC
20549. Information about the operation of the Public Reference
Room is available by calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet site
(http://www.sec.gov)
that contains reports, proxy and information statements, and
other information that is filed electronically with the SEC.
The
business segments in which we operate are highly
competitive.
The business segments in which we operate are highly competitive
and are affected to varying degrees by supply and demand factors
and economic conditions, including changes in production of
nondurable goods, interest rates, new housing starts, home
repair and remodeling activities, and the strength of the
U.S. dollar. Given the commodity nature of our manufactured
products, we have little control over market pricing or market
demand. No single company is dominant in any of our industries.
Our corrugated packaging competitors include large,
vertically-integrated paperboard and packaging products
companies and numerous smaller companies. Because these products
are globally traded commodities, the industries in which we
compete are particularly sensitive to price fluctuations as well
as other factors,
8
including innovation, design, quality, and service, with varying
emphasis on these factors depending on the product line. To the
extent that one or more of our competitors become more
successful with respect to any key competitive factor, our
business could be materially adversely affected. Although
corrugated packaging is dominant in the national distribution
process, our products also compete with various other packaging
materials, including products made of paper, plastics, wood, and
various types of metal.
In the building products markets, we compete with many companies
that are substantially larger and have greater resources in the
manufacturing of building products.
The
profitability of our business is affected by changes in raw
material and other costs.
Virgin wood fiber and recycled fiber are the principal raw
materials we use to manufacture corrugated packaging and certain
of our building products. We purchase virgin wood fiber in
highly competitive, price sensitive markets. The price for wood
fiber has historically fluctuated on a cyclical basis and has
often depended on a variety of factors over which we have no
control, including environmental and conservation regulations,
natural disasters, the price and level of imported timber and
the continuation of any applicable tariffs, and weather. In
addition, an increase in demand for old corrugated containers,
especially from China, may cause a significant increase over
time in the cost of recycled fiber used in the manufacture of
recycled containerboard and related products. Such costs are
likely to continue to fluctuate.
In addition, we rely on suppliers under long-term fiber supply
contracts for a significant portion of our virgin fiber
requirements. While we have not experienced any significant
difficulty in obtaining virgin wood fiber and recycled fiber in
economic proximity to our facilities, if the parties under our
long-term fiber supply agreements were unable to perform, this
may not continue to be the case for any or all of our
facilities. Any such supply disruption could negatively affect
our cost of virgin fiber.
Changes in the prices of energy and transportation can have a
significant effect on our profitability. While we have attempted
to contain energy costs through internal generation and in some
instances the use of by-products from our manufacturing
processes as fuel, these efforts only relate to a portion of our
energy usage. No assurance can be given that such efforts will
be successful in the future or that energy prices will not rise
to levels that would have a material adverse effect on our
results of operations despite these efforts. We hedge very
little of our energy needs.
The
corrugated packaging and building products industries are
cyclical in nature and experience periods of
overcapacity.
The operating results of our corrugated packaging and building
products segments reflect each such industrys general
cyclical pattern. While the cycles of each industry do not
historically coincide, demand and prices in each historically
tend to drop in an economic downturn. The building products
industry is further influenced by the residential construction
and remodeling markets. Further, each industry periodically
experiences substantial overcapacity. Both industries are
capital intensive, which leads to high fixed costs and
historically results in continued production as long as prices
are sufficient to cover marginal costs. These conditions have
contributed to substantial price competition and volatility in
these industries, even when demand is strong. Any increased
production by our competitors could depress prices for our
products. From time to time, we have closed certain of our
facilities or have taken downtime in order to match our
production with the demand for our products and may continue to
do so, thereby reducing our total production levels. Certain of
our competitors have also temporarily closed or reduced
production at their facilities, but can reopen
and/or
increase production capacity at any time, which could exacerbate
overcapacity in these industries and depress prices.
We are
subject to environmental regulations and liabilities that could
have a negative effect on our operating results.
We are subject to federal, state, and local provisions
regulating the discharge of materials into the environment and
otherwise related to the protection of the environment.
Compliance with these provisions has required us to invest
substantial funds to modify facilities to ensure compliance with
applicable environmental
9
regulations. In other sections of this Annual Report on
Form 10-K,
we provide certain estimates of expenditures we expect to make
for environmental compliance in the next few years. However, we
could incur additional significant expenditures due to changes
in law or the discovery of new information, and such
expenditures could have a material adverse effect on our
financial condition, cash flows, and results of operations. In
addition, we are subject to litigation filed by private parties
alleging injury due to environmental exposures in or near our
facilities.
Further
downward changes in demand for housing in the market regions
where we operate could decrease profitability in our building
products segment.
The residential homebuilding industry is sensitive to changes in
economic conditions, including interest rates, foreclosure
rates, and availability of financing. Further adverse changes in
these conditions generally, or in the market regions where we
operate, could further decrease demand for new homes in these
areas. Additional declines in housing demand could result in
lower pricing and demand for many of our building products,
particularly lumber and gypsum wallboard, which could have
increased negative effects on our revenues and earnings.
Current
conditions in financial markets could have adverse consequences
on our ability to finance our operations.
Current conditions in financial markets, which include the
bankruptcy and restructuring of certain financial institutions,
could affect financial institutions with which we have
relationships and result in adverse effects on our ability to
finance our operations. The possible effects of these conditions
would include the possibility that a lender under our existing
credit facilities may be unwilling or unable to fund a borrowing
request, and we may not be able to replace any such lender. In
addition, financial market conditions could have a negative
effect on the ability of customers, suppliers, and others to
conduct business with us on a normal basis.
If
certain internal restructuring transactions and the
distributions of Forestar and Guaranty are determined to be
taxable for U.S. federal income tax purposes, we and our
stockholders that are subject to U.S. federal income tax could
incur significant U.S. federal income tax
liabilities.
At the end of 2007, we spun off two subsidiaries, Forestar Group
Inc. and Guaranty Financial Group Inc., and entered into certain
internal restructuring transactions in preparation for the
spin-offs. We received a private letter ruling from the IRS and
opinions of tax counsel regarding the tax-free nature of these
transactions and the distributions. The ruling and opinions rely
on certain facts, assumptions, representations, and undertakings
from us regarding the past and future conduct of our businesses
and other matters. If any of these are incorrect or not
otherwise satisfied, then we and our stockholders may not be
able to rely on the ruling or opinions and could be subject to
significant tax liabilities. Notwithstanding the ruling and
opinions, the IRS could determine on audit that the
distributions or the internal restructuring transactions should
be treated as taxable transactions if it determines that any of
these facts, assumptions, representations, or undertakings are
not correct or have been violated, or if the distributions
should become taxable for other reasons, including as a result
of significant changes in stock ownership after the
distribution. If the IRS were to make any such determination, we
could incur significant tax liabilities.
If the
sale of our strategic timberland did not qualify for installment
method reporting for U.S. federal income tax purposes, we could
be required to fund significant U.S. federal income tax
liabilities the payment of which we believe to be
deferred.
We sold our strategic timberland in a manner intended for
U.S. federal income tax purposes to defer recognition of a
substantial portion of the gain on the sale. Under the
installment method, we will not be required to pay
U.S. federal income taxes on the deferred gain until we are
required to recognize the gain. We received opinions of tax
counsel regarding the timberland sale and the deferred gain. The
opinions rely on certain facts, assumptions, representations,
and undertakings from us regarding the past and future conduct
of our businesses and other matters. If any of these are
incorrect or not otherwise satisfied, then we may not be able to
rely on the opinions. Notwithstanding the opinions, the IRS
could determine on audit that the gain does not qualify for
deferral if it determines that any of these facts, assumptions,
representations, or
10
undertakings are not correct or have been violated or that the
transaction otherwise does not qualify for the installment
method. In any such event, we could incur significant tax
liabilities.
If the
credit ratings of a bank issuing letters of credit in our
timberland financing transaction are lowered below designated
levels and we failed to secure substitute letter of credit
issuers, we could be required to fund significant U.S. federal
income tax liabilities the payment of which we believe to be
deferred.
The financial assets of special purpose entities relate to the
sale of our strategic timberlands in 2007 and are secured by
letters of credit issued by four banks. The letters of credit
are secured by the purchasers long-term cash deposits with
the banks. The letter of credit issuers are required to maintain
a credit rating on their long-term unsecured debt of at least A+
by Standard and Poors Rating Services, a division of
McGraw-Hill, Inc., and A1 by Moodys Investor Services,
Inc. If a credit rating of any of these banks were downgraded
below this level, the bank must be replaced with another
qualifying financial institution. The credit ratings of all the
participating banks are currently at or above the designated
level. If a credit rating of one of the participating banks were
downgraded below the designated level and following the
downgrade a qualifying financial institution could not be
substituted (which would be referred to as a failed
substitution), it is possible that a portion of the deferred
taxes from the gain on the sale of our timberlands would become
currently payable. If there were a second failed substitution,
it is possible that the remaining deferred taxes from the gain
on the sale of our timberlands would become currently payable.
Any required payment of deferred taxes would be net of available
alternative minimum tax credits.
We
have interest rate risk in connection with our financial assets
and nonrecourse financial liabilities of special purpose
entities.
In October 2007, we received $2.38 billion in notes due in
2027 from the sale of our strategic timberland, which we later
contributed to two wholly-owned, bankruptcy-remote special
purpose entities. In December 2007, the special purpose entities
pledged the notes as collateral for $2.14 billion
nonrecourse loans payable in 2027. Both the notes and the
borrowings require quarterly interest payments based on variable
interest rates. Interest rates on the notes are based on LIBOR
and reset quarterly. Interest rates on the borrowings reflect
the lenders pooled commercial paper issuances and reset
daily. Because of the differences in reference rates, margins,
and reset dates, there could be periods in which the interest
paid on the nonrecourse financial liabilities is significantly
more than the interest received on the financial assets.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We own and operate manufacturing facilities throughout the
United States, four converting plants in Mexico, and one in
Puerto Rico. We believe our manufacturing facilities are
suitable for their purposes and adequate for our business.
Additional information about selected facilities by business
segment follows:
Paperboard
Mills
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Annual
|
|
|
2008
|
|
Location
|
|
Product
|
|
Machines
|
|
|
Capacity
|
|
|
Production
|
|
|
|
|
|
|
|
|
(In tons)
|
|
|
Ontario, California
|
|
Linerboard and corrugating medium
|
|
|
1
|
|
|
|
332,100
|
|
|
|
308,908
|
|
Rome, Georgia
|
|
Linerboard
|
|
|
2
|
|
|
|
894,250
|
|
|
|
863,493
|
|
Orange, Texas
|
|
Linerboard and corrugating medium
|
|
|
2
|
|
|
|
757,375
|
|
|
|
681,809
|
|
Bogalusa, Louisiana
|
|
Linerboard
|
|
|
2
|
|
|
|
912,500
|
|
|
|
860,001
|
|
Maysville, Kentucky
|
|
Linerboard and corrugating medium
|
|
|
1
|
|
|
|
535,050
|
|
|
|
517,593
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Annual
|
|
|
2008
|
|
Location
|
|
Product
|
|
Machines
|
|
|
Capacity
|
|
|
Production
|
|
|
|
|
|
|
|
|
(In tons)
|
|
|
New Johnsonville, Tennessee
|
|
Corrugating medium
|
|
|
1
|
|
|
|
378,225
|
|
|
|
363,682
|
|
Newport, Indiana*
|
|
Corrugating medium, linerboard,
and gypsum facing paper
|
|
|
1
|
|
|
|
339,480
|
|
|
|
291,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,148,980
|
|
|
|
3,887,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The table shows the full capacity and production of this
facility, which was owned by a joint venture in which we owned a
50 percent interest until July 2008 when it became
wholly-owned. |
Converting
Facilities*
|
|
|
|
|
Corrugator
|
Location
|
|
Size
|
|
Phoenix, Arizona
|
|
98
|
Fort Smith, Arkansas
|
|
87
|
Fort Smith,
Arkansas(1)***
|
|
None
|
Bell, California
|
|
98
|
Buena Park,
California(1)
|
|
85
|
El Centro,
California(1)
|
|
87
|
Gilroy,
California(1)
|
|
87
|
Gilroy,
California(1)***
|
|
98
|
Ontario, California
|
|
87
|
Santa Fe Springs, California
|
|
98
|
Santa Fe Springs,
California(1)**
|
|
87 and 85
|
Santa Fe Springs,
California(1)***
|
|
None
|
Tracy, California
|
|
110
|
Union City,
California(1)***
|
|
None
|
Wheat Ridge, Colorado
|
|
87
|
Orlando, Florida
|
|
98
|
Tampa,
Florida(1)
|
|
78
|
Carol Stream, Illinois
|
|
87
|
Chicago, Illinois
|
|
87
|
Chicago,
Illinois(1)***
|
|
None
|
Elgin, Illinois
|
|
78
|
Elgin, Illinois***
|
|
None
|
Crawfordsville, Indiana
|
|
98
|
Evansville, Indiana
|
|
98
|
Indianapolis, Indiana
|
|
87
|
Indianapolis, Indiana***
|
|
None
|
St. Anthony, Indiana***
|
|
None
|
Tipton, Indiana***
|
|
110
|
Garden City, Kansas
|
|
98
|
Kansas City, Kansas
|
|
87
|
Bogalusa, Louisiana
|
|
98
|
Minden, Louisiana
|
|
98
|
Minneapolis, Minnesota
|
|
87
|
St. Louis, Missouri
|
|
87
|
St. Louis,
Missouri***
|
|
98
|
12
|
|
|
|
|
Corrugator
|
Location
|
|
Size
|
|
Milltown, New
Jersey(1)***
|
|
None
|
Spotswood, New Jersey
|
|
98
|
Binghamton, New York
|
|
87
|
Buffalo, New York***
|
|
None
|
Scotia, New
York***
|
|
None
|
Utica, New
York***
|
|
None
|
Warren County, North Carolina
|
|
98
|
Madison,
Ohio***
|
|
None
|
Marion, Ohio
|
|
87
|
Middletown, Ohio
|
|
98
|
Streetsboro, Ohio
|
|
98
|
Biglerville, Pennsylvania
|
|
98
|
Hazleton, Pennsylvania
|
|
98
|
Littlestown, Pennsylvania***
|
|
None
|
Scranton, Pennsylvania
|
|
68
|
Vega Alta, Puerto Rico
|
|
87
|
Lexington, South Carolina
|
|
98
|
Ashland City,
Tennessee(1)***
|
|
None
|
Elizabethton,
Tennessee(1)***
|
|
None
|
Dallas, Texas
|
|
98
|
Edinburg, Texas
|
|
87
|
San Antonio, Texas
|
|
98
|
San Antonio, Texas***
|
|
98
|
Petersburg, Virginia
|
|
87
|
San Jose Iturbide, Mexico
|
|
98
|
Monterrey, Mexico
|
|
87
|
Los Mochis, Sinaloa, Mexico
|
|
87
|
Guadalajara,
Mexico(1)***
|
|
None
|
|
|
|
* |
|
The annual capacity of the converting facilities is a function
of the product mix, customer requirements and the type of
converting equipment installed and operating at each plant, each
of which varies from time to time. |
|
** |
|
These plants each contain more than one corrugator. |
|
*** |
|
Sheet or sheet feeder plants. |
Additionally, we own a graphics resource center in Indianapolis,
Indiana, that has a 100 preprint press. We lease 42
warehouses located throughout much of the United States.
13
Building
Products
|
|
|
|
|
|
|
|
|
|
|
Rated Annual
|
|
Description
|
|
Location
|
|
Capacity
|
|
|
|
|
|
(In millions of
|
|
|
|
|
|
board feet)
|
|
|
Lumber
|
|
Diboll, Texas
|
|
|
199
|
*
|
Lumber
|
|
Pineland, Texas
|
|
|
310
|
**
|
Lumber
|
|
Buna, Texas
|
|
|
198
|
|
Lumber
|
|
Rome, Georgia
|
|
|
165
|
|
Lumber
|
|
DeQuincy, Louisiana
|
|
|
198
|
|
|
|
|
|
|
|
|
Total lumber
|
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes separate finger jointing capacity of 20 million
board feet. |
|
** |
|
Includes separate stud mill capacity of 110 million board
feet. |
|
|
|
|
|
|
|
|
|
|
|
Rated Annual
|
|
Description
|
|
Location
|
|
Capacity
|
|
|
|
|
|
(In millions of
|
|
|
|
|
|
square feet)
|
|
|
Gypsum Wallboard
|
|
West Memphis, Arkansas
|
|
|
440
|
|
Gypsum Wallboard
|
|
Fletcher, Oklahoma
|
|
|
460
|
|
Gypsum Wallboard
|
|
McQueeney, Texas
|
|
|
400
|
|
Gypsum Wallboard
|
|
Cumberland City, Tennessee
|
|
|
800
|
|
|
|
|
|
|
|
|
Total gypsum wallboard
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
Particleboard
|
|
Monroeville, Alabama
|
|
|
160
|
|
Particleboard
|
|
Thomson, Georgia
|
|
|
160
|
|
Particleboard
|
|
Diboll, Texas
|
|
|
160
|
|
Particleboard
|
|
Hope, Arkansas
|
|
|
200
|
|
|
|
|
|
|
|
|
Total particleboard
|
|
|
|
|
680
|
|
|
|
|
|
|
|
|
MDF*
|
|
El Dorado, Arkansas
|
|
|
160
|
|
MDF(1)
|
|
Mt. Jewett, Pennsylvania
|
|
|
140
|
|
|
|
|
|
|
|
|
Total MDF
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
Fiberboard**
|
|
Diboll, Texas
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The table shows the full capacity of this facility that is owned
by a joint venture in which we own a 50 percent interest. |
|
** |
|
Excludes capacity for hardboard siding, which we ceased
producing in 2008. |
|
(1) |
|
Leased facilities. |
Other
We occupy approximately 190,000 square feet of leased
office space in Austin, Texas. We own and occupy a
150,000 square feet office building in Diboll, Texas.
At year-end 2008, property and equipment having a net book value
of less than $1 million were subject to liens in connection
with $5 million of debt.
|
|
Item 3.
|
Legal
Proceedings
|
General
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business. We
believe that adequate reserves have been established for any
probable losses and that the outcome
14
of any of these proceedings should not have a material adverse
effect on our financial position or long-term results of
operations or cash flows. It is possible, however, that charges
related to these matters could be significant to results of
operations or cash flows in any single accounting period. A
summary of our more significant legal matters is set forth below.
Bogalusa
Litigation
On October 15, 2003, a release of nitrogen dioxide and
nitrogen oxide took place at our linerboard mill in Bogalusa,
Louisiana. The mill followed appropriate protocols for handling
this type of event, notifying the Louisiana Department of
Environmental Quality, the U.S. Environmental Protection
Agency, and local law enforcement officials. The federal and
state environmental agencies have analyzed the reports we
prepared and have not indicated that they will take any action
against us.
To date, we have been served with 11 lawsuits seeking damages
for various personal injuries allegedly caused by either
exposure to the released gas or fears of exposure. These 11
lawsuits have been consolidated under Louisiana state rules for
purpose of discovery and are expected to be set for trial in
third quarter 2009. We are vigorously defending against these
allegations.
Asbestos
We are a defendant in various lawsuits involving alleged
workplace exposure to asbestos. These cases involve exposure to
asbestos in premises owned or operated by us. We do not
manufacture any products that contain asbestos, and all our
cases in this area are limited to workplace exposure claims.
Historically, our aggregate annual settlements related to
asbestos claims have been approximately $1 million. The
number of claims has remained relatively constant in the past
few years.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
We did not submit any matter to a vote of our shareholders in
fourth quarter 2008.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
Our Common Stock is traded on the New York Stock Exchange. The
high and low sales prices for our Common Stock and dividends
paid in each fiscal quarter in the two most recent fiscal years
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
Price Range
|
|
|
|
|
|
Price Range
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
First Quarter
|
|
$
|
21.68
|
|
|
$
|
11.64
|
|
|
$
|
0.10
|
|
|
$
|
63.61
|
|
|
$
|
44.29
|
|
|
$
|
0.28
|
|
Second Quarter
|
|
$
|
15.54
|
|
|
$
|
11.08
|
|
|
$
|
0.10
|
|
|
$
|
64.45
|
|
|
$
|
59.00
|
|
|
$
|
0.28
|
|
Third Quarter
|
|
$
|
20.49
|
|
|
$
|
10.52
|
|
|
$
|
0.10
|
|
|
$
|
66.28
|
|
|
$
|
49.17
|
|
|
$
|
0.28
|
|
Fourth Quarter
|
|
$
|
15.42
|
|
|
$
|
2.34
|
|
|
$
|
0.10
|
|
|
$
|
57.51
|
|
|
$
|
29.09
|
|
|
$
|
10.53
|
*
|
For the Year
|
|
$
|
21.68
|
|
|
$
|
2.34
|
|
|
$
|
0.40
|
|
|
$
|
66.28
|
|
|
$
|
29.09
|
|
|
$
|
11.37
|
*
|
|
|
|
(1) |
|
Stock prices for 2007 have not been restated to reflect the
effects of the special dividend or the spin-offs of Guaranty
Financial Group and Forestar Group at the end of 2007.
Accordingly, it may be difficult to make meaningful comparisons
between 2008 and 2007. |
|
* |
|
Includes a special dividend of $10.25 per share paid in December
2007. |
15
Shareholders
Our stock transfer records indicated that as of
February 19, 2009, there were approximately 4,500 holders
of record of our Common Stock.
Dividend
Policy
As indicated above, we paid quarterly dividends during each of
the two most recent years in the amounts shown. In addition to
our regular quarterly dividend, we paid a special dividend of
$10.25 per share in December 2007 as part of our transformation
plan. On February 7, 2009, the Board of Directors declared
a quarterly dividend on our Common Stock of $0.10 per share
payable on March 13, 2009, to shareholders of record on
February 27, 2009. The Board periodically reviews the
dividend policy, and the declaration of dividends will
necessarily depend upon our earnings and financial requirements
and other factors within the discretion of the Board.
Issuer
Purchases of Equity
Securities(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Shares That
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
May Yet be
|
|
|
|
Total
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Purchased
|
|
|
|
Number of
|
|
|
Price
|
|
|
Announced
|
|
|
Under the
|
|
|
|
Shares
|
|
|
Paid per
|
|
|
Plans or
|
|
|
Plans
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
Programs
|
|
|
or Programs
|
|
|
Month 1 (10/1/2008 10/31/2008)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
6,650,000
|
|
Month 2 (11/1/2008 11/30/2008)
|
|
|
8,370
|
(2)
|
|
$
|
5.49
|
|
|
|
|
|
|
|
6,650,000
|
|
Month 3 (12/1/2008 12/31/2008)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
6,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,370
|
|
|
$
|
5.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On August 4, 2006, we announced that our Board of Directors
authorized the repurchase of up to 6,000,000 shares of our
common stock. We have purchased 4,350,000 shares under this
authorization, which has no expiration date. On February 2,
2007, we announced that our Board of Directors authorized the
purchase of up to an additional 5,000,000 shares of our
common stock, increasing the maximum number of shares yet to be
purchased under our repurchase plans to 6,650,000 shares.
We have no plans or programs that expired during the period
covered by the table above and no plans or programs that we
intend to terminate prior to expiration or under which we no
longer intend to make further purchases. |
|
(2) |
|
Represents shares purchased from employees to pay taxes related
to the vesting of restricted shares. |
Performance
Graph
The following graph compares the cumulative total shareholder
return on our common stock to the Standard &
Poors 500 Stock Index and an index we composed of our
peers assuming an investment of $100 and the reinvestment of all
dividends over the five-year period ended December 31,
2008. At the end of 2007, we paid a special dividend of $10.25
per share and spun-off Forestar Group Inc. and Guaranty
Financial Group Inc. In accordance with SEC rules our stock
price has been adjusted in preparing the graph to reflect the
special dividend and these spin-offs as special dividends that
were reinvested in our stock. Due to the fundamental change to
our company from these transactions, comparisons to prior
periods may not be meaningful.
In last years annual report, the performance graph was
based on a peer index (the Old Peer Index) composed of
AbitibiBowater Inc., Caraustar Industries, Inc., Domtar
Corporation, International Paper Company, MeadWestvaco
Corporation, Packaging Corporation of America, Smurfit-Stone
Container Corporation, and Weyerhaeuser Corporation. This year
we revised the peer index (the New Peer Index) in light of
continued industry consolidation. The New Peer Index is composed
of AbitibiBowater Inc.; Boise, Inc; Canfor Corporation;
Caraustar Industries, Inc.; Cascades Inc.; Catalyst Paper;
Domtar Corporation; Glatfelter; Graphic Packaging Holding Co.;
International Paper Company; MeadWestvaco Corporation; Mercer
International Inc.;
16
Neenah Paper Inc.; Packaging Corporation of America; Rock-Tenn
Co.; Smurfit-Stone Container Corporation; Verso Paper Corp.;
Wausau Paper Corp.; and West Fraser Timber Co. Ltd. The
Standard & Poors 500 Stock Index is a broad
equity market index published by Standard &
Poors. We anticipate using the index identified as
New Peer Index in future filings.
Assumes $100 invested on the last trading day in fiscal year 2003
*Total
return assumes reinvestment of dividends
Pursuant to SEC rules, the returns of each of the companies in
each peer index are weighted according to the respective
companys stock market capitalization at the beginning of
each period for which a return is indicated. Historic stock
price is not indicative of future stock price performance.
Other
See Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters for
disclosure regarding securities authorized for issuance under
equity compensation plans.
17
|
|
Item 6.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008(a)
|
|
|
2007(b)
|
|
|
2006(c)
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
3,190
|
|
|
$
|
3,044
|
|
|
$
|
2,977
|
|
|
$
|
2,825
|
|
|
$
|
2,736
|
|
Building products
|
|
|
694
|
|
|
|
806
|
|
|
|
1,119
|
|
|
|
898
|
|
|
|
851
|
|
Timber and timberland
|
|
|
|
|
|
|
76
|
|
|
|
89
|
|
|
|
120
|
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
$
|
4,185
|
|
|
$
|
3,843
|
|
|
$
|
3,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
225
|
|
|
$
|
287
|
|
|
$
|
255
|
|
|
$
|
120
|
|
|
$
|
96
|
|
Building products
|
|
|
(40
|
)
|
|
|
8
|
|
|
|
221
|
|
|
|
125
|
|
|
|
129
|
|
Timber and timberland
|
|
|
|
|
|
|
65
|
|
|
|
63
|
|
|
|
72
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
185
|
|
|
|
360
|
|
|
|
539
|
|
|
|
317
|
|
|
|
277
|
|
Items not included in segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
(76
|
)
|
|
|
(100
|
)
|
|
|
(107
|
)
|
|
|
(91
|
)
|
|
|
(79
|
)
|
Share-based compensation
|
|
|
2
|
|
|
|
(34
|
)
|
|
|
(38
|
)
|
|
|
(21
|
)
|
|
|
(12
|
)
|
Gain on sale of
timberland(d)
|
|
|
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income
(expense)(e)
|
|
|
(29
|
)
|
|
|
(188
|
)
|
|
|
26
|
|
|
|
(85
|
)
|
|
|
(42
|
)
|
Other non-operating income
(expense)(e)
|
|
|
|
|
|
|
(35
|
)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
Net interest income on financial assets and nonrecourse
financial liabilities of special purpose
entities(f)
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on debt
|
|
|
(81
|
)
|
|
|
(111
|
)
|
|
|
(123
|
)
|
|
|
(109
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
(1
|
)
|
|
|
1,955
|
|
|
|
390
|
|
|
|
11
|
|
|
|
19
|
|
Income tax (expense)
benefit(g)
|
|
|
(7
|
)
|
|
|
(753
|
)
|
|
|
(103
|
)
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(8
|
)
|
|
|
1,202
|
|
|
|
287
|
|
|
|
18
|
|
|
|
27
|
|
Discontinued
operations(h)
|
|
|
|
|
|
|
103
|
|
|
|
181
|
|
|
|
158
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
|
$
|
468
|
|
|
$
|
176
|
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations(i)
|
|
$
|
(0.08
|
)
|
|
$
|
11.12
|
|
|
$
|
2.59
|
|
|
$
|
0.16
|
|
|
$
|
0.24
|
|
Discontinued
operations(h)
|
|
|
|
|
|
|
0.96
|
|
|
|
1.63
|
|
|
|
1.38
|
|
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
12.08
|
|
|
$
|
4.22
|
|
|
$
|
1.54
|
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common
share(j)
|
|
$
|
0.40
|
|
|
$
|
11.37
|
|
|
$
|
1.00
|
|
|
$
|
0.90
|
|
|
$
|
1.22
|
|
Average basic shares outstanding
|
|
|
106.7
|
|
|
|
106.0
|
|
|
|
108.8
|
|
|
|
112.6
|
|
|
|
111.4
|
|
Average diluted shares outstanding
|
|
|
107.4
|
|
|
|
108.1
|
|
|
|
110.8
|
|
|
|
114.5
|
|
|
|
112.4
|
|
Common shares outstanding at year-end
|
|
|
106.5
|
|
|
|
106.1
|
|
|
|
104.9
|
|
|
|
111.0
|
|
|
|
112.2
|
|
Depreciation and amortization
|
|
$
|
206
|
|
|
$
|
214
|
|
|
$
|
225
|
|
|
$
|
218
|
|
|
$
|
219
|
|
Capital expenditures
|
|
$
|
164
|
|
|
$
|
237
|
|
|
$
|
204
|
|
|
$
|
220
|
|
|
$
|
219
|
|
At Year-End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing assets
|
|
$
|
3,395
|
|
|
$
|
3,559
|
|
|
$
|
3,627
|
|
|
$
|
3,411
|
|
|
$
|
3,522
|
|
Financial assets of special purpose
entities(f)
|
|
|
2,474
|
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
|
|
16,847
|
|
|
|
18,219
|
|
|
|
16,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,869
|
|
|
$
|
5,942
|
|
|
$
|
20,474
|
|
|
$
|
21,630
|
|
|
$
|
20,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (long-term excluding current maturities and nonrecourse
financial liabilities of special purpose entities)
|
|
$
|
1,191
|
|
|
$
|
852
|
|
|
$
|
1,584
|
|
|
$
|
1,498
|
|
|
$
|
1,485
|
|
Nonrecourse financial liabilities of special purpose
entities(f)
|
|
$
|
2,140
|
|
|
$
|
2,140
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liability for pension and postretirement benefits
|
|
$
|
290
|
|
|
$
|
256
|
|
|
$
|
366
|
|
|
$
|
407
|
|
|
$
|
432
|
|
Noncontrolling interest of special purpose
entities(f)
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Shareholders equity
|
|
$
|
686
|
|
|
$
|
780
|
|
|
$
|
2,189
|
|
|
$
|
2,080
|
|
|
$
|
2,107
|
|
Ratio of debt to total capitalization
|
|
|
63
|
%
|
|
|
52
|
%
|
|
|
42
|
%
|
|
|
42
|
%
|
|
|
41
|
%
|
|
|
|
(a) |
|
The 2008 fiscal year, which ended on January 3, 2009, had
53 weeks. The extra week did not have a significant effect
on earnings or financial position. In July 2008, we purchased
our partners 50 percent interest in Premier Boxboard
Limited LLC (PBL) for $62 million and prepaid the
ventures debt of $50 million. Unaudited pro forma
information assuming this acquisition and related financing had
occurred at the beginning of 2008, is not presented because the
results would not have been materially different from those
reported. |
18
|
|
|
(b) |
|
In 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, which increased assets by
$2 million, reduced liabilities by $3 million and
increased beginning retained earnings by $5 million (we
also reclassified $11 million from deferred income taxes to
other long-term liabilities). We also adopted the measurement
provisions of Statement of Financial Accounting Standards (SFAS)
No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, which reduced
beginning retained earnings by $5 million. |
|
(c) |
|
In January 2006, we purchased our partners 50 percent
interest in Standard Gypsum LP for $150 million and assumed
debt of $28 million. Unaudited pro forma information
assuming this acquisition and related financing had occurred at
the beginning of 2005 follows: revenues $4.04 billion;
income from continuing operations $32 million; and income
from continuing operations, per diluted share $0.28. These pro
forma results are not necessarily an indication of what actually
would have occurred if the acquisition and financing
transactions had been completed at the beginning of 2005 and are
not intended to be indicative of future results. |
|
|
|
Also in 2006, (i) we adopted the modified prospective
application of SFAS No. 123 (revised December 2004),
Share-Based Payment, which decreased 2006 income before
taxes by $6 million; (ii) we began applying the
guidance in Emerging Issues Task Force (EITF) Issue
No. 04-13,
Accounting for Purchases and Sales of Inventory with the Same
Counterparty, which decreased income before taxes by
$7 million in 2006 and $2 million in 2007; and
(iii) we adopted SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, which increased our liability for pension and
postretirement benefits by $76 million, decreased prepaid
expenses and other assets by $16 million, decreased
deferred income taxes by $35 million, and decreased
shareholders equity by $57 million. |
|
(d) |
|
On October 31, 2007, we sold 1.55 million acres of
timberland for $2.38 billion to an investment entity
affiliated with The Campbell Group, LLC and recognized a pre-tax
gain of $2.053 billion. The acreage sold consisted of
1.38 million acres owned in fee and leases covering
175,000 acres. The total consideration consisted almost
entirely of notes due in 2027 that are secured by irrevocable
letters of credit issued by independent financial institutions.
We also entered into a
20-year
fiber supply agreement for pulpwood and a
12-year
fiber supply agreement for sawtimber. Both agreements are at
market prices and are subject to extension. |
|
(e) |
|
Other operating and non-operating income (expense) consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Other operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformation costs (advisory and legal fees, change of control
and employee related)
|
|
$
|
(20
|
)
|
|
$
|
(69
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Closure and sale of converting and production facilities and
sale of non-strategic assets
|
|
|
(9
|
)
|
|
|
(55
|
)
|
|
|
(4
|
)
|
|
|
(50
|
)
|
|
|
(27
|
)
|
Litigation
|
|
|
5
|
|
|
|
(56
|
)
|
|
|
(6
|
)
|
|
|
(16
|
)
|
|
|
(4
|
)
|
Environmental remediation
|
|
|
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
|
|
Softwood Lumber Agreement
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
Hurricane related costs and, in 2006, related insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
(16
|
)
|
|
|
|
|
Consolidation of administrative functions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Other charges
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(29
|
)
|
|
$
|
(188
|
)
|
|
$
|
26
|
|
|
$
|
(85
|
)
|
|
$
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges related to early repayment of debt
|
|
$
|
(4
|
)
|
|
$
|
(40
|
)
|
|
$
|
|
|
|
$
|
(6
|
)
|
|
$
|
(2
|
)
|
Tax litigation and other settlements
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
2
|
|
|
|
|
|
Interest and other income
|
|
|
4
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
(35
|
)
|
|
$
|
93
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
(f) |
|
In October 2007, we received $2.38 billion in notes from
the sale of our timberland, which we later contributed to two
wholly-owned, bankruptcy-remote special purpose entities. In
December 2007, the special purpose entities pledged the notes as
collateral for $2.14 billion nonrecourse loans payable in
2027. Both the notes and the borrowings require quarterly
interest payments based on variable interest rates. Interest
rates on the notes are based on LIBOR and reset quarterly.
Interest rates on the borrowings reflect the lenders
pooled commercial paper issuances and reset daily. We include
these special purpose entities in our consolidated financial
statements. |
|
|
|
In 2008, the buyer of our timberland transferred the timberland
out of special purpose entities that it had formed to complete
the purchase. Upon this transfer, these special purpose entities
became variable interest entities, and we determined that we
were the primary beneficiary. As a result, we began
consolidating these special purpose entities in 2008. |
|
(g) |
|
Income taxes include one-time tax benefits of: $7 million
in 2007, of which $3 million is related to changes to the
State of Texas margin tax and $4 million is related to the
resolution of state income tax matters; $36 million in
2006, of which $6 million is related to the State of Texas
margin tax and $30 million is related to the non-taxable
tax litigation settlement; $16 million in 2005 related to
the sale of our Pembroke, Canada MDF facility; and
$20 million in 2004 related to the resolution and
settlement of prior years tax examinations. |
|
(h) |
|
Discontinued operations include the operations of our financial
services and real estate segments, which were spun off to our
shareholders on December 28, 2007, and the chemical
business obtained in the Gaylord acquisition, which was sold in
August 2007. The resolution and settlement of environmental and
other indemnifications related to the 1999 sale of our bleached
paperboard operation are also included in 2004. |
|
(i) |
|
Earnings per share for 2008 is based on average basic shares
outstanding due to our loss from continuing operations. |
|
(j) |
|
Includes special dividends of $10.25 per share in 2007 and $0.50
per share in 2004. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements
Managements Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking
statements within the meaning of the federal securities
laws. These forward-looking statements are identified by their
use of terms and phrases such as believe,
anticipate, could, estimate,
likely, intend, may,
plan, expect, and similar expressions,
including references to assumptions. These statements reflect
managements current views with respect to future events
and are subject to risk and uncertainties. A variety of factors
and uncertainties could cause our actual results to differ
significantly from the results discussed in the forward-looking
statements. Factors and uncertainties that might cause such
differences include, but are not limited to:
|
|
|
|
|
general economic, market, or business conditions;
|
|
|
|
the opportunities (or lack thereof) that may be presented to us
and that we may pursue;
|
|
|
|
fluctuations in costs and expenses including the costs of raw
materials, purchased energy, and freight;
|
|
|
|
changes in interest rates;
|
|
|
|
current conditions in financial markets could adversely affect
our ability to finance our operations;
|
|
|
|
demand for new housing;
|
|
|
|
accuracy of accounting assumptions related to impaired assets,
pension and postretirement costs, contingency reserves, and
income taxes;
|
|
|
|
competitive actions by other companies;
|
|
|
|
changes in laws or regulations;
|
20
|
|
|
|
|
our ability to execute certain strategic and business
improvement initiatives;
|
|
|
|
the accuracy of certain judgments and estimates concerning the
integration of acquired operations; and
|
|
|
|
other factors, many of which are beyond our control.
|
Our actual results, performance, or achievement probably will
differ from those expressed in, or implied by, these
forward-looking statements, and accordingly, we can give no
assurances that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of
them do so, what impact they will have on our results of
operations or financial condition. In view of these
uncertainties, you are cautioned not to place undue reliance on
these forward-looking statements. Except as required by law, we
expressly disclaim any obligation to publicly revise any
forward-looking statements contained in this report to reflect
the occurrence of events after the date of this report.
Non-GAAP Financial
Measure
Return on investment (ROI) is an important internal measure for
us because it is a key component of our evaluation of overall
performance and the performance of our business segments.
Studies have shown that there is a direct correlation between
shareholder value and ROI and that shareholder value is created
when ROI exceeds the cost of capital. ROI allows us to evaluate
our performance on a consistent basis as the amount we earn
relative to the amount invested in our business segments. A
significant portion of senior managements compensation is
based on achieving ROI targets.
In evaluating overall performance, we define ROI as total
segment operating income, less general and administrative
expenses and share-based compensation not included in segments,
divided by total assets, less certain assets and certain current
liabilities. We do not believe there is a comparable GAAP
financial measure to our definition of ROI. The reconciliation
of our ROI calculation to amounts reported under GAAP is
included in a later section of Managements Discussion and
Analysis of Financial Condition and Results of Operations.
Despite its importance to us, ROI is a non-GAAP financial
measure that has no standardized definition and as a result may
not be comparable with other companies measures using the
same or similar terms. Also there may be limits in the
usefulness of ROI to investors. As a result, we encourage you to
read our consolidated financial statements in their entirety and
not to rely on any single financial measure.
Accounting
Policies
Critical
Accounting Estimates
In preparing our financial statements, we follow generally
accepted accounting principles, which in many cases require us
to make assumptions, estimates, and judgments that affect the
amounts reported. Our significant accounting policies are
included in Note 1 to the Consolidated Financial
Statements. Many of these principles are relatively
straightforward. There are, however, a few accounting policies
that are critical because they are important in determining our
financial condition and results, and they are difficult for us
to apply. They include asset impairments, contingency reserves,
pension accounting and income taxes. The difficulty in applying
these policies arises from the assumptions, estimates and
judgments that we have to make currently about matters that are
inherently uncertain, such as future economic conditions,
operating results and valuations, as well as our intentions. As
the difficulty increases, the level of precision decreases,
meaning actual results can, and probably will, be different from
those currently estimated. We base our assumptions, estimates,
and judgments on a combination of historical experiences and
other factors that we believe are reasonable. We have reviewed
the selection and disclosure of these critical accounting
estimates with our Audit Committee.
|
|
|
|
|
Measuring assets for impairment requires estimating intentions
as to holding periods, future operating cash flows and residual
values of the assets under review. Changes in our intentions,
market conditions, or operating performance could require us to
revise the impairment charges we previously provided.
|
21
|
|
|
|
|
Contingency reserves are established for potential losses
related to litigation, environmental remediation and other
items. Estimating these reserves requires us to make certain
judgments and assumptions regarding actual or potential claims,
interpretations to be made by courts or regulatory bodies, and
other factors and events that are outside our control. Changes
and inaccuracies in our interpretations and actions of others
could require us to revise the reserves we previously provided.
|
|
|
|
The expected long-term rate of return on pension plan assets is
an important assumption in determining pension expense. In
selecting that rate, particular consideration is given to our
asset allocation because 86 percent of our plan assets are
debt related with a duration that closely matches that of our
benefit obligation. Another important consideration is the
discount rate used to determine the present value of our benefit
obligation. We determined the discount rate by referencing the
Citigroup Pension Discount Curve. We believe that using a yield
curve more accurately reflects changes in the present value of
our defined benefit plan obligation because each years
cash flow will be discounted at a rate at which it could
effectively be settled versus the use of a single index rate. We
previously referenced an index for long-term, high-quality
bonds, ensuring that the duration of that index did not
materially differ from the duration of the plans
liabilities. Differences between actual and expected rates of
return and changes in the discount rate will affect future
pension expense and funded status. For example, a 25 basis
point change in the discount rate would affect the projected
benefit obligation by about $41 million and the net
periodic pension cost by about $4 million. A 25 basis
point change in the expected long-term rate of return would
affect the net periodic pension cost by about $3 million.
|
|
|
|
Tax provisions are based on the respective tax rules and
regulations of the jurisdictions in which we operate. Where we
believe a tax position is supportable for income tax purposes,
it is included in the respective tax return. When a position is
uncertain, a liability is recorded for the most likely outcome
considering the technical merits of the position and specific
facts. Changes to liabilities are only made when an event occurs
that changes the most likely outcome, such as settlement with
the relevant tax authority, expiration of statutes of
limitations, changes in tax law, or recent court rulings.
|
New
Accounting Pronouncements
In the last three years, we adopted a number of new accounting
pronouncements, including in 2008, Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value
Measurements and SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities. In
addition, there are three new accounting pronouncements that we
will be required to adopt in 2009 none of which we expect to
have a significant effect on our financial position, results of
operations or cash flows. Please read Note 1 to the
Consolidated Financial Statements.
Transformation
On December 28, 2007, we completed our transformation plan,
which included sale of our timberlands and spin-offs of our real
estate segment, Forestar Group Inc. (Forestar), and our
financial services segment, Guaranty Financial Group Inc.
(Guaranty).
The transformation plan significantly changed our capital
structure and operations. Temple-Inland is a manufacturing
company focused on corrugated packaging and building products.
Results
of Operations for the Years 2008, 2007, and 2006
Summary
Our two key objectives are:
|
|
|
|
|
Maximizing ROI and
|
|
|
|
Profitably growing our business.
|
22
We will accomplish our key objectives through execution of our
strategic initiatives. Our key strategic initiatives in
corrugated packaging are:
|
|
|
|
|
Maintaining full integration,
|
|
|
|
Driving for low cost through asset utilization and manufacturing
excellence,
|
|
|
|
Improving mix and margins through sales excellence, and
|
|
|
|
Growing our business.
|
Our key strategic initiatives in building products are:
|
|
|
|
|
Delivering a tailored portfolio of building products,
|
|
|
|
Driving for low cost through manufacturing excellence,
|
|
|
|
Serving growing markets with favorable demographics, and
|
|
|
|
Promoting sales excellence.
|
In 2008, consistent with our key strategic initiatives:
|
|
|
|
|
We had record production in our containerboard mills through
manufacturing excellence.
|
|
|
|
We improved asset utilization and lowered costs in our box
plants through our box plant transformation.
|
|
|
|
We grew our business through the purchase of our partners
50 percent interest in PBL, a joint venture that
manufactures containerboard and gypsum facing paper at a mill in
Newport, Indiana. Late in 2008, we began producing white-top
linerboard at this mill.
|
|
|
|
We continued to drive down our costs throughout our company.
|
A summary of our consolidated results from continuing operations
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Consolidated revenues
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
$
|
4,185
|
|
Income (loss) from continuing operations
|
|
|
(8
|
)
|
|
|
1,202
|
|
|
|
287
|
|
Income (loss) from continuing operations, per share
|
|
|
(0.08
|
)
|
|
|
11.12
|
|
|
|
2.59
|
|
ROI
|
|
|
4.5
|
%
|
|
|
7.8
|
%
|
|
|
13.4
|
%
|
In 2008, significant items affecting income (loss) from
continuing operations included:
|
|
|
|
|
We experienced higher pricing and lower volumes for our
corrugated packaging products, lower volumes for most of our
building products and lower pricing for gypsum wallboard.
|
|
|
|
While we continued to see the benefits in our manufacturing
operations from our initiatives to lower costs, improve asset
utilization, and increase operating efficiencies, the increased
cost of energy, freight, and fiber in our corrugated packaging
operations more than offset these benefits.
|
|
|
|
Share-based compensation decreased due to the effect of the
lower share price on our cash-settled awards.
|
|
|
|
We incurred $20 million of costs primarily related to our
transformation plan, of which $15 million is related to the
settlement of supplemental retirement benefits. We also
decreased litigation reserves by $5 million due to the
settlement of the remaining claim related to our antitrust
litigation.
|
|
|
|
Charges related to the closure of our Rome, Georgia converting
facility totaled $2 million and charges related to our exit
of the hardboard siding business in building products totaled
$7 million.
|
23
|
|
|
|
|
Interest expense decreased primarily due to the December 2007
early retirement of $286 million of
6.75 percent Notes and $213 million of
7.875 percent Senior Notes.
|
|
|
|
In July 2008, we purchased for $62 million the remaining
50 percent interest we did not previously own in PBL.
Subsequent to the purchase we prepaid $50 million in joint
venture debt and incurred a $4 million prepayment penalty.
|
In 2007, significant items affecting income from continuing
operations included:
|
|
|
|
|
In connection with our transformation plan, we recognized a
$2.053 billion gain on sale of our strategic timberland,
and we incurred $109 million in expenses primarily related
to early repayment of debt, change of control agreements and
other employee payments, and legal and advisory services.
|
|
|
|
We experienced higher prices for our corrugated packaging
products; however, we experienced lower prices and volumes for
most of our building products.
|
|
|
|
While we continue to see the benefit in our manufacturing
operations from our initiatives to lower costs, improve asset
utilization, and increase operating efficiencies, the higher
cost of recycled fiber used at our containerboard mills offset
some of the benefits.
|
|
|
|
We recognized $120 million in charges, including
$64 million as a result of the decision to cease production
permanently at our Mt. Jewett particleboard facility and
$56 million for the settlement of antitrust and other
litigation.
|
In 2006, significant items affecting income from continuing
operations included:
|
|
|
|
|
We continued to see benefits in our manufacturing operations
from our initiatives to lower costs, improve asset utilization,
and increase operating efficiencies.
|
|
|
|
We experienced improved markets for our corrugated packaging and
building products, principally gypsum wallboard and
particleboard. We acquired our partners 50 percent
interest in Standard Gypsum LP in January.
|
|
|
|
Charges related to facility closures and environmental
remediation at a paper mill site totaled $12 million.
|
|
|
|
We realized one-time cash gains of $89 million related to
the settlement of tax litigation and $42 million related to
the Softwood Lumber Agreement entered into between the
U.S. and Canada.
|
Business
Segments
We manage our operations through two business segments:
corrugated packaging and building products. Timber and
timberland is no longer an active segment as a result of the
sale of our timberlands in fourth quarter 2007. The financial
results of the spun-off entities, Forestar and Guaranty, are
presented as discontinued operations.
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
nondurable goods production, new housing starts, home repair and
remodeling activities, and the strength of the U.S. dollar.
Given the commodity nature of our manufactured products, we have
little control over market pricing or market demand.
Corrugated
Packaging
We manufacture linerboard and corrugating medium (collectively
referred to as containerboard) that we convert into corrugated
packaging. In July 2008, we purchased our partners
50 percent interest in PBL, a joint venture that
manufactures containerboard and light-weight gypsum facing paper
at a mill in Newport, Indiana. We have integrated the PBL
operations into our corrugated packaging system. Late in 2008,
we began producing white-top linerboard at the Newport mill. Our
corrugated packaging segment revenues are
24
principally derived from the sale of corrugated packaging
products and, to a lesser degree, from the sale of
containerboard and light-weight gypsum facing paper
(collectively referred to as paperboard).
A summary of our corrugated packaging results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
$
|
3,190
|
|
|
$
|
3,044
|
|
|
$
|
2,977
|
|
Costs and expenses
|
|
|
(2,965
|
)
|
|
|
(2,757
|
)
|
|
|
(2,722
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
225
|
|
|
$
|
287
|
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment ROI
|
|
|
11.3
|
%
|
|
|
14.3
|
%
|
|
|
12.5
|
%
|
Corrugated packaging results would not have been materially
different from those reported assuming the purchase of PBL had
occurred at the beginning of 2008.
Fluctuations in product pricing (which includes freight and is
net of discounts) and shipments follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Corrugated packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
4
|
%
|
|
|
3
|
%
|
|
|
6
|
%
|
Shipments, average
week(a)
|
|
|
(2
|
)%
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
Industry shipments, average
week(b)
|
|
|
(4
|
)%
|
|
|
(2
|
)%
|
|
|
1
|
%
|
Paperboard
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
1
|
%
|
|
|
5
|
%
|
|
|
22
|
%
|
Shipments, in thousand
tons(c)
|
|
|
166
|
|
|
|
(7
|
)
|
|
|
46
|
|
|
|
|
(a) |
|
Excluding the impact of the sale of Performance Sheets in August
2006, our shipments were up one percent in 2007. |
|
(b) |
|
Source: Fibre Box Association |
|
(c) |
|
The increase in 2008 includes 43,000 tons of light-weight gypsum
facing paper and 25,000 tons of containerboard shipped by PBL
since its purchase in July 2008. |
In 2008, corrugated packaging prices were up as a result of
price increases implemented in 2007 and mid-2008, however
current economic conditions had a negative impact on our
shipments. In 2007, corrugated packaging prices and paperboard
prices moved higher as a result of price increases implemented
in 2006 and 2007. In 2006, corrugated packaging and paperboard
prices moved higher reflecting price increases implemented in
late 2005 and in 2006.
Paperboard shipments to third parties in 2008 increased due to
the acquisition of PBL. Shipments in 2007 were slightly lower
than in 2006 and shipments increased in 2006 due to increased
mill production.
Costs and expenses were up eight percent in 2008 compared with
2007, up one percent in 2007 compared with 2006, and up one
percent in 2006 compared with 2005. In 2008, the increased costs
were primarily the result of higher prices for recycled fiber,
energy, chemicals, freight, and the inclusion of PBL since its
purchase in July 2008. In 2007, higher raw material costs were
partially offset by lower pension and postretirement costs,
$8 million in business interruption and other insurance
proceeds primarily related to an equipment outage and other
operational issues at our mills that occurred in 2006, and cost
reductions attributable to the sale of Performance Sheets.
Increased mill reliability and efficiency resulted in lower
maintenance costs and improved raw material yield and energy
usage. In 2006, higher wood fiber and freight costs were
partially offset by lower recycled fiber, energy, and healthcare
costs.
25
Fluctuations in our significant cost and expense components
included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Wood fiber
|
|
$
|
5
|
|
|
$
|
8
|
|
|
$
|
16
|
|
Recycled fiber
|
|
|
15
|
|
|
|
77
|
|
|
|
(9
|
)
|
Energy, principally natural gas
|
|
|
61
|
|
|
|
(1
|
)
|
|
|
(8
|
)
|
Freight
|
|
|
29
|
|
|
|
(3
|
)
|
|
|
32
|
|
Depreciation
|
|
|
4
|
|
|
|
(11
|
)
|
|
|
(7
|
)
|
Health care
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Pension and postretirement
|
|
|
|
|
|
|
(12
|
)
|
|
|
(2
|
)
|
The costs of our wood and recycled fiber, energy, and freight
fluctuate based on the market prices we pay for these
commodities. It is likely that these costs will continue to
fluctuate in 2009. The decrease in depreciation in 2007 was
principally due to the continued use of fully depreciated assets
and the sale of Performance Sheets in August 2006.
Information about our converting facilities and mills follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Number of converting facilities (at year-end)
|
|
|
63
|
|
|
|
64
|
|
|
|
64
|
|
Corrugated packaging shipments, in million tons
|
|
|
3.3
|
|
|
|
3.4
|
|
|
|
3.4
|
|
Paperboard production, in million tons
|
|
|
3.7
|
|
|
|
3.6
|
|
|
|
3.6
|
|
Percent containerboard production used internally
|
|
|
87
|
%
|
|
|
92
|
%
|
|
|
91
|
%
|
Percent of total fiber requirements sourced from recycled fiber
|
|
|
42
|
%
|
|
|
36
|
%
|
|
|
34
|
%
|
As a part of our continuing efforts to lower cost and improve
operating efficiencies and asset utilization, in fourth quarter
2008 we closed our Rome, Georgia converting facility. Impairment
charges and employee related costs totaling $2 million are
not included in segment results.
In third quarter 2008, we lost production of 38,000 tons of
containerboard due to hurricanes Gustav and Ike. In addition, in
fourth quarter 2008 we reduced our containerboard production by
108,000 tons to match our production to demand.
Building
Products
We manufacture lumber, gypsum wallboard, particleboard, medium
density fiberboard (MDF), and fiberboard. Our building products
segment revenues are principally derived from sales of these
products. We also own a 50 percent interest in Del-Tin
Fiber LLC, a joint venture that produces MDF at a facility in El
Dorado, Arkansas.
A summary of our building products results follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
$
|
694
|
|
|
$
|
806
|
|
|
$
|
1,119
|
|
Costs and expenses
|
|
|
(734
|
)
|
|
|
(798
|
)
|
|
|
(898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
$
|
(40
|
)
|
|
$
|
8
|
|
|
$
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment ROI
|
|
|
(7.1
|
)%
|
|
|
1.4
|
%
|
|
|
37.7
|
%
|
26
Fluctuations in product pricing (which includes freight and is
net of discounts) and shipments follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Lumber:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
1
|
%
|
|
|
(13
|
)%
|
|
|
(16
|
)%
|
Shipments
|
|
|
(8
|
)%
|
|
|
1
|
%
|
|
|
7
|
%
|
Gypsum wallboard:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
(18
|
)%
|
|
|
(27
|
)%
|
|
|
26
|
%
|
Shipments
|
|
|
(28
|
)%
|
|
|
(26
|
)%
|
|
|
132
|
%
|
Particleboard:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
15
|
%
|
Shipments
|
|
|
(7
|
)%
|
|
|
(17
|
)%
|
|
|
(5
|
)%
|
MDF:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
12
|
%
|
|
|
1
|
%
|
|
|
5
|
%
|
Shipments
|
|
|
4
|
%
|
|
|
(5
|
)%
|
|
|
(30
|
)%
|
While pricing was up for lumber, particleboard and MDF compared
with 2007, demand for most products was down due to challenging
market conditions in the housing industry. We expect this trend
to continue in 2009.
Segment results also includes our share of income from our MDF
joint venture of $1 million in 2008, $1 million in
2007, and $3 million in 2006. The operating results from
the joint venture generally fluctuate in relation to the price
and shipment changes noted above for MDF.
Costs and expenses were down eight percent in 2008 compared with
2007, down 11 percent in 2007 compared with 2006, and up
16 percent in 2006 compared with 2005. The lower costs in
2008 are primarily attributable to curtailment of production to
match demand for our products and headcount reductions. We
incurred severance charges of $3 million in 2008 related to
headcount reductions. The lower costs in 2007 were primarily
driven by lower volumes. The increase in cost in 2006 is
primarily attributable to the acquisition of Standard Gypsum LP
in January 2006, partially offset by lower wood fiber costs and
cost reductions attributable to the sale of our Pembroke MDF
facility in June 2005.
Fluctuations in our significant cost and expense components
included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Wood fiber
|
|
$
|
(43
|
)
|
|
$
|
(32
|
)
|
|
$
|
(12
|
)
|
Energy, principally natural gas
|
|
|
(6
|
)
|
|
|
(21
|
)
|
|
|
16
|
|
Freight
|
|
|
(6
|
)
|
|
|
(12
|
)
|
|
|
26
|
|
Chemicals
|
|
|
12
|
|
|
|
(5
|
)
|
|
|
(1
|
)
|
Depreciation
|
|
|
3
|
|
|
|
1
|
|
|
|
9
|
|
Health care
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
Pension and postretirement
|
|
|
1
|
|
|
|
1
|
|
|
|
(3
|
)
|
The cost of our fiber, energy, freight, and chemicals fluctuates
based on usage and the market prices we pay for these
commodities. It is likely that these costs will continue to
fluctuate in 2009.
27
Information about our converting and manufacturing facilities
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Number of converting and manufacturing facilities (at year-end)
|
|
|
16
|
|
|
|
16
|
|
|
|
17
|
|
Operating rates for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber
|
|
|
76
|
%
|
|
|
91
|
%
|
|
|
91
|
%
|
Gypsum wallboard
|
|
|
51
|
%
|
|
|
70
|
%
|
|
|
95
|
%
|
Particleboard
|
|
|
67
|
%
|
|
|
72
|
%
|
|
|
70
|
%
|
MDF
|
|
|
97
|
%
|
|
|
102
|
%
|
|
|
33
|
%
|
Markets for our building products continue to be challenging.
The lower operating rates resulted from the curtailment of
production to match demand for our products and, to a lesser
extent, lost production due to hurricanes Gustav and Ike. In
December 2008, we permanently ceased production of hardboard
siding at our fiberboard operations, incurring impairment
charges and employee related costs totaling $7 million,
which are not included in segment results. In December 2007, we
permanently ceased production at our Mt. Jewett particleboard
plant.
Timber
and Timberland
Timber and timberland, which managed our timber resources, is no
longer an active segment as a result of the sale of timber and
timberland in October 2007.
A summary of our timber and timberland results prior to the sale
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007(a)
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
$
|
76
|
|
|
$
|
89
|
|
Costs and expenses
|
|
|
(11
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
65
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
Segment ROI
|
|
|
20.4
|
%
|
|
|
19.5
|
%
|
|
|
|
(a) |
|
Ten months of operating results.
|
In 2005, we sold about 7,000 acres of timber and timberland
to a joint venture in which our former real estate segment owned
a 50 percent interest and an unrelated public company owned
the other 50 percent. This acreage was sold pursuant to the
terms of a long-standing option agreement, which was about to
expire. The joint venture intended to hold the land for future
development and sale. We recognized about half of the
$10 million gain in income in 2005 and recognized the
remainder in 2007 when we spun-off our real estate segment.
Information about our timber harvest follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007(a)
|
|
|
2006
|
|
|
|
(In million tons)
|
|
|
Sawtimber
|
|
|
2.1
|
|
|
|
2.6
|
|
Pulpwood
|
|
|
2.9
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ten months of operating results.
|
28
Items Not
Included in Segments
Items not included in segments are income and expenses that are
managed on a company-wide basis and include corporate general
and administrative expense, share-based compensation, other
operating and non-operating income (expense), and interest
income and expense.
The $24 million decrease in general and administrative
expense in 2008 was principally due to our cost reduction
efforts (including headcount reductions of 27 percent in
business support) and a decrease in incentive compensation. The
$7 million decrease in 2007 was primarily related to a
decrease in incentive compensation. Incentive compensation
fluctuates based on changes in ROI.
Our share-based compensation fluctuates because a significant
portion of our share-based awards are cash settled and are
affected by changes in the market price of our common stock. The
$36 million decrease in share-based compensation in 2008
was principally due to the decrease in the market price of our
common stock. Assuming no change to our year-end 2008 share
price, it is likely that share-based compensation expense for
2009 will be about $16 million. For each $1 change in the
market price of our common stock, our share-based compensation
changes about $3 million.
Other operating income (expense) not included in business
segments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Transformation costs
|
|
$
|
(20
|
)
|
|
$
|
(69
|
)
|
|
$
|
|
|
Closure and sale of converting and production facilities and
sale of non-strategic assets
|
|
|
(9
|
)
|
|
|
(55
|
)
|
|
|
(4
|
)
|
Litigation
|
|
|
5
|
|
|
|
(56
|
)
|
|
|
(6
|
)
|
Environmental remediation
|
|
|
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
Softwood Lumber Agreement
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Hurricane related insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Other charges
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(29
|
)
|
|
$
|
(188
|
)
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We continue our efforts to enhance return on investment by
lowering costs, improving operating efficiencies, and increasing
asset utilization. As a result, we continue to review operations
that are unable to meet return objectives and determine
appropriate courses of action, including possibly consolidating
and closing facilities and selling under-performing assets. In
December 2008, we closed our Rome, Georgia box plant and
permanently ceased production of hardboard siding at our
fiberboard plant in Diboll, Texas. These actions resulted in
impairment charges and employee related costs totaling
$9 million. In 2007, we permanently ceased production at
our particleboard plant in Mt. Jewett, Pennsylvania and
recognized a $64 million charge, primarily related to the
present value of remaining lease payments under our long-term
operating lease of the plant and impairment of the related
equipment.
Also, in 2008, we settled and paid our one remaining state court
claim related to alleged civil violations of Section 1 of
the Sherman Act for $5 million, which had been fully
reserved. In 2007, we resolved most of the remaining claims
regarding alleged violations of Section 1 of the Sherman
Act and recognized a charge of $46 million. All matters
related to these alleged violations have been resolved. We
recognized $10 million in litigation expense in 2007
related to alleged violations of the State of Californias
on duty meal break laws. We settled three meal break cases in
2007, one in 2008, and one remaining case in January 2009, all
within established reserves.
In 2006, the U.S. and Canada entered into the Softwood
Lumber Agreement, which provided for the refund to domestic
lumber producers of a portion of duties previously collected by
the U.S. government. Our portion of this refund received in
2006 was $42 million.
29
Other non-operating income (expense) includes a $4 million
charge related to early repayment of $50 million in debt
related to the PBL joint venture in 2008, $40 million of
expenses associated with the early repayment of debt in 2007 and
a gain of $89 million related to the settlement of tax
litigation in 2006.
Net interest income on financial assets and nonrecourse
financial liabilities of special purpose entities relates to the
activities of the special purpose entities created to effect the
sale of our timberland in October 2007 and their subsequent
nonrecourse borrowings in December 2007. Please read
Financial Assets and Nonrecourse Financial Liabilities of
Special Purpose Entities.
The decrease in interest expense in 2008 was primarily related
to the December 2007 early retirement of $286 million of
6.75 percent Notes and $213 million of
7.875 percent Senior Notes. The change in interest
expense in 2007 was due to lower average levels of debt
outstanding compared with 2006. At year-end 2008, we had
$0.8 billion of debt with fixed interest rates that
averaged 7.16 percent and $0.4 billion of debt with
variable interest rates that averaged 2.57 percent. This
compares with $0.9 billion of debt with fixed interest
rates that averaged 7.08 percent at year-end 2007.
Income
Taxes
We do not have a meaningful effective tax rate in 2008 because
of a loss from continuing operations before taxes and the impact
of, state income taxes, nondeductible items, and taxes on
unremitted foreign income. Our effective tax rate, which is
income tax expense as a percentage of income from continuing
operations before taxes was 39 percent in 2007 and
26 percent in 2006. These rates reflect in 2007,
non-deductible transformation related expenses, one-time tax
benefit of $3 million related to changes to the State of
Texas margin tax and a $4 million benefit from the
resolution of state tax matters; and in 2006, one-time benefits
resulting from settlement of tax litigation with the
U.S. Government and the new State of Texas margin tax.
Our anticipated 2009 effective tax rate compared to the
statutory rate may be significantly impacted by state income
taxes, non-deductible items, and taxes on unremitted foreign
income.
Discontinued
Operations
On December 28, 2007, we spun off to our shareholders, in
tax free distributions, our real estate and financial services
segments, including certain real estate and minerals activities
in our timber and timberland segment.
As a result, we report the results of operations of these
segments as discontinued operations. Expenses allocated to these
discontinued operations included interest expense of
$7 million in 2007 and $4 million in 2006, and
share-based compensation expense of $7 million in 2007 and
$8 million in 2006.
In addition, on August 31, 2007 we sold the chemical
operations acquired in the Gaylord acquisition. We received cash
proceeds of $1 million and recognized a pre-tax loss of
$6 million on the sale.
A summary of earnings from our discontinued operations follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Real estate income before taxes
|
|
$
|
41
|
|
|
$
|
83
|
|
Financial services income before taxes
|
|
|
138
|
|
|
|
204
|
|
Chemical operations and
other(a)
|
|
|
(13
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before taxes
|
|
|
166
|
|
|
|
285
|
|
Income tax expense
|
|
|
(63
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
$
|
103
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
2007 includes a $6 million charge for environmental
remediation.
|
30
Average
Shares Outstanding
Average shares outstanding increased in 2008 due to exercise of
share-based awards and decreased in 2007 and 2006 due to share
repurchases in 2006. Average diluted shares outstanding
decreased in 2008, 2007 and 2006 due to the decrease in the
dilutive effect of stock options as a result of our lower share
price in 2008 and share repurchases in 2006.
Capital
Resources and Liquidity
Sources
and Uses of Cash
We operate in cyclical industries and our operating cash flows
vary accordingly. Our principal operating cash requirements are
for compensation, wood and recycled fiber, energy, interest, and
taxes. Working capital is subject to cyclical operating needs,
the timing of collection of receivables and the payment of
payables and expenses and, to a lesser extent, to seasonal
fluctuations in our operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Cash received from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations (including payments related to our 2007
transformation plan of $50 million in 2008 and
$23 million in 2007)
|
|
$
|
222
|
(a)
|
|
$
|
25
|
(a)
|
|
$
|
633
|
(a)
|
Working capital (including payments related to our 2007
transformation plan of $297 million in 2008)
|
|
|
(404
|
)
|
|
|
271
|
|
|
|
16
|
|
Tax litigation settlement, net
|
|
|
|
|
|
|
|
|
|
|
89
|
|
Softwood Lumber Agreement payments
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from (used for) operations
|
|
|
(182
|
)
|
|
|
296
|
|
|
|
780
|
|
Nonrecourse borrowing secured by financial assets of special
purpose entities (net of costs of $4 million)
|
|
|
|
|
|
|
2,136
|
|
|
|
|
|
Borrowings, net
|
|
|
286
|
|
|
|
|
|
|
|
40
|
|
Exercise of options and related tax benefits
|
|
|
|
|
|
|
35
|
|
|
|
57
|
|
Other
|
|
|
4
|
|
|
|
36
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sources
|
|
|
108
|
|
|
|
2,503
|
|
|
|
941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduce borrowings, net (including a payment of a
$38 million debt tender premium in 2007)
|
|
|
|
|
|
|
(780
|
)
|
|
|
|
|
Return to shareholders through:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(43
|
)
|
|
|
(1,212
|
)
|
|
|
(108
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
(24
|
)
|
|
|
(318
|
)
|
Reinvest in the business through:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(164
|
)
|
|
|
(237
|
)
|
|
|
(204
|
)
|
Acquisition of PBL in 2008 and Standard Gypsum in 2006, net of
cash acquired
|
|
|
(57
|
)
|
|
|
|
|
|
|
(144
|
)
|
Joint ventures and other
|
|
|
(30
|
)
|
|
|
(21
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uses
|
|
|
(294
|
)
|
|
|
(2,274
|
)
|
|
|
(779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net
|
|
|
|
|
|
|
(32
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
$
|
(186
|
)
|
|
$
|
197
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes voluntary, discretionary contributions to our defined
benefit plan of $30 million in 2008, $60 million in
2007, and $60 million in 2006.
|
31
Over the last three years operating cash flows have been
adversely affected by worsening conditions in the housing
markets and most recently by the weakness in the national
economy. In addition, payments related to our 2007
transformation plan totaled $347 million in 2008 and
$23 million in 2007. At year-end 2008, all transformation
related payments have been made.
We issued 77,736 net shares of common stock in 2008;
1,009,246 net shares of common stock in 2007; and
1,736,335 net shares of common stock in 2006 to employees
exercising options.
We paid cash dividends to shareholders of $0.40 per share in
2008, $11.37 per share in 2007 including a special dividend of
$10.25 per share, and $1.00 per share in 2006. On
February 6, 2009, our Board of Directors declared a regular
quarterly dividend of $0.10 per share payable on March 13,
2009.
In 2006 and 2007, our Board of Directors approved repurchase
programs aggregating 11.0 million shares. As of year-end
2008, we had repurchased 4.4 million shares under these
programs. In 2008 and 2007, we initiated no share purchases, but
in 2007 we settled $24 million of share purchases that were
initiated in fourth quarter 2006. At year-end 2008, there are
6.6 million shares remaining under current repurchase
authorizations.
Capital expenditures were $164 million, or 80 percent
of depreciation and amortization in 2008, most of which were
related to initiatives to increase efficiency in our corrugated
packaging operations. Capital expenditures and timberland
reforestation were 111 percent of depreciation and
amortization in 2007 and 91 percent in 2006. Capital
expenditures are expected to approximate $120 million in
2009, or about 59 percent of expected 2009 depreciation and
amortization. The expected reduction of capital expenditures in
2009 is partially the result of the completion of our strategic
initiative to increase efficiencies in our corrugated packaging
operations.
In 2008, our net borrowings increased principally as the result
of payments made related to the completion of our 2007
transformation plan and the purchase of our partners
50 percent interest in the PBL joint venture for
$62 million. The joint venture had $50 million in
debt, of which $25 million was related to the purchased
interest. We had previously guaranteed the entire
$50 million in joint venture debt. In 2007, we reduced net
borrowings principally with proceeds from the transactions
related to our transformation plan. In 2006, our net borrowings
increased principally as a result of the purchase of our
partners 50 percent interest in the Standard Gypsum
joint venture. Following the purchase, we paid off
$56 million of the ventures long-term debt, of which
$28 million was related to the purchased interest.
Liquidity
and Contractual Obligations
Credit
Agreements
Our sources of short-term funding are our operating cash flows
and borrowings under our credit agreements and accounts
receivable securitization facility. At year-end 2008, we had
$715 million in unused borrowing capacity under our
committed credit agreements and accounts receivable
securitization facility.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
|
|
|
|
|
Committed
|
|
|
Receivable
|
|
|
|
|
|
|
Credit
|
|
|
Securitization
|
|
|
|
|
|
|
Agreements
|
|
|
Facility
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Committed
|
|
$
|
835
|
|
|
$
|
250
|
|
|
$
|
1,085
|
|
Less: borrowings and commitments
|
|
|
(180
|
)
|
|
|
(190
|
)
|
|
|
(370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused borrowing capacity at year-end 2008
|
|
$
|
655
|
|
|
$
|
60
|
|
|
$
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our committed credit agreements include a $750 million
revolving credit facility that expires in 2011. Of the remaining
$85 million, $60 million expires in 2009 pursuant to
agreements that do not require outstanding borrowings to be
repaid until 2011. The remaining $25 million expires in
2010.
Our accounts receivable securitization facility expires in 2010.
Under this facility, a wholly-owned, bankruptcy-remote
subsidiary purchases, on an on-going basis, substantially all of
our trade receivables. As we
32
need funds, the subsidiary draws under its revolving credit
agreement, pledges the trade receivables as collateral, and
remits the proceeds to us. In the event of liquidation of the
subsidiary, its creditors would be entitled to satisfy their
claims from the subsidiarys pledged receivables prior to
distributions back to us. We include this subsidiary in our
consolidated financial statements. At year-end 2008, the
subsidiary owned $306 million in net trade receivables. The
borrowing base, which is determined by the level of our trade
receivables, may be below the maximum committed amount of the
facility in periods when the balance of our trade receivables is
low.
Our debt agreements, accounts receivable securitization
facility, and credit agreements contain terms, conditions, and
financial covenants customary for such agreements including
minimum levels of interest coverage and limitations on leverage.
At year-end 2008, we had complied with the terms, conditions,
and financial covenants of these agreements. We do not currently
anticipate any change in circumstances that would impair our
ability to continue to comply with these covenants. None of our
credit agreements or the accounts receivable securitization
facility are restricted as to availability based on the ratings
of our long-term debt. Under the terms of our Senior Notes due
2016 and Senior Notes due 2018, the interest rate on the notes
automatically adjusts if our long-term debt rating is decreased
below investment grade by Moodys Investor Services, Inc.
(Moodys) or Standard and Poors Rating Services, a
division of McGraw-Hill, Inc. (S&P). Our long-term debt is
currently rated BBB- by S&P and Ba1 by Moodys. While
we do not currently anticipate a change in our long-term debt
ratings, if the ratings were lowered, our interest expense would
increase modestly as a result of the interest rate adjustments
described above.
We believe the amount available under our credit facilities
along with our existing cash and cash equivalents and expected
cash flows from operations will provide us sufficient funds to
meet our operating needs for the foreseeable future. In light of
the current conditions in financial markets, we closely monitor
the banks in our credit facilities. To date, we have experienced
no difficulty in borrowing under these facilities and have not
received any indications that any of the participating banks
would not be able to honor their commitments under these
facilities.
Contractual
Obligations
At year-end 2008 our contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Year
|
|
|
|
Total
|
|
|
2009
|
|
|
2010-11
|
|
|
2012-13
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Long-term debt (including current
maturities)(a)
|
|
$
|
1,192
|
|
|
$
|
33
|
|
|
$
|
354
|
|
|
$
|
293
|
|
|
$
|
512
|
|
Nonrecourse financial liabilities of special purposes
entities(a)
|
|
|
2,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,140
|
|
Less, related financial assets of special purpose
entities(a)
|
|
|
(2,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,140
|
)
|
Principal portion of capital lease
obligations(a)
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188
|
|
Less, related municipal bonds we
own(a)
|
|
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
Contractual interest payments on fixed-rate, long-term debt and
capital lease obligations, net of interest on related municipal
bonds we own
|
|
|
364
|
|
|
|
59
|
|
|
|
115
|
|
|
|
79
|
|
|
|
111
|
|
Operating
leases(b)
|
|
|
215
|
|
|
|
43
|
|
|
|
63
|
|
|
|
39
|
|
|
|
70
|
|
Purchase obligations
|
|
|
1,617
|
|
|
|
195
|
|
|
|
289
|
|
|
|
218
|
|
|
|
915
|
|
Other long-term
liabilities(a)
|
|
|
13
|
|
|
|
4
|
|
|
|
5
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,401
|
|
|
$
|
334
|
|
|
$
|
826
|
|
|
$
|
630
|
|
|
$
|
1,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Items included on our balance sheet.
|
|
(b) |
|
The present value of future operating lease payments of
$57 million is included on our balance sheet.
|
33
Our contractual obligations due in 2009 will likely be repaid
from our operating cash flow or from our unused borrowing
capacity.
In 2007, we received $2.38 billion in notes from the sale
of timberland, which we contributed to two wholly-owned,
bankruptcy-remote special purpose entities. The notes are
secured by irrevocable letters of credit and are due in 2027.
The special purpose entities pledged the notes and irrevocable
letters of credit to secure $2.14 billion nonrecourse loans
payable in 2027. In the event of liquidation of the special
purpose entities, these creditors would be entitled to satisfy
their claims from the pledged notes and irrevocable letters of
credit prior to distributions back to us. Please read
Financial Assets and Nonrecourse Financial Obligations of
Special Purpose Entities.
In the 1990s, we entered into two sale-lease back transactions
of production facilities with municipalities. We entered into
these transactions to mitigate property and similar taxes
associated with these facilities. The municipalities purchased
these facilities from us for $188 million, our carrying
value, and we leased the facilities back from the municipalities
under capital lease agreements, which expire in 2022 and 2025.
Concurrently, we purchased $188 million of interest-bearing
bonds issued by these municipalities. The bond terms are
identical to the lease terms, are secured by payments under the
capital lease obligations, and the municipalities are obligated
only to the extent the underlying lease payments are made by us.
The interest rate implicit in the leases is the same as the
interest rate on the bonds. As a result, the present value of
the capital lease obligations is $188 million, the same as
the principal amount of the bonds. Since there is no legal right
of offset, the $188 million of bonds are included in other
assets and the $188 million present value of the capital
lease obligations are included in other long-term liabilities.
There is no net effect from these transactions as we are in
substance both the obligor on, and the holder of, the bonds.
Operating leases represent pre-tax obligations and include
$135 million for the lease of particleboard and MDF
facilities in Mt. Jewett, Pennsylvania, which expire in 2019. In
2007, we recorded an impairment charge related to the
particleboard facility long-term operating lease. This charge
did not affect our continuing obligations under the lease,
including paying rent and maintaining the equipment. The present
value of the future payments is included on our balance sheet,
of which $7 million is included in current liabilities and
$50 million in other long-term liabilities at year-end
2008. The rest of our operating lease obligations are for
facilities and equipment.
Purchase obligations are market priced obligations principally
for pulpwood, timber, and gypsum used in our manufacturing and
converting processes and to a lesser extent for major committed
capital expenditures. The purchase obligations are valued at
year-end 2008 market prices; however, our actual future
purchases will be at the then current market prices. Purchase
obligations include $1.3 billion related to a pulpwood
supply agreement that expires in 2026 and a sawtimber supply
agreement that expires in 2018 both of which can be extended.
These supply agreements were entered into in conjunction with
the 2007 sale of our timberlands.
We have other long-term liabilities, principally liabilities for
pension and postretirement benefits, unrecognized tax benefits,
and deferred income taxes that are not included in the table
because they do not have scheduled maturities. Please read
Pension, Postretirement Medical and Health Care Matters.
At year-end 2008, our net deferred income tax liability was
$684 million, including $281 million of alternative
minimum tax credits related to the 2007 sale of our timberland.
We do not expect any significant changes in our deferred tax
liability in 2009. Our cash tax rate is impacted by utilization
of our alternative minimum tax credits.
At year-end 2008, we do not have any outstanding derivative
instruments. Our interest rate derivative instruments that were
outstanding at year-end 2007 expired in 2008.
Financial
Assets and Nonrecourse Financial Liabilities of Special Purpose
Entities
We sold our strategic timberland on October 31, 2007 for
$2.38 billion. The total consideration consisted almost
entirely of notes due in 2027 issued by the buyer of the
timberland. The notes are secured by $2.38 billion of
irrevocable standby letters of credit issued by four banks,
which are required to maintain a credit rating on their
long-term unsecured debt of at least A+ by S&P and A1 by
Moodys. The letters of
34
credit are secured by the buyers long-term deposits with
the banks of $2.38 billion of cash and cash equivalents.
On December 3, 2007, two wholly-owned, bankruptcy-remote
subsidiaries formed by us borrowed $2.14 billion repayable
in 2027 from a group of lenders affiliated with Citibank, N.A.,
and led by Citicorp North America, Inc., as agent, under
substantially similar loan agreements. The loans are nonrecourse
to us and are secured only by the $2.38 billion of notes
and the letters of credit. The loan agreements provide that if a
credit rating of any bank issuing letters of credit is
downgraded below the required level, the letters of credit
issued by that bank must be replaced within 30 days with
letters of credit from another qualifying financial institution.
On December 19, 2008, S&P lowered its credit rating of
one of the letter of credit banks, Dexia Credit Local, to A. To
replace the letters of credit issued by Dexia, SunTrust Bank, at
the request of the buyer of the timberland, issued substitute
letters of credit totaling approximately $500 million on
January 16, 2009 and replaced Dexia as a qualified letter
of credit issuer in the transaction. In order to maintain a
constant deposit margin equal to that paid by Dexia, we were
required to pay $12 million to SunTrust. This payment will
be amortized through 2027, the remaining life of the
transaction, at a rate of less than $1 million per year.
Following this substitution, the four banks issuing letters of
credit in the transaction are now: Barclays plc,
Société Genéralé, and Sun Trust Bank,
each of which has issued letters of credit totaling about
$500 million, and The Royal Bank of Scotland plc, which has
issued letters of credit totaling $865 million. Currently
each of these banks meets the required minimum credit ratings.
However, in light of current conditions in financial markets,
there is no assurance that these credit ratings will be
maintained.
If we were required to find a substitute letter of credit issuer
because of a credit rating change and were unable to do so, it
is possible that a portion of the deferred taxes from the gain
on the sale of our timberlands would become currently payable.
We currently have alternative minimum tax credits available to
offset a substantial portion of any federal taxes that would
become payable. The net payment required would vary depending on
the bank involved, the portion of the transaction represented
and amount of alternative minimum tax credits available, but
would likely be in the range of $40 million to
$75 million.
If there were a second failed substitution, it is possible that
the remaining deferred taxes from the gain on the sale of our
timberlands would become currently payable, less any remaining
available alternative minimum tax credits. In addition, some or
all of the difference between the purchase notes and the
obligations under the loan agreements, approximately
$240 million in total, would be available to pay any such
taxes.
Off-Balance
Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements
to facilitate our operating activities. At year-end 2008, our
off-balance sheet unfunded arrangements, excluding contractual
interest payments, operating leases, and purchase and other
obligations included in the table of contractual obligations,
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring by Year
|
|
|
Total
|
|
2009
|
|
2010-11
|
|
2012-13
|
|
Thereafter
|
|
|
(In millions)
|
|
Joint venture guarantees
|
|
$
|
17
|
|
|
|
2
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Performance bonds and recourse obligations
|
|
|
58
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We participate in one joint venture that produces medium density
fiberboard in El Dorado, Arkansas. Our partner in this venture
is a publicly-held company unrelated to us. At year-end 2008,
this venture had $29 million in long-term debt and
$5 million of debt included in current maturities, along
with various letters of credit. We guaranteed $17 million
of the joint venture debt and letters of credit. Our joint
venture partner also provided guarantees of the debt and letters
of credit. Generally we would be called upon to fund the
guarantees due to the lack of specific performance by the joint
ventures, such as non-payment of debt.
Performance bonds and recourse obligations are comprised of
$39 million of letters of credit to support workers
compensation obligations, an $11 million letter of credit
to support an operating lease obligation, and $8 million of
letters of credits primarily to support environmental cleanup
obligations.
35
Pension,
Postretirement Medical and Health Care Matters
Our non-cash defined benefit pension expense in 2008 was
$37 million and, in addition, we recognized
$15 million of expense related to lump sum settlements of
supplemental payments. We expect our 2009 non-cash defined
benefit pension expense to be about $41 million.
In 2007, we made significant changes to our asset allocation to
a more matched position between assets and liabilities in our
qualified defined benefit plan. This action is expected to
reduce the volatility of our defined benefit expense and our
funding requirements. As a result, we have targeted 78 to
88 percent of our plan assets to be invested in debt
securities that we believe have a duration that approximates our
benefit obligation. The remaining plan assets are targeted to be
invested in assets that provide market exposure to mitigate the
effects of inflation, mortality and actuarial risks.
The funded status of our defined benefit plan was a liability of
$177 million at year-end 2008 and $119 million at
year-end 2007. The change was principally due to a lower than
expected return on plan assets, partially offset by
$30 million in voluntary, discretionary contributions we
made in 2008. Unrecognized actuarial losses, which are included
in accumulated other comprehensive income and principally
represent the delayed recognition of changes in the discount
rate and differences between expected and actual returns, were
$228 million at year-end 2008 and $166 million at
year-end 2007. These losses will be recognized over the average
remaining service period of our current employees, which is
about nine years. We expect about $10 million of these
losses will be recognized in 2009, compared with $5 million
recognized in 2008.
Our expected long-term rate of return on plan assets is
6.875 percent for both 2009 and 2008. The expected
long-term rate of return on plan assets is an assumption we make
reflecting the anticipated weighted average rate of earnings on
the plan assets over the long-term. In selecting that rate
particular consideration is given to our asset allocation that
reflects our matched position between the assets and liabilities
of our qualified defined benefit plan.
The discount rate we used to determine the present value of the
benefit obligations at year-end 2008 was 6.11 percent. We
determined this rate using the Citigroup Pension Discount Curve.
Previously we used the December one-month average of the
Moodys AA corporate bond rate adjusted to reflect the
effect of compounding. We believe that using a yield curve more
accurately reflects changes in the present value of our defined
benefit plan obligation because each years cash flow is
discounted at a rate at which it could effectively be settled
versus the use of a single index rate.
We have no minimum funding requirement under ERISA in 2009.
Beginning in 2008, benefits earned under the supplemental
defined benefit plan are paid upon retirement or when the
employee terminates. In addition in 2008, we made lump-sum
payments of $42 million to existing retirees who elected to
receive a lump-sum settlement of supplemental benefits earned.
The funded status of our postretirement medical plans projected
benefit obligation was a liability of $113 million at
year-end 2008 and $137 million at year-end 2007. We expect
our 2009 payments to participants in our postretirement medical
plans to be about $11 million.
Please read Critical Accounting Estimates and
Note 8 to the Consolidated Financial Statements.
About 24 percent of our employees participated in a
consumer driven health plan in 2008 compared with
26 percent in 2007.
A summary of the cost of providing health benefits follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In millions)
|
|
Cost incurred by us
|
|
$
|
65
|
|
|
$
|
69
|
|
|
$
|
67
|
|
Cost incurred by employees
|
|
|
31
|
|
|
|
31
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96
|
|
|
$
|
100
|
|
|
$
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Energy
and the Effects of Inflation
Energy costs increased $55 million in 2008, decreased
$22 million in 2007 and increased $8 million in 2006.
The increase in 2008 is primarily attributable to the higher
market prices. The decrease in 2007 is primarily attributable to
reduced usage as a result of lower operating rates at several of
our building products facilities. We continue to reduce our
dependency on natural gas by utilizing biomass fuels. Our energy
costs fluctuate based on the market prices we pay. We hedge very
little of our energy needs. It is likely that these costs will
continue to fluctuate in 2009.
Inflationary increases in compensation and certain input costs
such as fiber, energy and freight have had a negative impact on
our operating results. However, we have managed to offset a
portion of the impact of inflation through increased
productivity. Our fixed assets are carried at historical costs.
If carried at current replacement costs, depreciation expense
would have been significantly higher than what we reported.
Environmental
Protection
Our operations are subject to federal, state, and local
provisions regulating discharges into the environment and
otherwise related to the protection of the environment.
Compliance with these provisions requires us to invest
substantial funds to modify facilities to assure compliance with
applicable environmental regulations. Please read
Business Environmental Regulation.
Litigation
Matters
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business. In our
opinion, the possibility of a material loss from any of these
proceedings is considered to be remote, and we do not expect
that the effect of these proceedings will be material to our
financial position, results of operations, or cash flow. It is
possible, however, that charges related to these matters could
be significant to results of operations or cash flows in any one
accounting period. Please read Legal Proceedings.
37
Calculation
of Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated
|
|
|
Building
|
|
|
Timber and
|
|
|
|
Consolidated
|
|
|
Packaging
|
|
|
Products
|
|
|
Timberland
|
|
|
|
(Dollars in millions)
|
|
|
Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income determined in accordance with GAAP
|
|
$
|
185
|
|
|
$
|
225
|
|
|
$
|
(40
|
)
|
|
$
|
N/A
|
|
Items not included in segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
(76
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Share-based compensation
|
|
|
2
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
111
|
|
|
$
|
225
|
|
|
$
|
(40
|
)
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year total assets or segment assets determined in
accordance with GAAP
|
|
$
|
5,942
|
|
|
$
|
2,301
|
|
|
$
|
623
|
|
|
$
|
N/A
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (excluding current portion of long-term debt)
|
|
|
(887
|
)
|
|
|
(311
|
)
|
|
|
(63
|
)
|
|
|
N/A
|
|
Financial assets of special purpose entities
|
|
|
(2,383
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Municipal bonds related to capital leases included in other
assets
|
|
|
(188
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,484
|
|
|
$
|
1,990
|
|
|
$
|
560
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROI
|
|
|
4.5
|
%
|
|
|
11.3
|
%
|
|
|
(7.1
|
)%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income determined in accordance with GAAP
|
|
$
|
360
|
|
|
$
|
287
|
|
|
$
|
8
|
|
|
$
|
65
|
|
Items not included in segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
(100
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Share-based compensation
|
|
|
(34
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
226
|
|
|
$
|
287
|
|
|
$
|
8
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year total assets or segment assets determined in
accordance with GAAP
|
|
$
|
20,474
|
|
|
$
|
2,275
|
|
|
$
|
638
|
|
|
$
|
330
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (excluding current portion of long-term debt)
|
|
|
(550
|
)
|
|
|
(271
|
)
|
|
|
(76
|
)
|
|
|
(11
|
)
|
Assets of discontinued operations
|
|
|
(16,847
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Municipal bonds related to capital leases included in other
assets
|
|
|
(188
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,889
|
|
|
$
|
2,004
|
|
|
$
|
562
|
|
|
$
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROI
|
|
|
7.8
|
%
|
|
|
14.3
|
%
|
|
|
1.4
|
%
|
|
|
20.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income determined in accordance with GAAP
|
|
$
|
539
|
|
|
$
|
255
|
|
|
$
|
221
|
|
|
$
|
63
|
|
Items not included in segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
(107
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Share-based compensation
|
|
|
(38
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
394
|
|
|
$
|
255
|
|
|
$
|
221
|
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year total assets or segment assets determined in
accordance with GAAP
|
|
$
|
21,630
|
|
|
$
|
2,308
|
|
|
$
|
456
|
|
|
$
|
333
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (excluding current portion of long-term debt)
|
|
|
(476
|
)
|
|
|
(269
|
)
|
|
|
(66
|
)
|
|
|
(10
|
)
|
Assets of discontinued operations
|
|
|
(18,219
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Municipal bonds related to capital leases included in other
assets
|
|
|
(188
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Acquisition of Standard Gypsum LP in January 2006
|
|
|
196
|
|
|
|
N/A
|
|
|
|
196
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,943
|
|
|
$
|
2,039
|
|
|
$
|
586
|
|
|
$
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROI
|
|
|
13.4
|
%
|
|
|
12.5
|
%
|
|
|
37.7
|
%
|
|
|
19.5
|
%
|
38
Statistical
and Other Data
Revenues and unit sales, excluding joint venture operations,
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
2,975
|
|
|
$
|
2,905
|
|
|
$
|
2,841
|
|
Paperboard(a)(b)
|
|
|
215
|
|
|
|
139
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,190
|
|
|
$
|
3,044
|
|
|
$
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine lumber
|
|
$
|
225
|
|
|
$
|
244
|
|
|
$
|
278
|
|
Particleboard
|
|
|
175
|
|
|
|
181
|
|
|
|
214
|
|
Gypsum wallboard
|
|
|
135
|
|
|
|
228
|
|
|
|
420
|
|
Medium density fiberboard
|
|
|
72
|
|
|
|
62
|
|
|
|
65
|
|
Fiberboard
|
|
|
41
|
|
|
|
52
|
|
|
|
72
|
|
Other
|
|
|
46
|
|
|
|
39
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
694
|
|
|
$
|
806
|
|
|
$
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timber and
Timberland(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber and other
|
|
$
|
N/A
|
|
|
$
|
76
|
|
|
$
|
89
|
|
Unit sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging, thousands of tons
|
|
|
3,303
|
|
|
|
3,351
|
|
|
|
3,371
|
|
Paperboard, thousands of
tons(a)(b)
|
|
|
469
|
|
|
|
303
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,772
|
|
|
|
3,654
|
|
|
|
3,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine lumber, million board feet
|
|
|
769
|
|
|
|
838
|
|
|
|
829
|
|
Particleboard, million square feet
|
|
|
472
|
|
|
|
506
|
|
|
|
609
|
|
Gypsum wallboard, million square feet
|
|
|
1,061
|
|
|
|
1,475
|
|
|
|
1,990
|
|
Medium density fiberboard, million square feet
|
|
|
140
|
|
|
|
135
|
|
|
|
142
|
|
Fiberboard, million square feet
|
|
|
213
|
|
|
|
288
|
|
|
|
362
|
|
|
|
|
(a) |
|
Paperboard includes containerboard and light-weight gypsum
facing paper. |
|
(b) |
|
Comparisons of revenue and unit sales of paperboard are affected
by the July 25, 2008 purchase of our partners
interest in Premier Boxboard Limited LLC. The effects on
revenues and unit sales for the periods presented are not
material. |
|
(c) |
|
We no longer have a timber and timberlands segment as a result
of the fourth quarter 2007 sale of our timberlands. |
39
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
Rate Risk
Our interest rate risk is primarily due to our variable-rate,
long-term debt and to the financial assets and nonrecourse
financial liabilities of special purpose entities. This risk is
the result of changes in interest rates and also the use of
different base rates and the timing of the quarterly interest
rate resets on the financial assets and nonrecourse financial
liabilities of special purpose entities. This risk could be
volatile in light of current conditions in the financial markets
and the erratic movements of LIBOR.
Our variable-rate debt was $351 million at year-end 2008
and $1 million at year-end 2007. A one percent change in
interest rates on our variable-rate debt would change our annual
interest expense by $3 million.
Our $2.47 billion of financial assets of special purpose
entities require quarterly interest payments based on variable
rates referenced to LIBOR that reset quarterly. A one percent
change in interest rates on these financial assets will change
our annual interest income by $24 million.
Our $2.14 billion of nonrecourse financial liabilities of
special purpose entities require quarterly interest payments
based on variable interest rates. The interest rates on these
liabilities reflect the lenders pooled commercial paper
issuance rates and reset daily. A one percent change in interest
rates on these liabilities will change our annual interest
expense by $22 million.
The following table illustrates the estimated effect on our
pre-tax income of immediate, parallel, and sustained shifts in
interest rates for the next 12 months at year-end 2008 on
our variable-rate debt and our net financial assets and
nonrecourse financial liabilities of special purpose entities,
with comparative year-end 2007 information. These estimates
assume that debt reductions from contractual payments will be
replaced with short-term, variable-rate debt; however, that may
not be the financing alternative we choose to follow.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease)
|
|
|
|
Year-End 2008
|
|
|
Year-End 2007
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
Change in
|
|
Variable
|
|
|
Purpose
|
|
|
|
|
|
Variable
|
|
|
Purpose
|
|
|
|
|
Interest Rates
|
|
Rate Debt
|
|
|
Entities - Net
|
|
|
Total
|
|
|
Rate Debt
|
|
|
Entities - Net
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
+2%
|
|
$
|
(7
|
)
|
|
$
|
5
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
5
|
|
|
$
|
4
|
|
+1%
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
−1%
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
−2%
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Foreign
Currency Risk
We do not have significant exposure to foreign currency
fluctuations on our financial instruments because most of these
instruments are denominated in U.S. dollars.
Commodity
Price Risk
From time to time we use commodity derivative instruments to
mitigate our exposure to changes in product pricing and
manufacturing costs. These instruments cover a small portion of
our volume. Considering the fair value of these instruments at
year-end 2008, we believe the potential loss in fair value
resulting from a hypothetical ten percent change in the
underlying commodity prices would not be significant.
40
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
Temple-Inland Inc. and Subsidiaries:
|
|
|
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
41
MANAGEMENTS
ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
The management of Temple-Inland is responsible for establishing
and maintaining adequate internal control over financial
reporting. Management has designed our internal control over
financial reporting to provide reasonable assurance that our
published financial statements are fairly presented, in all
material respects, in conformity with generally accepted
accounting principles.
Management is required by paragraph (c) of
Rule 13a-15
of the Securities Exchange Act of 1934, as amended, to assess
the effectiveness of our internal control over financial
reporting as of each year end. In making this assessment,
management used the Internal Control Integrated
Framework issued in July 1994 by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Management conducted the required assessment of the
effectiveness of our internal control over financial reporting
as of year end, January 3, 2009. Based upon this
assessment, management believes that our internal control over
financial reporting is effective as of January 3, 2009.
Ernst & Young LLP, the independent registered public
accounting firm that audited our financial statements included
in this
Form 10-K,
has also audited our internal control over financial reporting.
Their attestation report follows this report of management.
42
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Temple-Inland Inc.:
We have audited internal control over financial reporting as of
January 3, 2009 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Temple-Inland Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the effectiveness of the Companys
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Temple-Inland Inc. and subsidiaries maintained,
in all material respects, effective internal control over
financial reporting as of January 3, 2009, based on the
COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Temple-Inland Inc. and
subsidiaries as of January 3, 2009 and December 29,
2007 and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended January 3, 2009 and our report
dated February 20, 2009 expressed an unqualified opinion
thereon.
Ernst & Young LLP
Austin, Texas
February 20, 2009
43
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Temple-Inland Inc.:
We have audited the accompanying consolidated balance sheets of
Temple-Inland Inc. and subsidiaries as of January 3, 2009,
and December 29, 2007, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended January 3,
2009. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide 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
January 3, 2009 and December 29, 2007, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended January 3,
2009, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the Consolidated Financial
Statements, in 2007, the Company changed the measurement date
for measuring the funded status of defined pension and other
postretirement benefit plans. Additionally, during 2007 the
Company changed its method of accounting for and disclosure of
uncertainties associated with certain aspects of measurement and
recognition of income taxes.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Temple-Inland Inc.s internal control over
financial reporting as of January 3, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
February 20, 2009 expressed an unqualified opinion thereon.
Ernst & Young LLP
Austin, Texas
February 20, 2009
44
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
41
|
|
|
$
|
227
|
|
Trade receivables, net of allowance for doubtful accounts of $14
in 2008 and 2007
|
|
|
407
|
|
|
|
433
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work in process and finished goods
|
|
|
104
|
|
|
|
116
|
|
Raw materials
|
|
|
217
|
|
|
|
224
|
|
Supplies and other
|
|
|
137
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
458
|
|
|
|
461
|
|
Deferred tax asset
|
|
|
66
|
|
|
|
99
|
|
Income taxes receivable
|
|
|
57
|
|
|
|
|
|
Prepaid expenses and other
|
|
|
44
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,073
|
|
|
|
1,277
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
671
|
|
|
|
641
|
|
Machinery and equipment
|
|
|
3,577
|
|
|
|
3,423
|
|
Construction in progress
|
|
|
36
|
|
|
|
120
|
|
Less allowances for depreciation
|
|
|
(2,620
|
)
|
|
|
(2,552
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,664
|
|
|
|
1,632
|
|
Financial Assets of Special Purpose Entities
|
|
|
2,474
|
|
|
|
2,383
|
|
Goodwill
|
|
|
394
|
|
|
|
365
|
|
Other Assets
|
|
|
264
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
5,869
|
|
|
$
|
5,942
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
162
|
|
|
$
|
244
|
|
Accrued employee compensation and benefits
|
|
|
84
|
|
|
|
108
|
|
Accrued interest
|
|
|
30
|
|
|
|
31
|
|
Accrued property taxes
|
|
|
12
|
|
|
|
11
|
|
Accrued income taxes
|
|
|
|
|
|
|
258
|
|
Other accrued expenses
|
|
|
140
|
|
|
|
173
|
|
Current portion of long-term debt
|
|
|
1
|
|
|
|
3
|
|
Current portion of pension and postretirement benefits
|
|
|
17
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
446
|
|
|
|
890
|
|
Long-Term Debt
|
|
|
1,191
|
|
|
|
852
|
|
Nonrecourse Financial Liabilities of Special Purpose
Entities
|
|
|
2,140
|
|
|
|
2,140
|
|
Deferred Tax Liability
|
|
|
750
|
|
|
|
762
|
|
Liability for Pension Benefits
|
|
|
172
|
|
|
|
71
|
|
Liability for Postretirement Benefits
|
|
|
101
|
|
|
|
123
|
|
Other Long-Term Liabilities
|
|
|
292
|
|
|
|
324
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
5,092
|
|
|
|
5,162
|
|
|
|
|
|
|
|
|
|
|
NONCONTROLLING INTEREST OF SPECIAL PURPOSE ENTITIES
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock par value $1 per share: authorized
25,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock par value $1 per share: authorized
200,000,000 shares; issued 123,605,344 shares in 2008
and 2007, including shares held in the treasury
|
|
|
124
|
|
|
|
124
|
|
Additional paid-in capital
|
|
|
461
|
|
|
|
475
|
|
Accumulated other comprehensive loss
|
|
|
(189
|
)
|
|
|
(139
|
)
|
Retained earnings
|
|
|
936
|
|
|
|
987
|
|
Cost of shares held in the treasury: 17,098,808 shares in
2008 and 17,464,189 shares in 2007
|
|
|
(646
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
686
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
5,869
|
|
|
$
|
5,942
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
NET REVENUES
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
$
|
4,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(3,533
|
)
|
|
|
(3,390
|
)
|
|
|
(3,476
|
)
|
Selling
|
|
|
(113
|
)
|
|
|
(112
|
)
|
|
|
(107
|
)
|
General and administrative
|
|
|
(128
|
)
|
|
|
(197
|
)
|
|
|
(214
|
)
|
Gain on sale of timberland
|
|
|
|
|
|
|
2,053
|
|
|
|
|
|
Other operating income (expense)
|
|
|
(28
|
)
|
|
|
(189
|
)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,802
|
)
|
|
|
(1,835
|
)
|
|
|
(3,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
82
|
|
|
|
2,091
|
|
|
|
420
|
|
Other non-operating income (expense)
|
|
|
|
|
|
|
(35
|
)
|
|
|
93
|
|
Interest income on financial assets of special purpose entities
|
|
|
80
|
|
|
|
19
|
|
|
|
|
|
Interest expense on nonrecourse financial liabilities of special
purpose entities
|
|
|
(82
|
)
|
|
|
(9
|
)
|
|
|
|
|
Interest expense on debt
|
|
|
(81
|
)
|
|
|
(111
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
|
|
|
(1
|
)
|
|
|
1,955
|
|
|
|
390
|
|
Income tax expense
|
|
|
(7
|
)
|
|
|
(753
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
|
(8
|
)
|
|
|
1,202
|
|
|
|
287
|
|
Discontinued operations
|
|
|
|
|
|
|
103
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
|
$
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106.7
|
|
|
|
106.0
|
|
|
|
108.8
|
|
Diluted
|
|
|
107.4
|
|
|
|
108.1
|
|
|
|
110.8
|
|
EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
11.33
|
|
|
$
|
2.64
|
|
Discontinued operations
|
|
|
|
|
|
|
0.98
|
|
|
|
1.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
12.31
|
|
|
$
|
4.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.08
|
)
|
|
$
|
11.12
|
|
|
$
|
2.59
|
|
Discontinued operations
|
|
|
|
|
|
|
0.96
|
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(0.08
|
)
|
|
$
|
12.08
|
|
|
$
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
46
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
CASH PROVIDED BY (USED FOR) OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
|
$
|
468
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
206
|
|
|
|
214
|
|
|
|
225
|
|
Impairments
|
|
|
3
|
|
|
|
64
|
|
|
|
|
|
Non-cash share-based compensation
|
|
|
(2
|
)
|
|
|
39
|
|
|
|
38
|
|
Non-cash pension and postretirement expense
|
|
|
60
|
|
|
|
44
|
|
|
|
56
|
|
Cash contribution to pension and postretirement plans
|
|
|
(93
|
)
|
|
|
(80
|
)
|
|
|
(76
|
)
|
Deferred income taxes
|
|
|
55
|
|
|
|
435
|
|
|
|
34
|
|
Earnings of joint ventures
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
(11
|
)
|
Dividends from joint ventures
|
|
|
12
|
|
|
|
8
|
|
|
|
12
|
|
Loss on early payment of debt
|
|
|
|
|
|
|
40
|
|
|
|
|
|
Gain on sale of timberland
|
|
|
|
|
|
|
(2,053
|
)
|
|
|
|
|
Other
|
|
|
(4
|
)
|
|
|
14
|
|
|
|
18
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
27
|
|
|
|
19
|
|
|
|
(28
|
)
|
Inventories
|
|
|
11
|
|
|
|
(30
|
)
|
|
|
(10
|
)
|
Accounts payable and accrued expenses
|
|
|
(395
|
)
|
|
|
274
|
|
|
|
32
|
|
Prepaid expenses and other
|
|
|
(47
|
)
|
|
|
8
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(182
|
)
|
|
|
296
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) INVESTING
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(164
|
)
|
|
|
(225
|
)
|
|
|
(187
|
)
|
Reforestation and net acquisition of timber and timberland
|
|
|
|
|
|
|
(12
|
)
|
|
|
(17
|
)
|
Sale of timberland
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
Sales of non-strategic assets and operations and proceeds from
sale of property and equipment
|
|
|
4
|
|
|
|
24
|
|
|
|
64
|
|
Acquisitions, net of cash acquired
|
|
|
(57
|
)
|
|
|
|
|
|
|
(144
|
)
|
Investment in joint ventures
|
|
|
(7
|
)
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Other
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(227
|
)
|
|
|
(235
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) FINANCING
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of debt
|
|
|
(64
|
)
|
|
|
(567
|
)
|
|
|
(47
|
)
|
Borrowings under accounts receivable securitization facility, net
|
|
|
189
|
|
|
|
(163
|
)
|
|
|
133
|
|
Borrowings under revolving credit facility, net
|
|
|
161
|
|
|
|
(12
|
)
|
|
|
(56
|
)
|
Change in book overdrafts
|
|
|
(17
|
)
|
|
|
13
|
|
|
|
2
|
|
Fees associated with debt
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
Other additions to debt
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Nonrecourse borrowings of special purpose entities
|
|
|
|
|
|
|
2,140
|
|
|
|
|
|
Cash dividends paid to shareholders
|
|
|
(43
|
)
|
|
|
(1,212
|
)
|
|
|
(108
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
(24
|
)
|
|
|
(318
|
)
|
Exercise of stock options
|
|
|
1
|
|
|
|
20
|
|
|
|
47
|
|
Tax benefit of stock options exercised
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
10
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226
|
|
|
|
168
|
|
|
|
(331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities
|
|
|
|
|
|
|
(33
|
)
|
|
|
255
|
|
Net cash provided by (used for) investing activities
|
|
|
|
|
|
|
(619
|
)
|
|
|
1,056
|
|
Net cash provided by (used for) financing activities
|
|
|
|
|
|
|
620
|
|
|
|
(1,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(186
|
)
|
|
|
197
|
|
|
|
30
|
|
Cash and cash equivalents at beginning of year
|
|
|
227
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at year-end
|
|
$
|
41
|
|
|
$
|
227
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
47
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Income /(Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at year-end 2005
|
|
$
|
124
|
|
|
$
|
445
|
|
|
$
|
(189
|
)
|
|
$
|
2,141
|
|
|
$
|
(441
|
)
|
|
$
|
2,080
|
|
Comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
|
|
|
|
|
|
468
|
|
Unrealized gains/(losses) on securities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Defined benefits
|
|
|
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock $1.00 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
(108
|
)
|
Share-based compensation, net of distributions
10,289 shares
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
27
|
|
Exercise of stock options 1,736,335 net shares
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
47
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Repurchase of common stock 7,850,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(333
|
)
|
|
|
(333
|
)
|
Adoption of SFAS No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2006
|
|
$
|
124
|
|
|
$
|
468
|
|
|
$
|
(191
|
)
|
|
$
|
2,501
|
|
|
$
|
(713
|
)
|
|
$
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,305
|
|
|
|
|
|
|
|
1,305
|
|
Unrealized gains/(losses) on securities
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Defined benefits
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regular dividends paid on common stock $1.12 per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
|
(118
|
)
|
Special dividend paid on common stock $10.25 per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,094
|
)
|
|
|
|
|
|
|
(1,094
|
)
|
Share-based compensation, net of distributions
281,472 shares
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
18
|
|
Exercise of stock options 1,009,246 net shares
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
20
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Adoption of FASB Interpretation No. 48, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Adoption of measurement provisions of SFAS No. 158,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
Spin-off of Forestar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
(434
|
)
|
Spin-off of Guaranty
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
(1,173
|
)
|
|
|
|
|
|
|
(1,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2007
|
|
$
|
124
|
|
|
$
|
475
|
|
|
$
|
(139
|
)
|
|
$
|
987
|
|
|
$
|
(667
|
)
|
|
$
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(8
|
)
|
Defined benefits
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock $0.40 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(43
|
)
|
Share-based compensation, net of distributions
287,645 shares
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
7
|
|
Exercise of stock options 77,736 net shares
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
1
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2008
|
|
$
|
124
|
|
|
$
|
461
|
|
|
$
|
(189
|
)
|
|
$
|
936
|
|
|
$
|
(646
|
)
|
|
$
|
686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
48
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
Note 1
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
Our consolidated financial statements include the accounts of
Temple-Inland Inc., its subsidiaries and special purpose and
variable interest entities of which we are the primary
beneficiary. We account for our investment in other entities in
which we have significant influence over operations and
financial policies using the equity method.
We prepare our financial statements in accordance with generally
accepted accounting principles, which require us to make
estimates and assumptions about future events. Actual results
can, and probably will, differ from those we currently estimate.
We eliminate all material intercompany accounts and transactions.
Our fiscal year ends on the Saturday closest to
December 31, which from time to time means that a fiscal
year will include 53 weeks instead of 52 weeks. Fiscal
year 2008 had 53 weeks and fiscal years 2007 and 2006 had
52 weeks. Fiscal year 2008 ended January 3, 2009,
fiscal year 2007 ended December 29, 2007, and fiscal year
2006 ended December 30, 2006.
We translate the balance sheets of our international operations
where the functional currency is other than the U.S. dollar
into U.S. dollars at year-end exchange rates. We include
adjustments resulting from financial statement translation in
other comprehensive income.
2007
Transformation
On December 28, 2007, we completed our transformation that
was approved by our board of directors in February 2007. A
summary of the significant elements of the transformation
follows:
|
|
|
|
|
On October 31, 2007, we sold 1.55 million acres of
timberland for $2.38 billion to an investment entity
affiliated with The Campbell Group, LLC and recognized a pre-tax
gain of $2.053 billion, which is included in other
operating income. The total consideration consisted almost
entirely of notes due in 2027, which are secured by irrevocable
letters of credit issued by independent financial institutions.
We also entered into a
20-year
fiber supply agreement for pulpwood and a
12-year
fiber supply agreement for sawtimber. Both agreements are at
market prices, and are subject to extension.
|
|
|
|
We contributed the notes and irrevocable letters of credit
received in connection with the sale of our timberlands to two
wholly-owned, bankruptcy-remote special purpose entities. On
December 3, 2007, the special purpose entities pledged the
notes receivable from the sale of timberland as collateral for
$2.14 billion nonrecourse loans payable 2027. The net cash
proceeds, after alternative minimum and other taxes related to
sale of the timberland and transaction costs, were
$1.8 billion. We used $1.1 billion of the net cash
proceeds to pay a $10.25 per share special cash dividend to our
shareholders in December 2007. The remaining $700 million
was used to reduce debt. We concluded that we were the primary
beneficiary of these special purpose entities. As a result we
include these special purpose entities in our consolidated
financial statements.
|
|
|
|
On December 28, 2007, we completed the spin-off of our real
estate segment, Forestar Group Inc. (Forestar), and our
financial services segment, Guaranty Financial Group Inc.
(Guaranty). These spin-offs reduced retained earnings by
$1.6 billion. Our financial information has been
reclassified to reflect Forestar and Guaranty as discontinued
operations for all periods prior to the spin-offs. Please read
Note 19 for additional information.
|
Allowance
for Doubtful Accounts
We estimate future probable losses of our current trade
receivables and establish an allowance for doubtful accounts
based on our historical experience and any specific customer
collections issues identified
49
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
during our evaluation. Our allowance for doubtful accounts was
$14 million at year-end 2008 and 2007. The provision for
doubtful accounts was $4 million in 2008, $3 million
in 2007 and $3 million in 2006 and is included in selling
expenses. Accounts charged-off, net of recoveries were
$4 million in 2008, $3 million in 2007 and
$3 million in 2006.
Asset
Retirement Obligations and Environmental
Obligations
We recognize legal obligations associated with the retirement of
long-lived assets when the obligation is incurred. We record the
estimated present value of the retirement obligation and
increase the carrying value of the long-lived asset by a like
amount. Over time, we accrete or increase the liability to its
settlement value and we depreciate or decrease the asset to
zero. When we settle the obligation we recognize a gain or loss
for any difference between the settlement amount and the then
recorded obligation.
Our asset retirement obligations consist principally of costs to
remediate landfills we operate. The present value of these asset
retirement obligations was $14 million at year-end 2008 and
$13 million at year-end 2007 and is included in other
long-term liabilities. Accretion expense was $1 million in
2008, less than $1 million in 2007 and $1 million in
2006 and is included in cost of sales.
Many of our manufacturing facilities contain asbestos and lead
paint. We are currently not required to remove any of these
materials, but we could be required to do so in the future if we
were to demolish or undertake major renovations of these
facilities. At this time, we have no such plans, which makes it
impractical to estimate the fair value of any related asset
retirement obligations. Accordingly, a liability has not been
recognized for these asset retirement obligations.
In addition, we record environmental remediation liabilities on
an undiscounted basis when environmental assessments or
remediation are probable and we can reasonably estimate the
cost. We adjust these liabilities as further information is
obtained or circumstances change. Accrued remediation
liabilities were $6 million at year-end 2008, of which
$4 million is included in other accrued expenses and
$2 million in other long-term liabilities. At year-end
2007, accrued remediation liabilities were $13 million of
which $11 million were included in other accrued expenses
and $2 million in other long-term liabilities.
Capitalized
Software
We capitalize purchased software costs as well as the direct
internal and external costs associated with software we develop
for our own use. We amortize these capitalized costs using the
straight-line method over estimated useful lives ranging from
three to seven years. The carrying value of capitalized software
was $26 million at year-end 2008 and $35 million at
year-end 2007 and is included in other assets. The amortization
of these capitalized costs was $13 million in 2008,
$15 million in 2007, and $17 million in 2006 and is
included in cost of sales and general and administrative
expense. Amortization of existing capitalized software for each
of the next five years is expected to be (in millions):
2009 $11; 2010 $8; 2011 $4;
2012 $1; and 2013 $1.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and other short-term
instruments with original maturities of three months or less.
Derivatives
We use, from time to time and then only to a limited degree,
derivative instruments to mitigate our exposure to risks
associated with changes in interest rates, product pricing and
manufacturing costs. We do not enter into derivatives for
trading purposes. We defer and include in other comprehensive
income changes in the fair value of derivative instruments
designated as cash flow hedges until the hedged transactions are
50
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
completed. At that time, we recognize these deferred gains or
losses in income. We recognize the ineffective portion of these
hedges, which is not significant, in income. We recognize
changes in the fair value of derivative instruments designated
as fair value hedges in income, as well as changes in the fair
value of the hedged item. We recognize changes in the fair value
of derivative instruments that are not designated as hedges in
income. We include the carrying value of derivative instruments
in other assets and other liabilities.
Derivative financial instruments are designated and documented
as hedges at the inception of the contract and on an ongoing
basis. We assess and measure the effectiveness of derivative
instruments, using correlation ratios, at inception and on an
ongoing basis. If a derivative instrument ceases to be highly
effective as a hedge or if the derivative instrument is
terminated or settled prior to the expected maturity or
realization of the underlying item, we stop using hedge
accounting.
Fair
Value Measurements
In 2008, we adopted Statement of Financial Accounting Standards
(SFAS) statement No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. In addition, we adopted SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, which permits the election of fair value as the
initial and subsequent measurement method for many financial
assets and financial liabilities. Subsequent changes in the fair
value would be recognized in earnings as they occur. We did not
elect the fair value option.
Goodwill
and Other Intangible Assets
We do not amortize goodwill and other indefinite lived
intangible assets. Instead, we measure these assets for
impairment based on estimated fair values annually as of the
beginning of the fourth quarter of each year and at other times
if events or circumstances indicate that impairment might exist.
Intangible assets with finite useful lives are amortized over
their estimated lives.
We measure goodwill for impairment at the segment level for
corrugated packaging and at the reporting unit level for
building products. To estimate fair value we use discounted cash
flow models, which requires us to estimate the amount and timing
of future cash flows. Other key assumptions include product
pricing, raw material costs and discount rate, which is based on
a weighted average cost of capital.
Impairment
of Long-Lived Assets
We review long-lived assets held for use for impairment when
events or circumstances indicate that their carrying value may
not be recoverable. Impairment exists if the carrying amount of
the long-lived asset is not recoverable from the undiscounted
cash flows expected from its use and eventual disposition. We
determine the amount of the impairment loss by comparing the
carrying value of the long-lived asset to its estimated fair
value. In the absence of quoted market prices, we determine
estimated fair value generally based on the present value of
future probability weighted cash flows expected from the use and
eventual disposition of the long-lived asset. We carry assets
held for sale at the lower of carrying value or estimated fair
value less costs to sell.
Income
Taxes
We provide deferred income taxes using current tax rates for
temporary differences between the financial accounting carrying
value of assets and liabilities and their tax accounting
carrying values. We recognize and value income tax exposures for
the various taxing jurisdictions where we operate based on tax
laws, tax elections, commonly accepted tax positions, and
management estimates. We include tax penalties and interest in
income tax expense.
51
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2007, we adopted FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes. As a result,
we increased assets by $2 million, reduced liabilities by
$3 million, and increased beginning retained earnings by
$5 million. We also reclassified $11 million from
deferred income taxes to other long-term liabilities.
Inventories
We carry inventories at the lower of cost or market. We
determine cost using the average cost method, which approximates
the
first-in,
first-out method.
In 2006, we began applying the guidance in Emerging Issues Task
Force (EITF) Issue
No. 04-13,
Accounting for Purchases and Sales of Inventory with the Same
Counterparty. This guidance requires that non-monetary
exchanges of similar inventory be valued at the carrying value
of the inventory given up instead of the fair value of the
inventory received and is applied to exchange agreements entered
into or renewed subsequent to first quarter 2006. Our corrugated
packaging segment enters into these agreements that generally
represent the exchange of linerboard we manufacture for
corrugated medium manufactured by others. We include these
exchanges in cost of sales. The effect of applying this guidance
was to increase cost of sales $2 million in 2007 and
$7 million in 2006.
Pension
and Postretirement Plans
At year-end 2006 we adopted SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, requiring the funded status of
defined benefit plans be shown on the balance sheet. In 2007, we
transitioned to a year-end measurement date for valuing plan
assets and obligations for our defined benefit and
postretirement benefit plans as further required by
SFAS No. 158. Previously we used a measurement date of
September 30. Upon transition, we reduced 2007 beginning
shareholders equity by $5 million, representing the
net periodic benefit cost of the three month period from the
last measurement date to year-end 2006, net of tax, and
increased liability for pension benefits.
Property
and Equipment
We carry property and equipment at cost less accumulated
depreciation. We capitalize the cost of significant additions
and improvements, and we expense the cost of repairs and
maintenance, including planned major maintenance. We capitalize
interest costs incurred on major construction projects. We
depreciate these assets using the straight-line method over
their estimated useful lives as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value At
|
|
|
|
Estimated
|
|
|
Year-End
|
|
Classification
|
|
Useful Lives
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Land and land improvements
|
|
|
N/A
|
|
|
$
|
42
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
|
307
|
|
Machinery and equipment:
|
|
|
|
|
|
|
|
|
Paper machines
|
|
|
5 to 25 years
|
|
|
|
728
|
|
Mill equipment
|
|
|
5 to 25 years
|
|
|
|
69
|
|
Converting equipment
|
|
|
3 to 20 years
|
|
|
|
438
|
|
Other production equipment
|
|
|
5 to 25 years
|
|
|
|
4
|
|
Transportation equipment
|
|
|
3 to 20 years
|
|
|
|
26
|
|
Office and other equipment
|
|
|
3 to 5 years
|
|
|
|
14
|
|
Construction in progress
|
|
|
N/A
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,664
|
|
|
|
|
|
|
|
|
|
|
52
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We include in property and equipment $51 million of assets
subject to capital leases. We depreciate these assets and any
improvements to leased assets using the straight-line method
over the shorter of their lease term or their estimated useful
lives. We expense operating leases ratably over the lease term.
Revenue
Recognition
We recognize product revenue upon passage of title, which occurs
at the time the product is delivered to the customer, the price
is fixed and determinable, and we are reasonably sure of
collection. Other revenue, which is not significant, is
recognized when the service has been performed, the value is
determinable, and we are reasonably sure of collection.
We include the amounts billed to customers for shipping in net
revenues and the related costs in cost of sales.
We exclude from revenue, amounts we collect from customers that
represent sales tax or other taxes that are based on the sale.
These amounts are included in other accrued expenses until paid.
Share-Based
Compensation
Beginning January 2006, we adopted the modified prospective
application method contained in SFAS No. 123 (revised
December 2004), Share-Based Payment
(SFAS 123(R)), to account for share-based payments.
As a result, we apply this pronouncement to new awards or
modifications of existing awards in 2006 and thereafter. We had
been expensing over the service period the fair value of
share-based compensation awards granted, modified or settled in
2003 through 2005, using the prospective transition method of
accounting contained in SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure, an
amendment of FASB Statement No. 123.
Adoption of this new pronouncement did not change the
methodology we use to determine the fair value of our
share-based compensation arrangements. We use the
Black-Scholes-Merton option-pricing model for stock options and
the grant date or period-end fair value of our common stock for
all other awards.
Special
Purpose and Variable Interest Entities
We account for special purpose and variable interest entities
using FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities an Interpretation
of ARB No. 51. This interpretation provides guidance
for determining whether an entity is a variable interest entity
and which beneficiary of the variable interest entity, if any,
should consolidate the variable interest entity.
Timber
and Timberland
In 2007, we sold all of our strategic timber and timberland.
Prior to the sale, we expensed the cost of timber cut based on
the relationship of the timber carrying value to the estimated
volume of recoverable timber multiplied by the amount of timber
cut. We included the cost of timber cut in depreciation expense.
We determined the estimated volume of recoverable timber using
statistical information and other data related to growth rates
and yields gathered from physical observations, models, and
other information gathering techniques. Changes in yields were
generally due to adjustments in growth rates and similar matters
and were accounted for prospectively as changes in estimates. We
capitalized reforestation costs incurred in developing viable
seedling plantations (up to two years from planting), such as
site preparation, seedlings, planting, fertilization, insect and
wildlife control, and herbicide application. We expensed all
other costs, such as property taxes and costs of forest
management personnel, as incurred. Once the seedling plantation
was viable, we expensed all costs to maintain the viable
plantations, such as fertilization, herbicide application,
insect and wildlife control, and thinning, as incurred. We
capitalized costs
53
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
incurred to initially build roads as land improvements, and we
expensed as incurred costs to maintain those roads.
Prior to the sale, we determined the carrying value of
timberland sold using the area method by county, which was based
on the relationship of carrying value of timberland to total
acres of timberland multiplied by acres of timberland sold. We
determined the carrying value of timber sold by the average cost
method, which was based on the relationship of timber carrying
value to the estimate of recoverable timber multiplied by the
amount of timber sold.
Pending
Accounting Pronouncements
SFAS No. 141(R), Business Combinations
This new standard requires most identifiable
assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair
value, and is effective for business combinations occurring
after our year-end 2008. The new standard also changes the
approach to determining the purchase price; the accounting for
acquisition cost; and the accounting practices for acquired
contingencies, restructuring costs, long-lived assets,
in-process research and development, share-based payment awards,
indemnification costs, and tax benefits.
SFAS No. 160, Noncontrolling Interest in
Consolidated Financial Statements This new
standard specifies that noncontrolling interests be reported as
a part of equity, not as a liability or other item outside of
equity, and is effective for our first quarter 2009. Adoption of
this standard will result in the reclassification of
noncontrolling interest of special purpose entities to
shareholders equity. At year-end 2008, noncontrolling
interest of special purpose entities totaled $91 million.
SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities This new
standard requires enhanced disclosures about how and why an
entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; how derivative
instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows; and
is effective for our first quarter 2009. Based on our current
understanding, we do not expect that adoption will have a
significant effect on our earnings or financial position.
In July 2008, we purchased our partners 50 percent
interest in Premier Boxboard Limited LLC (PBL) for
$62 million. The joint venture had $50 million in
debt, of which $25 million was related to the purchased
interest. Subsequent to the purchase we incurred a penalty of
$4 million from the prepayment of the $50 million
joint venture debt. The penalty is included in other
non-operating income (expense). We funded this transaction with
borrowings under our existing credit agreements. We are now
including all of the assets and liabilities, results of
operations and cash flows of PBL as part of our corrugated
packaging segment in our consolidated financial statements.
Previously we had accounted for our interest in PBL using the
equity method. We allocated the purchase price to the
50 percent of the assets acquired and liabilities assumed
based on our estimates of their fair value at the date of
acquisition. We based these estimates of fair values on
independent appraisals and other information that reflect our
current intentions. The other 50 percent of the assets and
liabilities, which we already owned, were included at their
carrying value.
54
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the estimated net assets at the date of acquisition
(50 percent at fair value and 50 percent at carrying
value) follows:
|
|
|
|
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Current assets
|
|
$
|
26
|
|
Property and equipment
|
|
|
81
|
|
Goodwill
|
|
|
29
|
|
Other assets
|
|
|
1
|
|
|
|
|
|
|
Total assets
|
|
|
137
|
|
|
|
|
|
|
Current liabilities
|
|
|
(15
|
)
|
Long-term pension liability
|
|
|
( 1
|
)
|
Current portion of long-term debt
|
|
|
(51
|
)
|
|
|
|
|
|
Total liabilities
|
|
|
(67
|
)
|
|
|
|
|
|
Net assets at date of acquisition
|
|
$
|
70
|
|
|
|
|
|
|
Unaudited pro forma information assuming this transaction had
been effective at the beginning of the year, would not have been
materially different from that reported. Goodwill, all of which
we anticipate will be deductible for income tax purposes, is
allocated to the corrugated packaging segment.
Our one significant joint venture investment at year-end 2008 is
Del-Tin Fiber LLC, a 50 percent owned venture that produces
medium density fiberboard in El Dorado, Arkansas. Our joint
venture partner is a publicly-held company unrelated to us.
In July 2008, we purchased our partners 50 percent
interest in the PBL joint venture. As a result, at year-end
2008, we included all of its assets and liabilities in our
consolidated balance sheet, and its results of operations and
cash flows from date of acquisition in our consolidated
statements of income and cash flows. Please read
Note 2.
Combined summarized financial information for these joint
ventures follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Current assets
|
|
$
|
8
|
|
|
$
|
29
|
|
Total assets
|
|
|
88
|
|
|
|
234
|
|
Current
liabilities(a)
|
|
|
7
|
|
|
|
25
|
|
Long-term debt
|
|
|
29
|
|
|
|
85
|
|
Equity
|
|
|
52
|
|
|
|
124
|
|
Our investment in joint ventures:
|
|
|
|
|
|
|
|
|
50 percent share in joint ventures equity
|
|
$
|
26
|
|
|
$
|
62
|
|
Unamortized PBL joint venture basis difference
|
|
|
|
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Investment in joint ventures
|
|
$
|
26
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes current maturities of debt of $5 million in 2008
and $6 million in 2007. |
55
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008(a)
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net revenues
|
|
$
|
147
|
|
|
$
|
200
|
|
|
$
|
192
|
|
Operating income
|
|
|
13
|
|
|
|
13
|
|
|
|
24
|
|
Earnings
|
|
|
10
|
|
|
|
5
|
|
|
|
17
|
|
Our equity in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
50 percent share of earnings
|
|
$
|
5
|
|
|
$
|
3
|
|
|
$
|
8
|
|
Amortization of PBL joint venture basis difference
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of joint ventures
|
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes PBL revenues, operating income and earnings prior to
acquisition. |
We and our joint venture partners contribute and receive
distributions from these ventures equally. In 2008, we
contributed $7 million and received $12 million in
distributions of which $6 million was from PBL prior to our
acquisition. In 2007 we contributed $4 million and received
$8 million in distributions, and in 2006 we contributed
$3 million and received $12 million in distributions.
Our investment in joint ventures is included in other assets,
and our equity in their earnings is included in other operating
income (expense). At year-end 2007, our investment in and our
equity in their earnings differs from our 50 percent
interest due to the difference between the fair value of net
assets contributed to the PBL joint venture and our carrying
value of those assets at the date the joint venture was formed.
We were amortizing this difference over the same period as the
underlying mill assets were being depreciated by the joint
venture to reflect depreciation of the mill as if it were
consolidated by us at its historical carrying value. Upon our
acquisition of PBL in July 2008, we reduced the carrying value
of assets acquired by the unamortized deferred gain of
$28 million.
We provide marketing services to the Del-Tin joint venture. Fees
for these services were $2 million in 2008, $2 million
in 2007, and $3 million in 2006 and are included as a
reduction of cost of sales and selling expense. Prior to our
acquisition of PBL, we purchased at market rates finished
products from the PBL, which aggregated $12 million in
2008, $47 million in 2007, and $62 million in 2006.
In 2005, we sold about 7,000 acres of timber and timberland
to a joint venture in which our former real estate segment owned
50 percent and an unrelated public company owned the other
50 percent. This acreage was sold pursuant to the terms of
a long-standing option agreement, which was about to expire. The
joint venture intended to hold the land for future development
and sale. We recognized about half of the $10 million gain
in income in 2005 and recognized the remainder in 2007 when we
spun off our real estate segment.
56
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt consists of:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Borrowings under bank credit agreements average
interest rate of 4.10% in 2008 and 6.26% in 2007
|
|
$
|
161
|
|
|
$
|
|
|
Accounts receivable securitization facility average
interest rate of 2.83% in 2008 and 5.44% in 2007
|
|
|
190
|
|
|
|
1
|
|
6.75% Notes, payable in 2009
|
|
|
14
|
|
|
|
14
|
|
7.875% Senior Notes, payable in 2012, net of discounts
|
|
|
285
|
|
|
|
285
|
|
6.375% Senior Notes, payable in 2016, net of
discounts interest rate of 6.625% at year-end 2008
and 2007
|
|
|
249
|
|
|
|
249
|
|
6.625% Senior Notes, payable in 2018, net of
discounts interest rate of 6.875% at year-end 2008
and 2007
|
|
|
249
|
|
|
|
248
|
|
Revenue bonds, payable 2008 through 2024 average
interest rate of 5.72% in 2008 and 5.41% in 2007
|
|
|
41
|
|
|
|
51
|
|
Other indebtedness due through 2027 average interest
rate of 8.12% in 2008 and 7.89% in 2007
|
|
|
3
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,192
|
|
|
|
855
|
|
Less current portion of long-term debt
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,191
|
|
|
$
|
852
|
|
|
|
|
|
|
|
|
|
|
At year-end 2008, we had $835 million in committed credit
agreements. These committed agreements include a
$750 million credit agreement that expires in 2011. Of the
remaining $85 million, $60 million expires in 2009
pursuant to agreements that do not require outstanding
borrowings to be repaid until 2011. The remaining
$25 million expires in 2010. At year-end 2008, our unused
capacity under these facilities was $655 million.
At year-end 2008, we had a $250 million accounts receivable
securitization facility that expires in 2010. Under this
facility, a wholly-owned, bankruptcy-remote subsidiary
purchases, on an on-going basis, substantially all our trade
receivables. As we need funds, the subsidiary draws under its
revolving credit arrangement, pledges the trade receivables as
collateral, and remits the proceeds to us. In the event of
liquidation of the subsidiary, its creditors would be entitled
to satisfy their claims from the subsidiarys assets prior
to distributions back to us. At year-end 2008, the subsidiary
owned $306 million in net trade receivables against which
it had borrowed $190 million under this facility. At
year-end 2008, the unused capacity under this facility was
$60 million. We include this subsidiary in our consolidated
financial statements. The borrowing base, which is determined by
the level of our trade receivables, may be below the maximum
committed amount of the facility in periods when the balance of
our trade receivables is low.
Maturities of our debt during the next five years are (in
millions): 2009 $33; 2010 $191;
2011 $163; 2012 $293; 2013
$0; and thereafter $512. We have classified
$32 million of 2009 stated maturities as long-term
based on our intent and ability to refinance them on a long-term
basis.
In December 2007, we completed a cash tender offer for
$286 million of 6.75 percent Notes payable in
2009 and $213 million of 7.875 percent Senior
Notes payable in 2012. We incurred $40 million in costs
related to these tender offers, which was included in other
non-operating (income) expense.
We capitalized and deducted from interest expense interest
incurred on major construction and information technology
projects of less than $1 million in 2008, $1 million
in 2007, and $1 million in 2006. We paid interest on
long-term debt of $83 million in 2008, $125 million in
2007, and $106 million in 2006.
57
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5
|
Financial
Assets and Nonrecourse Financial Liabilities of Special Purpose
Entities
|
In October 2007, we sold 1.55 million acres of timberland
for $2.38 billion. The total consideration consisted almost
entirely of notes due in 2027 issued by the buyer of the
timberland, which we contributed to two wholly-owned,
bankruptcy-remote special purpose entities formed by us. The
notes are secured by $2.38 billion of irrevocable standby
letters of credit issued by four banks, which are required to
maintain minimum credit ratings on their long-term debt. The
letters of credit are secured by the buyers long-term
deposit with the banks of $2.38 billion of cash and cash
equivalents. The notes require quarterly interest payments based
on variable interest rates that reset quarterly
(3.46 percent at year-end 2008 and 4.98 percent at
year-end 2007). We recognized interest income of
$80 million on these notes receivable in 2008 and
$19 million in 2007.
In December 2007, our two wholly-owned special purpose entities
borrowed $2.14 billion. The loans are repayable in 2027 and
are secured only by the $2.38 billion of notes and the
irrevocable letters of credit and are nonrecourse to us. The
loan agreements provide that if a credit rating of any of the
banks issuing the letters of credit is downgraded below the
required minimum, the letters of credit issued by that bank must
be replaced within 30 days with letters of credit from
another qualifying financial institution. The borrowings require
quarterly interest payments based on variable interest rates
that reset daily (2.98 percent at year-end 2008 and
6.17 percent at year-end 2007). We recognized and paid
$82 million of interest expense on these nonrecourse loans
in 2008, and we recognized interest expense of $9 million
in 2007.
The buyer of the timberland issued the $2.38 billion in
notes from its wholly-owned, bankruptcy-remote special purpose
entities. The buyers special purpose entities held the
timberland from the transaction date until November 2008, at
which time the timberland was transferred out of the
buyers special purpose entities. Due to the transfer of
the timberland, we evaluated the buyers special purpose
entities and determined that they were variable interest
entities and that we were the primary beneficiary. As a result,
in fourth quarter 2008 we began consolidating the buyers
special purpose entities. This consolidation resulted in an
increase in the financial assets of special purpose entities of
$91 million and the recognition of noncontrolling interest
of special purpose entities as a mezzanine item. The impact of
this consolidation on our statements of income was not material
in 2008.
We include the assets and liabilities of these special purpose
entities in our consolidated balance sheets under the captions,
Financial Assets of Special Purpose Entities and Nonrecourse
Financial Liabilities of Special Purpose Entities. We include
the results of operations of these special purpose entities in
our consolidated statements of income under the captions,
Interest income on financial assets of special purpose entities
and Interest expense on nonrecourse financial liabilities of
special purpose entities.
In 2006 and 2007, our Board of Directors approved repurchase
programs aggregating 11.0 million shares. As of year-end
2008, we had repurchased 4.4 million shares under these
programs. In 2008 and 2007, we initiated no share purchases, but
in 2007 we settled $24 million of share purchases that were
initiated in fourth quarter 2006. As of year-end 2008, there are
6.6 million shares remaining under current repurchase
authorizations.
Please read Note 9 for information about additional
shares of common stock that could be issued under terms of our
share-based compensation plans.
58
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 7
|
Accumulated
Other Comprehensive Income (Loss)
|
The components of and changes in accumulated other comprehensive
income (loss) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
on Available-
|
|
|
Defined
|
|
|
Currency
|
|
|
|
|
|
|
|
|
|
For-Sale
|
|
|
Benefit
|
|
|
Translation
|
|
|
Derivative
|
|
|
|
|
|
|
Securities
|
|
|
Plans
|
|
|
Adjustment
|
|
|
Instruments
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year 2006
|
|
$
|
2
|
|
|
$
|
(168
|
)
|
|
$
|
(22
|
)
|
|
$
|
(1
|
)
|
|
$
|
(189
|
)
|
Changes during the year
|
|
|
(1
|
)
|
|
|
95
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
93
|
|
Deferred taxes on changes
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change for 2006
|
|
|
(1
|
)
|
|
|
57
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
55
|
|
Adoption of SFAS No. 158, net of deferred taxes of $35
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2006
|
|
$
|
1
|
|
|
$
|
(168
|
)
|
|
$
|
(24
|
)
|
|
$
|
|
|
|
$
|
(191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the year
|
|
|
(56
|
)
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Deferred taxes on changes
|
|
|
20
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change for 2007
|
|
|
(36
|
)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
Spin-off of Guaranty
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2007
|
|
$
|
|
|
|
$
|
(115
|
)
|
|
$
|
(24
|
)
|
|
$
|
|
|
|
$
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the year
|
|
|
|
|
|
|
(66
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
(80
|
)
|
Deferred taxes on changes
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change for 2008
|
|
|
|
|
|
|
(36
|
)
|
|
|
(14
|
)
|
|
|
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2008
|
|
$
|
|
|
|
$
|
(151
|
)
|
|
$
|
(38
|
)
|
|
$
|
|
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8
|
Pension
and Postretirement Plans
|
The annual expense of our benefit plans consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
401(k) plan match
|
|
$
|
16
|
|
|
$
|
17
|
|
|
$
|
16
|
|
Defined benefit
|
|
|
37
|
|
|
|
35
|
|
|
|
46
|
|
Postretirement medical
|
|
|
8
|
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61
|
|
|
$
|
60
|
|
|
$
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our 401(k) match plan covers substantially all employees and is
fully funded.
Our defined benefit plan covers substantially all employees.
Salaried and nonunion hourly employee benefits are based on
compensation and years of service, while union hourly plans are
based on negotiated benefits and years of service. Our policy is
to fund our qualified defined benefit plan on an actuarial basis
to accumulate assets sufficient to meet the benefits to be paid
in accordance with ERISA requirements. However, from time to
time we may make voluntary, discretionary contributions. Our
supplemental defined benefit plan is unfunded.
Our postretirement medical plan provides medical benefits to
eligible salaried and hourly employees who begin drawing
retirement benefits immediately after termination of employment.
Our postretirement plan
59
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provides for medical coverage, including a prescription drug
subsidy, for certain participants. The Medicare Prescription
Drug, Improvement and Modernization Act of 2003 expanded
Medicare to include, for the first time, coverage for
prescription drugs. We applied for the Medicare Prescription
Drug subsidy in October 2008, which reduced our year-end 2008
postretirement benefits liability $12 million. Our
postretirement plan is funded to the extent of benefit payments.
Additional information about our defined benefit and
postretirement medical plans follows.
Obligations
and Funded Status
A summary of the changes in the benefit obligation, plan assets,
and funded status follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
Defined Benefits
|
|
|
Postretirement
|
|
|
|
Qualified
|
|
|
Supplemental
|
|
|
Total
|
|
|
Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Benefit obligation beginning of year
|
|
$
|
(1,310
|
)
|
|
$
|
(1,284
|
)
|
|
$
|
(59
|
)
|
|
$
|
(56
|
)
|
|
$
|
(1,369
|
)
|
|
$
|
(1,340
|
)
|
|
$
|
(137
|
)
|
|
$
|
(139
|
)
|
Service cost
|
|
|
(26
|
)
|
|
|
(32
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(28
|
)
|
|
|
(33
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Interest cost
|
|
|
(80
|
)
|
|
|
(94
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(82
|
)
|
|
|
(98
|
)
|
|
|
(8
|
)
|
|
|
(10
|
)
|
Plan amendments
|
|
|
(8
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial gain (loss)
|
|
|
1
|
|
|
|
16
|
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
12
|
|
|
|
24
|
|
|
|
(3
|
)
|
Acquisition
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
New prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
Benefits paid by the plan
|
|
|
71
|
|
|
|
84
|
|
|
|
6
|
|
|
|
6
|
|
|
|
77
|
|
|
|
90
|
|
|
|
16
|
|
|
|
21
|
|
Lump-sum settlements
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation year-end
|
|
|
(1,355
|
)
|
|
|
(1,310
|
)
|
|
|
(30
|
)
|
|
|
(59
|
)
|
|
|
(1,385
|
)
|
|
|
(1,369
|
)
|
|
|
(113
|
)
|
|
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets beginning of year
|
|
|
1,250
|
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
1,094
|
|
|
|
|
|
|
|
|
|
Actual return
|
|
|
(3
|
)
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
165
|
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid by the plan
|
|
|
(71
|
)
|
|
|
(84
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(77
|
)
|
|
|
(90
|
)
|
|
|
(16
|
)
|
|
|
(21
|
)
|
Lump-sum settlements
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions we made
|
|
|
30
|
|
|
|
75
|
|
|
|
48
|
|
|
|
6
|
|
|
|
78
|
|
|
|
81
|
|
|
|
14
|
|
|
|
17
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets year-end
|
|
|
1,208
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
1,208
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at year-end
|
|
$
|
(147
|
)
|
|
$
|
(60
|
)
|
|
$
|
(30
|
)
|
|
$
|
(59
|
)
|
|
$
|
(177
|
)
|
|
$
|
(119
|
)
|
|
$
|
(113
|
)
|
|
$
|
(137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and (liabilities) included in the consolidated balance
sheet and a reconciliation to funded status follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
Defined
|
|
|
Postretirement
|
|
|
|
Benefits
|
|
|
Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Liability/funded status
|
|
$
|
(177
|
)
|
|
$
|
(119
|
)
|
|
$
|
(113
|
)
|
|
$
|
(137
|
)
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss (gain)
|
|
$
|
228
|
|
|
$
|
166
|
|
|
$
|
(4
|
)
|
|
$
|
21
|
|
Unrecognized prior service cost (credit)
|
|
|
33
|
|
|
|
13
|
|
|
|
(4
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
261
|
|
|
$
|
179
|
|
|
$
|
(8
|
)
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Plan
Assets
Our defined benefit investment strategies have been developed as
part of a comprehensive asset/liability management process that
considers the interaction between assets and liabilities of the
plan. These strategies consider not only the expected risk and
returns on plan assets, but also the detailed actuarial
projections of liabilities as well as plan-level objectives such
as projected contributions, expense, and funded status.
In 2007, we made significant changes to our asset allocation to
a more matched position between assets and liabilities in our
qualified defined benefit plan. This action is expected to
reduce the volatility of our defined benefit expense and our
funding requirements. As a result, we have targeted 78 to
88 percent of our plan assets to be invested in debt
securities that we believe have a duration that approximates our
benefit obligation. The remaining plan assets are targeted to be
invested in assets that provide market exposure to mitigate the
effects of inflation, mortality and actuarial risks.
The defined benefit plan weighted-average asset allocations and
the range of target allocations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Range of
|
|
|
Plan Assets at
|
|
|
|
Target
|
|
|
Year-End
|
|
|
|
Allocations
|
|
|
2008
|
|
|
2007
|
|
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
78-88
|
%
|
|
|
86
|
%
|
|
|
80
|
%
|
Equity securities
|
|
|
10-15
|
%
|
|
|
9
|
|
|
|
15
|
|
Real estate
|
|
|
0-7
|
%
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities include 591,896 shares of Temple-Inland
common stock totaling $3 million or 0.2 percent of
total plan assets at year-end 2008 and $12 million or one
percent of total plan assets at year-end 2007.
Additional
Information
The accumulated benefit obligation of our defined benefit plan
represents the present value of benefits earned without regard
to projected future compensation increases. Our defined benefit
plans have accumulated benefit obligations in excess of plan
assets as follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Projected benefit obligation
|
|
$
|
(1,385
|
)
|
|
$
|
(1,369
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
(1,328
|
)
|
|
$
|
(1,305
|
)
|
Fair value of plan assets
|
|
|
1,208
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
Excess of accumulated benefit obligation over fair value of plan
assets
|
|
$
|
(120
|
)
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
Excess of accumulated benefit obligation over fair value of plan
assets consists of:
|
|
|
|
|
|
|
|
|
Qualified plan
|
|
$
|
(91
|
)
|
|
$
|
(1
|
)
|
Supplemental plan
|
|
|
(29
|
)
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(120
|
)
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
61
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Components
of Net Periodic Benefit Expense and Other Amounts Recognized in
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
Defined Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net periodic benefit expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs benefits earned during the period
|
|
$
|
28
|
|
|
$
|
27
|
|
|
$
|
28
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
Interest cost on benefit obligation
|
|
|
82
|
|
|
|
78
|
|
|
|
73
|
|
|
|
8
|
|
|
|
8
|
|
|
|
8
|
|
Expected return on plan assets
|
|
|
(83
|
)
|
|
|
(85
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
|
5
|
|
|
|
2
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Amortization of actuarial net loss
|
|
|
5
|
|
|
|
14
|
|
|
|
22
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit
expense(a)
|
|
|
37
|
|
|
|
36
|
|
|
|
47
|
|
|
|
8
|
|
|
|
8
|
|
|
|
9
|
|
Amounts recognized in other comprehensive income, pre-tax
|
|
|
82
|
|
|
|
(90
|
)
|
|
|
(95
|
)
|
|
|
(16
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit expense and other
comprehensive income,
pre-tax
|
|
$
|
119
|
|
|
$
|
(54
|
)
|
|
$
|
(48
|
)
|
|
$
|
(8
|
)
|
|
$
|
13
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes amounts allocated to discontinued operations of
$1 million in 2007 and 2006. Excludes $15 million of
expense in 2008 related to lump-sum settlements of supplemental
benefits. |
Assumptions
The assumptions we used to determine defined benefit obligations
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Discount rate
|
|
|
6.11
|
%
|
|
|
6.125
|
%
|
|
|
6.20
|
%
|
|
|
6.125
|
%
|
Rate of compensation increase
|
|
|
3.50
|
%
|
|
|
3.70
|
%
|
|
|
|
|
|
|
|
|
The assumptions we used to determine annual net periodic benefit
expense were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Defined Benefits
|
|
|
Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate
|
|
|
6.125
|
%
|
|
|
6.00
|
%
|
|
|
5.50
|
%
|
|
|
6.125
|
%
|
|
|
6.00
|
%
|
|
|
5.50
|
%
|
Expected return on plan assets
|
|
|
6.875
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
3.700
|
%
|
|
|
3.80
|
%
|
|
|
3.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
The discount rate is used to determine the present value of the
benefit obligations. To arrive at this rate for 2008 we used the
Citigroup Pension Discount Curve. Previously we used the
December one-month average of the Moodys AA corporate bond
rate adjusted to reflect the effect of compounding. We believe
that using a yield curve more accurately reflects changes in the
present value of our defined benefit obligation because each
years cash flow is discounted at a rate at which it could
effectively be settled versus the use of a single index rate.
The expected long-term rate of return on plan assets is an
assumption we make reflecting the anticipated weighted average
rate of earnings on the plan assets over the long-term. In
selecting that rate particular consideration is given to our
asset allocation. For the plan assets invested in debt
securities, we used the AA credit risk profile of the discount
rate plus a 25 basis point yield premium to reflect the
single A credit risk profile of our debt securities. For the
remaining plan assets, we used target-weighted returns generated
from
62
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
current asset models. We add a ten basis point active management
premium to the total rate of return because the real estate and
matched portfolios are actively managed. Our actual return on
plan assets was 0.4 percent in 2008, 9.8 percent in
2007, and 10.0 percent in 2006.
We used the 1994 Group Annuity Mortality Tables to determine
benefit obligations and annual defined benefit expense.
The assumed health care cost trend rates we used to determine
the expense of the postretirement benefit plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Health care trend rate assumed for the next year
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
8.0
|
%
|
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2015
|
|
|
|
2014
|
|
|
|
2013
|
|
These assumed health care cost trend rates have a significant
effect on the amounts reported for the postretirement benefit
plans. For example, a one-percentage-point change in assumed
health care cost trend rates would have the following effect:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Percentage
|
|
|
1 Percentage
|
|
|
|
|
|
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total service and interest cost components
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
Accumulated postretirement benefit obligation
|
|
|
8
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows
We have no minimum funding requirement under ERISA in 2009.
Beginning in 2008, benefits earned under the supplemental
defined benefit plan are paid upon retirement or when the
employee terminates. In addition, in 2008, we made lump-sum
settlements of $42 million to existing retirees who elected
to receive lump-sum settlements of supplemental benefits earned.
The postretirement benefit plan is not subject to minimum
regulatory funding requirements. Since the postretirement
benefit plans are unfunded, the expected $11 million
contribution in 2009 represents the estimated health claims to
be paid for plan participants, net of retiree contributions and
Medicare subsidies.
At year-end 2008, the plans are expected to make the following
benefit payments over the next ten years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
|
Pension Benefits
|
|
|
|
|
|
Medicare
|
|
|
|
Qualified
|
|
|
Supplemental
|
|
|
Benefits
|
|
|
Subsidies_
|
|
|
|
(In millions)
|
|
|
2009
|
|
$
|
76
|
|
|
$
|
5
|
|
|
$
|
12
|
|
|
$
|
1
|
|
2010
|
|
|
79
|
|
|
|
5
|
|
|
|
11
|
|
|
|
1
|
|
2011
|
|
|
82
|
|
|
|
5
|
|
|
|
11
|
|
|
|
1
|
|
2012
|
|
|
86
|
|
|
|
5
|
|
|
|
11
|
|
|
|
1
|
|
2013
|
|
|
89
|
|
|
|
4
|
|
|
|
11
|
|
|
|
1
|
|
2014 -2018
|
|
|
487
|
|
|
|
12
|
|
|
|
49
|
|
|
|
5
|
|
63
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 9
|
Share-Based
Compensation
|
We have shareholder approved share-based compensation plans that
permit awards to key employees and non-employee directors in the
form of restricted or performance units, restricted stock, or
options to purchase shares of our common stock. As a result of
the spin-off of Forestar and Guaranty, all outstanding
share-based awards were equitably adjusted into three separate
awards: one related to Temple-Inland common stock, one related
to Forestar common stock, and one related to Guaranty common
stock. The adjustment was made so that immediately following the
spin-off, the number of shares relating to each award were
adjusted to reflect the distribution ratios and, for options,
the per share option exercise price of the original award, was
proportionally allocated between Temple-Inland, Forestar, and
Guaranty awards based on relative per share trading prices of
their common stock immediately following the spin-off. All
awards issued as part of this adjustment and the Temple-Inland
awards will continue to be subject to their original vesting
schedules. Share-based compensation expense on awards held by
employees of Temple-Inland will be based on the original grant
date fair value for share settled awards, the original grant
date Black-Scholes-Merton value for stock option awards, and the
sum of the period-end market prices (adjusted for the
distribution ratios) of the three companies stock for cash
settled awards. After the spin-off, Forestar and Guaranty
employees no longer participate in our share-based compensation
plans.
We generally grant awards annually in February, and we use
treasury stock to fulfill awards settled in common stock and
stock option exercises. A summary of these plans follows:
Restricted
or Performance Units
Restricted or performance units generally have a three-year
term; vest after three years from the date of grant or the
attainment of stated ROI based performance goals, generally
measured over a three-year period; and are settled in cash as
determined on the date of grant. The restricted and performance
units provide for accelerated vesting upon retirement, death,
disability, or if there is a change in control. We also have
director awards and bonus deferral plans that can be settled in
cash or stock. A summary of activity for 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
Current
|
|
|
|
Units
|
|
|
Value per Unit
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In millions)
|
|
|
Not vested cash-settled units beginning of 2008
|
|
|
1,416
|
|
|
$
|
48
|
|
|
|
|
|
Granted
|
|
|
794
|
|
|
|
20
|
|
|
|
|
|
Vested
|
|
|
(328
|
)
|
|
|
20
|
|
|
|
|
|
Forfeited
|
|
|
(11
|
)
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested cash-settled units at year-end 2008
|
|
|
1,871
|
|
|
|
37
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested cash-settled units at year-end 2008 subject to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time vesting requirements
|
|
|
1,378
|
|
|
|
|
|
|
$
|
7
|
|
Performance requirements
|
|
|
493
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,871
|
|
|
|
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of units vested was $10 million at year-end
2008, $26 million at year-end 2007, and less than
$1 million at year-end 2006. The fair value of units vested
and to be settled in cash was $10 million at year-end 2008,
of which $4 million is included in other current
liabilities and $6 million in long-term liabilities, and
$26 million at year-end 2007, of which $4 million is
included in other current liabilities and $22 million is
included in long-term liabilities. The fair value of awards
settled in cash was $7 million in 2008 and was less than
$1 million in 2007.
64
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock
Restricted stock awards generally vest after three to six years,
and provide for accelerated vesting upon retirement, death,
disability, or if there is a change in control. There were no
restricted stock awards granted in 2008 or 2007. There were
51,275 and 435,600 restricted stock awards outstanding at
year-end 2008 and year-end 2007 with a weighted average grant
date fair value of $22 per share at year-end 2008 and $33 per
share at year-end 2007 and an aggregate current value of less
than $1 million or $5 per share at year-end 2008 and
$13 million or $30 per share at year-end 2007. The fair
value of restricted stock vested during the year was
$1 million in 2008 and $4 million in 2007.
Stock
Options
Stock options have a ten-year term, generally become exercisable
ratably over four years and provide for accelerated or continued
vesting upon retirement, death, disability, or if there is a
change in control. Options are granted with an exercise price
equal to the market value of our common stock on the date of
grant. In addition to the equitable adjustments related to the
Forestar and Guaranty spin-offs, the exercise price of all stock
option awards was equitably adjusted by $9.85 per share to
reflect the effect of the special cash dividend paid in December
2007. The adjustment was based on the difference between the
closing price on the day before the stock traded ex-dividend and
the opening price on the day the stock began trading
ex-dividend. A summary of our activity for 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic Value
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
(Current value
|
|
|
|
|
|
|
Exercise Price
|
|
|
Contractual
|
|
|
less exercise
|
|
|
|
Shares
|
|
|
per Share
|
|
|
Term
|
|
|
price)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In millions)
|
|
|
Outstanding beginning of 2008
|
|
|
4,711
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,375
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(69
|
)
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(114
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding year-end 2008
|
|
|
6,903
|
|
|
|
17
|
|
|
|
6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable year-end 2008
|
|
|
3,739
|
|
|
|
13
|
|
|
|
4
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised was less than
$1 million in 2008, $29 million in 2007, and
$31 million in 2006.
We estimated the fair value of the options granted using the
Black-Scholes-Merton option-pricing model and the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected dividend yield
|
|
|
2.1
|
%
|
|
|
2.3
|
%
|
|
|
2.4
|
%
|
Expected stock price volatility
|
|
|
28.2
|
%
|
|
|
22.8
|
%
|
|
|
25.1
|
%
|
Risk-free interest rate
|
|
|
3.3
|
%
|
|
|
4.9
|
%
|
|
|
4.4
|
%
|
Expected life of options in years
|
|
|
8
|
|
|
|
6
|
|
|
|
6
|
|
Weighted average estimated fair value of options granted
adjusted for spin-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Temple-Inland options
|
|
$
|
2.02
|
|
|
$
|
7.39
|
|
|
$
|
6.82
|
|
Forestar options
|
|
|
N/A
|
|
|
|
3.09
|
|
|
|
2.85
|
|
Guaranty options
|
|
|
N/A
|
|
|
|
1.99
|
|
|
|
1.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average estimated fair value of options at original
grant date
|
|
$
|
2.02
|
|
|
$
|
12.47
|
|
|
$
|
11.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The expected stock price volatility is based on historical
prices of our common stock for a period corresponding to the
expected life of the options with appropriate consideration
given to current conditions and events. The expected life of
options is based on historical experience. We use historical
data to estimate pre-vesting forfeitures stratified into two
groups based on job level.
Share-Based
Compensation Expense
Share-based compensation expense (income) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Restricted or performance units-cash
|
|
$
|
(12
|
)
|
|
$
|
23
|
|
|
$
|
15
|
|
Restricted or performance units-stock
|
|
|
1
|
|
|
|
6
|
|
|
|
11
|
|
Stock options
|
|
|
9
|
|
|
|
10
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2
|
)
|
|
$
|
39
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense (income) is included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Cost of sales
|
|
$
|
5
|
|
|
$
|
7
|
|
|
$
|
6
|
|
Selling expense
|
|
|
|
|
|
|
2
|
|
|
|
1
|
|
General and administrative
|
|
|
(7
|
)
|
|
|
25
|
|
|
|
31
|
|
Other operating income (expense)
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2
|
)
|
|
$
|
39
|
|
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of share-based compensation capitalized was not
significant.
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $3 million
in 2008, $3 million in 2007, and $6 million in 2006.
Unrecognized share-based compensation for all awards not vested
was $9 million at year-end 2008. It is likely that this
cost will be recognized as expense over the next 2 years.
|
|
Note 10
|
Other
Operating Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Transformation costs
|
|
$
|
(20
|
)
|
|
$
|
(69
|
)
|
|
$
|
|
|
Closures and sales of converting and production facilities and
sales of non-strategic assets
|
|
|
(9
|
)
|
|
|
(55
|
)
|
|
|
(4
|
)
|
Litigation
|
|
|
5
|
|
|
|
(56
|
)
|
|
|
(6
|
)
|
Environmental remediation
|
|
|
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
Softwood Lumber Agreement
|
|
|
|
|
|
|
|
|
|
|
42
|
|
Hurricane related insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Other charges
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
Gain (loss) on sale of operating property and equipment
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(5
|
)
|
Equity in earnings of manufacturing joint ventures
|
|
|
7
|
|
|
|
5
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(28
|
)
|
|
$
|
(189
|
)
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We continue our efforts to enhance return on investment by
lowering costs, improving operating efficiencies, and increasing
asset utilization. As a result, we continue to review operations
that are unable to meet return objectives and determine
appropriate courses of action, including consolidating and
closing facilities and selling under-performing assets.
In 2008, we incurred $20 million of costs associated with
our 2007 transformation plan, of which $15 million is
related to the one-time settlement of supplemental retirement
benefits. We decreased litigation reserves by $5 million
due to the settlement of the remaining claim related to our
antitrust litigation. We also recognized $5 million of
expense primarily related to employee costs associated with our
cost reduction efforts.
In 2008, we closed one corrugated packaging facility and ceased
production of hardboard siding at our fiberboard operations. As
a result, we recognized charges of $9 million, including
$3 million in spare parts and fixed assets impairment,
$2 million in write-off of raw materials and finished goods
inventory, $3 million of severance costs and
$1 million of other exit costs.
In 2007, we permanently ceased production at our Mt. Jewett
particleboard manufacturing facility, which we lease from a
third party. As a result, we recognized charges of
$64 million, including $60 million that represents the
present value of the $77 million of future operating lease
payments. This charge does not affect our continuing obligations
under the lease, including paying rent and maintaining the
equipment. The present value of the future payments is included
on our balance sheet, of which $7 million is included in
current liabilities and $50 million in other long-term
liabilities at year-end 2008.
In December 2007, we entered into arbitration in an effort to
resolve most of the remaining claims regarding an alleged
violation of Section 1 of the Sherman Act. The arbitrator
awarded plaintiffs $46 million on the claims submitted to
arbitration. Also in 2007, we reached agreements to settle three
of the five cases in California state court alleging violations
of that states on duty meal break laws. We recognized
$10 million of litigation expense in 2007 related to this
matter. We settled a fourth meal break case in 2008, and the one
remaining case in January 2009, both within established reserves.
In 2006, we sold one corrugated packaging converting facility,
sold certain non-strategic assets, and finalized our estimates
of losses related to the prior years closures. In
addition, we increased accruals for ongoing environmental
remediation at the Antioch, California paper mill site closed in
connection with our acquisition of Gaylord in 2002. As a result
of these actions, we recognized losses of $12 million. Also
in 2006, we received $42 million in connection with the
Softwood Lumber Agreement between the U.S. and Canada, and
we received $2 million of insurance proceeds related to
cost incurred in connection with the 2005 hurricanes.
67
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity within our accruals for exit costs was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Additions/
|
|
|
Cash
|
|
|
Year-
|
|
|
|
of Year
|
|
|
Revisions
|
|
|
Payments
|
|
|
End
|
|
|
|
(In millions)
|
|
|
For the Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary employee terminations
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
(1
|
)
|
|
$
|
2
|
|
Demolition and environmental remediation
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
(2
|
)
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary employee terminations
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
Demolition and environmental remediation
|
|
|
8
|
|
|
|
1
|
(a)
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9
|
|
|
$
|
1
|
|
|
$
|
(9
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary employee terminations
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
Contract termination penalties
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
Demolition and environmental remediation
|
|
|
9
|
|
|
|
8
|
(a)
|
|
|
(9
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12
|
|
|
$
|
9
|
|
|
$
|
(12
|
)
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2007 and 2006, we revised our estimates relating to the
demolition and related environmental remediation costs
associated with our exit activities. We added $6 million in
2007 and $8 million in 2006 to this accrual by charging
other operating expense. We transferred $6 million to
Forestar as part of the spin-off. |
Income tax expense on income (loss) from continuing operations
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
55
|
|
|
$
|
(278
|
)
|
|
$
|
(57
|
)
|
Foreign, state and other
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
(288
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(54
|
)
|
|
|
(410
|
)
|
|
|
(43
|
)
|
Foreign, state and other
|
|
|
(1
|
)
|
|
|
(55
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
(465
|
)
|
|
|
(38
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(7
|
)
|
|
$
|
(753
|
)
|
|
$
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (paid) refunded, net
|
|
$
|
(271
|
)
|
|
$
|
3
|
|
|
$
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, we recognized one-time tax benefits of $3 million
resulting from changes to the State of Texas margin tax enacted
in May 2007 and another $4 million related to the
settlement of state tax examinations.
In 2006, we entered into a settlement agreement with the
U.S. Government to resolve pending tax litigation we filed
to recover tax benefits promised to us in connection with our
savings and loan acquisitions in 1988. Under the terms of the
settlement agreement, we received a $95 million non-taxable
cash payment
68
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for past and future tax benefits that would have been available
to us had legislation enacted in 1993 not eliminated those tax
benefits and $4 million of taxable interest income. In
connection with the settlement, we incurred legal fees of
$10 million, which were contingent upon the settlement. The
net pre-tax gain related to this settlement was $89 million
and is included in other non-operating income (expense).
Also in 2006, the Texas State Legislature enacted a new margin
tax to replace the existing franchise tax, which for us results
in a lower overall State of Texas tax rate. As a result, we
recognized a one-time, non-cash benefit of $6 million of
which $2 million related to the reduction of previously
provided deferred state income taxes and $4 million related
to reducing the valuation allowance for Texas investment credits.
Income (loss) from continuing operations before taxes consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
U.S
|
|
$
|
(16
|
)
|
|
$
|
1,948
|
|
|
$
|
381
|
|
Non-U.S
|
|
|
15
|
|
|
|
7
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1
|
)
|
|
$
|
1,955
|
|
|
$
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of income taxes at the federal statutory rate
and income tax expense on continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Taxes at federal statutory rate
|
|
$
|
|
|
|
$
|
684
|
|
|
$
|
137
|
|
State, net of federal benefit
|
|
|
2
|
|
|
|
60
|
|
|
|
|
|
Foreign
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
753
|
|
|
|
137
|
|
Settlement of tax litigation
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
State of Texas tax legislation
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7
|
|
|
$
|
753
|
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Property, equipment, and intangible assets
|
|
$
|
(361
|
)
|
|
$
|
(350
|
)
|
Deferred gain on sale of timberland
|
|
|
(818
|
)
|
|
|
(822
|
)
|
U.S. taxes on unremitted foreign earnings
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Other
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,195
|
)
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Alternative minimum tax credits
|
|
|
281
|
|
|
|
286
|
|
Foreign and state net operating loss carryforwards
|
|
|
24
|
|
|
|
22
|
|
Pension and postretirement benefits
|
|
|
116
|
|
|
|
104
|
|
Employee benefits
|
|
|
35
|
|
|
|
59
|
|
Accruals not deductible until paid
|
|
|
45
|
|
|
|
51
|
|
Other
|
|
|
36
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
537
|
|
|
|
557
|
|
Less valuation allowance
|
|
|
(26
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
511
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liability
|
|
$
|
(684
|
)
|
|
$
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
The net deferred tax liability is classified on our balance
sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Current deferred tax assets
|
|
$
|
66
|
|
|
$
|
99
|
|
Non-current deferred tax liabilities
|
|
|
(750
|
)
|
|
|
(762
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(684
|
)
|
|
$
|
(663
|
)
|
|
|
|
|
|
|
|
|
|
Our deferred taxes on timberlands and our alternative minimum
tax credits primarily relate to the gain on the sale of our
strategic timberland, which was deferred for income tax
purposes. Our alternative minimum tax credit can be carried
forward indefinitely. Our foreign and state net operating loss
carryforwards and credits will expire from 2009 through 2028. A
valuation allowance is provided for these foreign and state net
operating loss carryforwards and credits.
We or one of our subsidiaries files U.S. federal income tax
returns and income tax returns in various states and foreign
jurisdictions. The Internal Revenue Service has completed the
examinations of our tax returns through 2004, and we are no
longer subject to examination by state or foreign tax
authorities for years before 2000. We have various income tax
audits in process as of year-end 2008, and we do not expect that
the resolution of these matters will have a significant effect
on our earnings or financial position.
70
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of unrecognized tax benefits follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance beginning of year
|
|
$
|
26
|
|
|
$
|
20
|
|
Additions based on tax positions related to the current year
|
|
|
2
|
|
|
|
4
|
|
Reductions for tax positions of prior years
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Settlements/collections
|
|
|
(2
|
)
|
|
|
3
|
|
Expiration of statute of limitations
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
$
|
24
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
Of the $24 million of unrecognized tax benefits at year-end
2008, $13 million would affect our effective tax rate if
recognized. Interest accrued related to unrecognized tax
benefits is included in income tax expense. Unrecognized tax
benefits include approximately $2 million of accrued
interest and no penalties related to years 2005 to 2008. We do
not expect material changes to our tax reserve during the next
12 months.
We are involved in various legal proceedings that arise from
time to time in the ordinary course of doing business and
believe that adequate reserves have been established for any
probable losses. Expenses related to litigation are included in
operating income. We do not believe that the outcome of any of
these proceedings should have a significant adverse effect on
our financial position, long-term results of operations, or cash
flows. It is possible, however, that charges related to these
matters could be significant to our results or cash flows in any
one accounting period.
|
|
Note 13
|
Commitments
and Other Contingencies
|
We lease manufacturing and other facilities and equipment under
operating lease agreements. Future minimum rental commitments
under non-cancelable operating leases having a remaining term in
excess of one year are (in millions): 2009 $43;
2010 $35; 2011 $28; 2012
$22; 2013 $17; and thereafter $70. Total
rent expense was $53 million in 2008, $54 million in
2007 and $60 million in 2006. In 2007, we recorded an
impairment charge related to a long-term operating lease. This
charge did not affect our continuing obligations under the
lease, including paying rent and maintaining the equipment. The
present value of the future payments is included on our balance
sheet, of which $7 million is included in current
liabilities and $50 million in other long-term liabilities
at year-end 2008.
We also lease two production facilities under sale-lease back
transactions with two municipalities. The municipalities
purchased the production facilities from us in 1992 and 1995 for
$188 million, our carrying value, and we leased the
facilities back from the municipalities under capital lease
agreements, which expire in 2022 and 2025. Concurrently, we
purchased $188 million of interest-bearing bonds issued by
these municipalities. The bonds have terms that are identical to
the lease terms, are secured by payments under the capital lease
obligations, and the municipalities are obligated only to the
extent the underlying lease payments are made by us. The
interest rates implicit in the leases are the same as the
interest rates on the bonds. As a result, the present value of
the capital lease obligations is $188 million, the same as
the principal amount of the bonds. Because there is no legal
right of offset, the bonds are included in other assets at their
cost of $188 million and the $188 million present
value of the capital lease obligations are included in other
long-term liabilities. The implicit interest expense on the
leases and the interest income on the bonds are included in
other non-operating income (expense). There is no net effect
from these transactions as we are in substance both the obligor
on, and the holder of, the bonds.
71
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At year-end 2008, we had unconditional purchase obligations,
principally for sawtimber, pulpwood and gypsum, aggregating
$1.6 billion that will be paid over the next eleven to
nineteen years. This includes $1.3 billion related to fiber
supply agreements for pulpwood (19 year remaining term) and
sawtimber (11 year remaining term). Both of these
agreements are subject to extension. These purchase obligations
are valued at year-end 2008 market prices, however, our actual
future purchases will be at the then current market price.
In connection with our joint venture operations, we have
guaranteed debt service and other obligations and letters of
credit aggregating $17 million at year-end 2008. Generally
we would fund these guarantees for lack of specific performance
by the joint ventures, such as non-payment of debt.
|
|
Note 14
|
Derivative
Instruments and Variable Interest Entities
|
We have used interest rate agreements in the normal course of
business to mitigate the risk inherent in interest rate
fluctuations by entering into contracts with major
U.S. securities firms. At year-end 2007, we had two
interest rate swap agreements that expired in 2008. The two
agreements had a total notional amount of $50 million.
Under these swap agreements, we paid a fixed interest rate of
6.55 percent and received a floating interest rate. At
year-end 2007, the fair value of these interest rate swaps was a
$1 million liability, which was included in other current
liabilities. The interest rate swap agreements were initially
designated as a hedge of interest cash flows anticipated from
specific variable-rate borrowings. By year-end 2007, no portion
of the interest rate swap agreements qualified for hedge
accounting because we had repaid virtually all of our
variable-rate borrowings. Changes in the fair value of the
interest rate swap agreements that qualified for hedge
accounting increased other comprehensive income by
$1 million in 2006. There was no material hedge
ineffectiveness in 2006. As a result of the termination of the
hedge designation in 2007, we reclassified less than
$1 million from other comprehensive income and charged
other non-operating expense. Changes in the fair value of the
interest rate swap agreements that did not qualify for hedge
accounting were $1 million of income in 2008, less than
$1 million of expense in 2007 and $1 million of income
in 2006, and are included in other non-operating income
(expense).
In 1999, we entered into an agreement to lease particleboard and
medium density fiberboard facilities in Mt. Jewett,
Pennsylvania. The lease is for 20 years and includes fixed
price purchase options in 2014 and at the end of the lease. The
option prices were intended to approximate the estimated fair
values of the facilities at those dates and do not represent a
guarantee of the facilities residual values. After
exhaustive efforts, we were unable to determine whether the
lease is with a variable interest entity or if there is a
primary beneficiary because the unrelated third-party lessors
will not provide the necessary financial information. We account
for the lease as an operating lease, and at year-end 2008 our
financial interest was limited to our obligation to make the
remaining $135 million of contractual lease payments,
approximately $12 million per year. In 2007, we recorded an
impairment charge related to the particleboard facility
long-term operating lease. As a result, $57 million of our
future operating lease payments are included on our balance
sheet, of which $7 million is in current liabilities and
$50 million is in other long-term liabilities at year-end
2008.
|
|
Note 15
|
Fair
Values and Fair Value Measurements of Financial
Instruments
|
SFAS No. 157 establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair
values as follows:
Level 1 Observable inputs such as quoted prices
in active markets.
|
|
|
|
Level 2
|
Inputs, other than quoted prices in active markets, that are
observable either directly or indirectly.
|
72
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
Level 3
|
Unobservable inputs in which there is little or no market data,
which require a reporting entity to develop its own assumptions.
|
Assets and liabilities measured at fair value are based on one
or more of the following valuation techniques:
|
|
|
|
|
Market approach
|
|
|
|
Prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities.
|
Cost approach
|
|
|
|
Amount that would be required to replace the service capacity of
an asset (replacement cost).
|
Income approach
|
|
|
|
Techniques to convert future amounts to a single present amount
based on market expectations (including present-value
techniques, option-pricing and excess earning models).
|
Carrying value and the estimated fair value and related
valuation techniques of our financial instruments are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End 2008
|
|
At Year-End 2007
|
|
|
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Valuation Technique
|
|
|
(In millions)
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate, long-term debt
|
|
$
|
841
|
|
|
$
|
680
|
|
|
$
|
854
|
|
|
$
|
909
|
|
|
|
Level 2 - Market Approach
|
|
Recent market conditions, especially in fourth quarter 2008,
have resulted in decreased trading volumes in the secondary
corporate bond markets, increasing the difficulty in estimating
the fair value of our fixed-rate, long-term debt. As a result,
the year-end 2008 valuation may not be indicative of the value
of a transaction between willing market participants.
Differences between carrying value and fair value are primarily
due to instruments that provide fixed interest rates or contain
fixed interest rate elements. Inherently, such instruments are
subject to fluctuations in fair value due to subsequent
movements in interest rates. We excluded financial instruments
from the table that are either carried at fair value or have
fair values that approximate their carrying amount due to their
short-term nature or variable interest rates.
At year-end 2008, we had guaranteed joint venture obligations
principally related to fixed-rate debt instruments and letters
of credit totaling $17 million. The estimated fair value of
these guarantees is not significant.
73
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 16
|
Earnings
Per Share
|
We compute earnings per share by dividing income by weighted
average shares outstanding using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Earnings for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(8
|
)
|
|
$
|
1,202
|
|
|
$
|
287
|
|
Discontinued operations
|
|
|
|
|
|
|
103
|
|
|
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
|
$
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
106.7
|
|
|
|
106.0
|
|
|
|
108.8
|
|
Dilutive effect of stock options (Note 9)
|
|
|
0.7
|
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
107.4
|
|
|
|
108.1
|
|
|
|
110.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding exclude unvested restricted
shares. The dilutive effect of stock options excludes options
for 8,029,256 shares at year-end 2008 and
1,122,545 shares at year-end 2007 that were antidilutive.
Certain employees of Forestar and Guaranty participated in our
employee stock option program. Following the spin-offs, these
employees retained stock option rights associated with our
stock. These stock options will remain a consideration in our
dilutive effect of stock options until they are exercised,
cancelled or expire. Information regarding options held by
employees of Forestar and Guaranty follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Options held
|
|
|
1,126,374
|
|
|
|
1,236,437
|
|
|
|
|
|
Options exercisable
|
|
|
831,713
|
|
|
|
551,627
|
|
|
|
|
|
Weighted average exercise price
|
|
$
|
15
|
|
|
$
|
17
|
|
|
|
|
|
Weighted average remaining contractual term(in years)
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
Note 17
|
Segment
Information
|
We have two business segments: corrugated packaging and building
products. Timber and timberland is no longer an active segment
as a result of the sale of our timberlands in fourth quarter
2007. Corrugated packaging manufactures linerboard and
corrugating medium (collectively referred to as containerboard),
that we convert into corrugated packaging, and light-weight
gypsum facing paper. Building products manufactures a variety of
building products. Timber and timberland managed our timber
resources.
We evaluate performance based on operating income before items
not included in segments and income taxes. Items not included in
segments represent items managed on a company-wide basis and
include corporate general and administrative expense,
share-based compensation, other operating and non-operating
income (expense), and interest expense. Other operating income
(expense) includes gain or loss on sale of assets, asset
impairments, and unusual expenses. The accounting policies of
the segments are the same as those described in the accounting
policy notes to the financial statements. Intersegment sales are
recorded at market prices. Intersegment sales and shared service
expense allocations are netted in costs and expenses.
74
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Not
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
|
|
|
|
Corrugated
|
|
|
Building
|
|
|
Timber and
|
|
|
Segments and
|
|
|
|
|
|
|
Packaging
|
|
|
Products
|
|
|
Timberland
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the year or at year-end 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
3,190
|
|
|
$
|
694
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,884
|
|
Depreciation and amortization
|
|
|
146
|
|
|
|
48
|
|
|
|
|
|
|
|
12
|
|
|
|
206
|
|
Equity income from joint ventures
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Income (loss) from continuing operations before taxes
|
|
|
225
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
(186
|
)(a)
|
|
|
(1
|
)
|
Total assets
|
|
|
2,366
|
|
|
|
580
|
|
|
|
|
|
|
|
2,923
|
|
|
|
5,869
|
|
Investment in equity method investees and joint ventures
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Goodwill
|
|
|
265
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
Capital expenditures
|
|
|
142
|
|
|
|
17
|
|
|
|
|
|
|
|
5
|
|
|
|
164
|
|
For the year or at year-end 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
3,044
|
|
|
$
|
806
|
|
|
$
|
76
|
|
|
$
|
|
|
|
$
|
3,926
|
|
Depreciation and amortization
|
|
|
142
|
|
|
|
45
|
|
|
|
11
|
|
|
|
16
|
|
|
|
214
|
|
Equity income from joint ventures
|
|
|
4
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Income from continuing operations before taxes
|
|
|
287
|
|
|
|
8
|
|
|
|
65
|
|
|
|
1,595
|
(a)
|
|
|
1,955
|
|
Total assets
|
|
|
2,301
|
|
|
|
623
|
|
|
|
|
|
|
|
3,018
|
|
|
|
5,942
|
|
Investment in equity method investees and joint ventures
|
|
|
11
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Goodwill
|
|
|
236
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
365
|
|
Capital expenditures and reforestation
|
|
|
167
|
|
|
|
42
|
|
|
|
13
|
|
|
|
15
|
|
|
|
237
|
|
For the year or at year-end 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
2,977
|
|
|
$
|
1,119
|
|
|
$
|
89
|
|
|
$
|
|
|
|
$
|
4,185
|
|
Depreciation and amortization
|
|
|
153
|
|
|
|
44
|
|
|
|
14
|
|
|
|
14
|
|
|
|
225
|
|
Equity income from joint ventures
|
|
|
8
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Income from continuing operations before taxes
|
|
|
255
|
|
|
|
221
|
|
|
|
63
|
|
|
|
(149
|
)(a)
|
|
|
390
|
|
Total assets (excludes discontinued operations)
|
|
|
2,275
|
|
|
|
638
|
|
|
|
330
|
|
|
|
384
|
|
|
|
3,627
|
|
Investment in equity method investees and joint ventures
|
|
|
11
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Goodwill
|
|
|
236
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
365
|
|
Capital expenditures and reforestation
|
|
|
117
|
|
|
|
46
|
|
|
|
19
|
|
|
|
22
|
|
|
|
204
|
|
|
|
|
(a) |
|
Items not included in segments consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
General and administrative
|
|
$
|
(76
|
)
|
|
$
|
(100
|
)
|
|
$
|
(107
|
)
|
Share-based compensation
|
|
|
2
|
|
|
|
(34
|
)
|
|
|
(38
|
)
|
Gain on sale of timberland
|
|
|
|
|
|
|
2,053
|
|
|
|
|
|
Other operating income (expense)
|
|
|
(29
|
)
|
|
|
(188
|
)
|
|
|
26
|
|
Other non-operating income (expense)
|
|
|
|
|
|
|
(35
|
)
|
|
|
93
|
|
Net interest income on financial assets and nonrecourse
financial liabilities of special purpose entities
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
|
|
Interest expense
|
|
|
(81
|
)
|
|
|
(111
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(186
|
)
|
|
$
|
1,595
|
|
|
$
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income (expense) applies to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
4
|
|
|
$
|
(64
|
)
|
|
$
|
(21
|
)
|
Building products
|
|
|
(9
|
)
|
|
|
(63
|
)
|
|
|
42
|
|
Unallocated
|
|
|
(24
|
)
|
|
|
(61
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(29
|
)
|
|
$
|
(188
|
)
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read Note 10 for further information about
other operating income (expense).
75
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues and property and equipment based on geographic location
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,680
|
|
|
$
|
3,739
|
|
|
$
|
4,009
|
|
Mexico
|
|
|
204
|
|
|
|
187
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
$
|
4,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,635
|
|
|
$
|
1,596
|
|
|
$
|
1,591
|
|
Mexico
|
|
|
29
|
|
|
|
36
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,664
|
|
|
$
|
1,632
|
|
|
$
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18
|
Summary
of Quarterly Results of Operations (Unaudited)
|
Selected quarterly financial results for 2008 and 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions, except per share)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
944
|
|
|
$
|
991
|
|
|
$
|
976
|
|
|
$
|
973
|
|
Gross profit
|
|
$
|
68
|
|
|
$
|
98
|
|
|
$
|
85
|
|
|
$
|
100
|
|
Income (loss) from continuing
operations(a)
|
|
$
|
(13
|
)
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
(6
|
)
|
Net income (loss)
|
|
$
|
(13
|
)
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
(6
|
)
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
Net income (loss)
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
Net income (loss)
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
|
|
|
(a) |
|
Income (loss) from continuing operations includes the following
items: |
76
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions)
|
|
|
Other operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformation costs
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Closures of converting and production facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Litigation
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(15
|
)
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges related to early repayment of debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
|
|
Interest and other income
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions, except per share)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,003
|
|
|
$
|
1,023
|
|
|
$
|
963
|
|
|
$
|
937
|
|
Gross profit
|
|
$
|
144
|
|
|
$
|
146
|
|
|
$
|
129
|
|
|
$
|
117
|
|
Income from continuing
operations(a)
|
|
$
|
7
|
|
|
$
|
26
|
|
|
$
|
11
|
|
|
$
|
1,158
|
|
Discontinued operations
|
|
|
31
|
|
|
|
40
|
|
|
|
25
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
38
|
|
|
$
|
66
|
|
|
$
|
36
|
|
|
$
|
1,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.07
|
|
|
$
|
0.24
|
|
|
$
|
0.11
|
|
|
$
|
10.88
|
|
Discontinued operations
|
|
|
0.29
|
|
|
|
0.39
|
|
|
|
0.23
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.36
|
|
|
$
|
0.63
|
|
|
$
|
0.34
|
|
|
$
|
10.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.07
|
|
|
$
|
0.24
|
|
|
$
|
0.11
|
|
|
$
|
10.69
|
|
Discontinued operations
|
|
|
0.28
|
|
|
|
0.38
|
|
|
|
0.22
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.35
|
|
|
$
|
0.62
|
|
|
$
|
0.33
|
|
|
$
|
10.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Income from continuing operations includes the following items: |
77
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions)
|
|
|
Gain on sale of timberland
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformation costs (advisory and legal fees, change of control
and employee related)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(2
|
)
|
|
$
|
(59
|
)
|
Closures and sales of converting and production facilities and
sales of non-strategic assets
|
|
|
|
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
(62
|
)
|
Litigation
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(46
|
)
|
Environmental remediation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Other charges
|
|
|
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(14
|
)
|
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
|
$
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges related to early repayment of debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(40
|
)
|
Interest and other income
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) |
|
The sum of earnings per share for the quarters does not equal
earnings per share for the year due to the use of average shares
outstanding for each period. |
|
|
Note 19
|
Discontinued
Operations
|
On December 28, 2007, we spun off to our shareholders in
tax-free distributions, our real estate segment and our
financial services segment, which included certain real estate
and minerals activities in our timber and timberland segment.
As a result, we report the assets and liabilities and
results of operations of these segments as discontinued
operations. Expense allocated to these discontinued operations
included interest expense of $7 million in 2007 and
$4 million in 2006 and share-based compensation expense of
$7 million in 2007 and $8 million in 2006.
In addition, on August 31, 2007 we sold the previously
acquired chemical operations. We received cash proceeds of
$1 million and recognized a pre-tax loss of $6 million
on the sale. Assets of this operation were previously reported
as held-for-sale.
A summary of earnings from our discontinued operations follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Real estate income before taxes
|
|
$
|
41
|
|
|
$
|
83
|
|
Financial services income before taxes
|
|
|
138
|
|
|
|
204
|
|
Chemical operations and
other(a)
|
|
|
(13
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before taxes
|
|
|
166
|
|
|
|
285
|
|
Income tax expense
|
|
|
(63
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
$
|
103
|
|
|
$
|
181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
2007 includes a $6 million charge for environmental
remediation. |
78
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 20
|
Subsequent
Events
|
Dividend
Declaration
On February 6, 2009, our Board of Directors declared a
quarterly dividend of $0.10 per share payable on March 13,
2009.
Financial
Assets and Nonrecourse Financial Liabilities of Special Purpose
Entities
On December 19, 2008, Standard and Poors lowered its
credit rating of one of the letter of credit banks participating
in the timber financing transaction effected by our special
purpose entities, Dexia Credit Local, to A. On January 16,
2009, SunTrust Bank, at the request of the issuer of the notes,
issued substitute letters of credit totaling approximately
$500 million in complete replacement of Dexia as a
qualified letter of credit issuer in the transaction. In order
to maintain a constant deposit margin equal to that paid by
Dexia, we were required to pay $12 million to SunTrust.
This payment will be amortized through 2027, the remaining life
of the transaction, at a rate of less than $1 million per
year. Please read Note 5.
79
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
We have had no changes in or disagreements with our independent
registered public accounting firm to report.
|
|
Item 9A.
|
Controls
and Procedures
|
(a) Disclosure controls and procedures
Our management, with the participation of the Chief Executive
Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (or the
Exchange Act)) as of the end of the period covered by this
report. Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures are
effective in recording, processing, summarizing and reporting,
on a timely basis, information required to be disclosed by us in
the reports that we file or submit under the Exchange Act and
are effective in ensuring that information required to be
disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding
required disclosure.
(b) Internal control over financial reporting
Managements report on internal control over financial
reporting is included in Item 8. Financial Statements
and Supplementary Data.
There have not been any changes in our internal control over
financial reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) in fourth quarter 2008 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
80
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Set forth below is certain information about the members of our
Board of Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year First
|
|
|
|
|
|
|
Elected to
|
|
|
Name
|
|
Age
|
|
the Board
|
|
Principal Occupation
|
|
Doyle R. Simons
|
|
|
45
|
|
|
|
2007
|
|
|
Chairman and Chief Executive Officer of Temple-Inland Inc.
|
Donald M. Carlton
|
|
|
71
|
|
|
|
2003
|
|
|
Former President and Chief Executive Officer of Radian
International LLC
|
Cassandra C. Carr
|
|
|
64
|
|
|
|
2004
|
|
|
Senior Advisor, Public Strategies, Inc.
|
E. Linn Draper, Jr.
|
|
|
67
|
|
|
|
2004
|
|
|
Former Chairman, President and Chief Executive Officer of
American Electric Power Company, Inc.
|
Larry R. Faulkner
|
|
|
63
|
|
|
|
2005
|
|
|
President of Houston Endowment Inc.
|
Jeffrey M. Heller
|
|
|
69
|
|
|
|
2004
|
|
|
Former Vice Chairman of Electronic Data Systems, Inc.
|
J. Patrick Maley, III
|
|
|
47
|
|
|
|
2007
|
|
|
President and Chief Operating Officer of Temple-Inland Inc.
|
W. Allen Reed
|
|
|
61
|
|
|
|
2000
|
|
|
Former Chairman of the Board of General Motors Asset Management
Corporation
|
Richard M. Smith
|
|
|
63
|
|
|
|
2006
|
|
|
Chairman of Newsweek
|
Arthur Temple III
|
|
|
66
|
|
|
|
1983
|
|
|
Chairman of the Board of First Bank & Trust, East Texas and
the T.L.L. Temple Foundation
|
R.A. (Al) Walker
|
|
|
52
|
|
|
|
2008
|
|
|
Senior Vice President of Finance and Chief Financial Officer of
Anadarko Petroleum Corporation
|
The remaining information required by this item is incorporated
herein by reference from our definitive proxy statement,
involving the election of directors, to be filed pursuant to
Regulation 14A with the SEC not later than 120 days
after the end of the fiscal year covered by this
Form 10-K
(or Definitive Proxy Statement). Certain information required by
this item concerning executive officers is included in
Part I of this report.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference from our Definitive Proxy Statement.
81
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information at year-end 2008 about our compensation plans under
which our Common Stock may be issued follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
Number of Securities
|
|
|
(a)
|
|
(b)
|
|
Remaining Available
|
|
|
Number of Securities
|
|
Weighted-Average
|
|
for Future Issuance
|
|
|
to be Issued Upon
|
|
Exercise Price of
|
|
Under Equity
|
|
|
Exercise of Outstanding
|
|
Outstanding Options,
|
|
Compensation Plans
|
|
|
Options, Warrants and
|
|
Warrants and
|
|
(Excluding Securities
|
Plan Category
|
|
Rights
|
|
Rights
|
|
Reflected in Column(a))
|
|
Equity compensation plans approved by security holders
|
|
8,029,256
|
|
$16.58
|
|
None
|
Equity compensation plans not approved by security holders
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
|
Total
|
|
8,029,256
|
|
$16.58
|
|
None
|
|
|
|
|
|
|
|
The remaining information required by this item is incorporated
by reference from our Definitive Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference from our Definitive Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item is incorporated by
reference from our Definitive Proxy Statement.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Documents Filed as Part of Report.
1. Financial Statements
Our consolidated financial statements are included in
Part II, Item 8 of this Annual Report on
Form 10-K.
2. Financial Statement Schedules
All schedules are omitted as the required information is either
inapplicable or the information is presented in our consolidated
financial statements and notes thereto in Item 8 above.
3. Exhibits
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit
|
|
|
3
|
.01
|
|
|
|
Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Companys
Form 10-Q
for the quarter ended June 30, 2007, and filed with the
Commission on August 7, 2007)
|
|
3
|
.02
|
|
|
|
Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Companys
Form 10-Q
for the quarter ended June 30, 2007, and filed with the
Commission on August 7, 2007)
|
|
4
|
.01
|
|
|
|
Form of Specimen Common Stock Certificate of the Company
(incorporated by reference to Exhibit 4.03 to registration
statement on
Form S-8
(Reg.
No. 33-27286)
filed by the Company with the Commission on March 2, 1989)
|
82
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit
|
|
|
4
|
.02
|
|
|
|
Indenture dated as of September 1, 1986, between the
Registrant and Bank of New York Trust Company, N.A.
(successor to Chemical Bank), as Trustee (or Senior Notes
Indenture) (incorporated by reference to Exhibit 4.01 to
registration statement on
Form S-1
(Reg.
No. 33-8362)
filed by the Company with the Commission on August 29, 1986)
|
|
4
|
.03
|
|
|
|
First Supplemental Indenture to the Senior Notes Indenture,
dated as of April 15, 1988, between the Company and Bank of
New York Trust Company, N.A. (successor to The Chase
Manhattan Bank and Chemical Bank), as Trustee (incorporated by
reference to Exhibit 4.02 to registration statement on
Form S-3,
Registration
No. 33-20431,
filed with the Commission on March 2, 1988)
|
|
4
|
.04
|
|
|
|
Second Supplemental Indenture to the Senior Notes Indenture,
dated as of December 27, 1990, between the Company and Bank
of New York Trust Company, N.A. (successor to The Chase
Manhattan Bank and Chemical Bank), as Trustee (incorporated by
reference to Exhibit 4.03 to
Form 8-K,
filed with the Commission on December 27, 1990)
|
|
4
|
.05
|
|
|
|
Third Supplemental Indenture to the Senior Notes Indenture,
dated as of May 9, 1991, between the Company and Bank of
New York Trust Company, N.A. (successor to The Chase
Manhattan Bank and Chemical Bank), as Trustee (incorporated by
reference to Exhibit 4 to
Form 10-Q
for the quarter ended June 29, 1991, filed with the
Commission on August 7, 1991)
|
|
4
|
.06
|
|
|
|
Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, dated
February 16, 1989 (incorporated by reference to
Exhibit 4.04 to the Companys
Form 10-K
for the year ended December 31, 1988, and filed with the
Commission on March 21, 1989)
|
|
4
|
.07
|
|
|
|
Form of Fixed-rate Medium Term Note, Series F, of the
Company (incorporated by reference to Exhibit 4.05 to the
Companys
Form 8-K
filed with the Commission on June 3, 1998)
|
|
4
|
.08
|
|
|
|
Form of 7.875% Senior Notes due 2012 of the Company
(incorporated by reference to Exhibit 4.1 to the
Companys
Form 8-K
filed with the Commission on May 3, 2002)
|
|
4
|
.09
|
|
|
|
Form of 6.375% Senior Notes due 2016 of the Company
(incorporated by reference to Exhibit 4.1 to the
Companys
Form 8-K
filed with the Commission on December 6, 2005)
|
|
4
|
.10
|
|
|
|
Form of 6.625% Senior Notes due 2018 of the Company
(incorporated by reference to Exhibit 4.2 to the
Companys
Form 8-K
filed with the Commission on December 6, 2005)
|
|
10
|
.01
|
|
|
|
Credit Agreement dated July 28, 2005, with Bank of America,
N.A., as administrative agent and L/C Issuer; Citibank, N.A. and
The Toronto Dominion Bank, as co-syndication agents; BNP Paribas
and The Bank Of Nova Scotia, as co-documentation agents; Banc of
America Securities LLC and Citigroup Global Markets Inc., as
joint lead arrangers and joint book managers; and the lenders
party thereto (incorporated by reference to the Companys
Current Report on
Form 8-K
filed with the Commission on August 1, 2005)
|
|
10
|
.02*
|
|
|
|
Temple-Inland Inc. 1997 Stock Option Plan (incorporated by
reference to the Companys Definitive Proxy Statement in
connection with the Annual Meeting of Shareholders held
May 2, 1997, and filed with the Commission on
March 17, 1997), as amended May 7, 1999 (incorporated
by reference to the Companys definitive proxy statement in
connection with the Annual Meeting of Shareholders held
May 7, 1999, and filed with the Commission on
March 26, 1999)
|
|
10
|
.03*
|
|
|
|
First amendment to Temple-Inland Inc. 1997 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the
Companys
Form 10-Q
for the quarter ended September 30, 2006, and filed with
the Commission on November 7, 2006)
|
|
10
|
.04*
|
|
|
|
Temple-Inland Inc. 2001 Stock Incentive Plan (incorporated by
reference to the Companys definitive proxy statement in
connection with the Annual Meeting of Shareholders held
May 4, 2001, and filed with the Commission on
March 23, 2001)
|
|
10
|
.05*
|
|
|
|
First amendment to Temple-Inland Inc. 2001 Stock Incentive Plan
(incorporated by reference to Exhibit 10.3 to the
Companys
Form 10-Q
for the quarter ended September 30, 2006, and filed with
the Commission on November 7, 2006)
|
|
10
|
.06*
|
|
|
|
Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated by
reference to Appendix A of the Companys definitive
proxy statement dated March 31, 2003, and prepared in
connection with the annual meeting of stockholders held
May 2, 2003)
|
|
10
|
.07*
|
|
|
|
First amendment to Temple-Inland Inc. 2003 Stock Incentive Plan
(incorporated by reference to Exhibit 10.4 to the
Companys
Form 10-Q
for the quarter ended September 30, 2006, and filed with
the Commission on November 7, 2006)
|
83
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit
|
|
|
10
|
.08*
|
|
|
|
Form of Nonqualified Stock Option Agreement issued pursuant to
the Temple-Inland Inc. 2003 Stock Incentive Plan (incorporated
by reference to Exhibit 10.23 to the Companys
Form 10-K
for the year ended January 3, 2004, and filed with the
Commission on February 23, 2004)
|
|
10
|
.09*
|
|
|
|
Revised Form of Performance Stock Units Agreement issued
pursuant to the Temple-Inland Inc. 2003 Stock Incentive Plan
(incorporated by reference to Exhibit 10.08 to the
Companys
Form 10-K
for the year ended December 31, 2005, and filed with the
commission on March 8, 2006)
|
|
10
|
.10*
|
|
|
|
Revised Form of Restricted Stock Unit Agreement issued pursuant
to the Temple-Inland Inc. 2003 Stock Incentive Plan
(incorporated by reference to Exhibit 10.09 to the
Companys
Form 10-K
for the year ended December 31, 2005, and filed with the
commission on March 8, 2006)
|
|
10
|
.11*
|
|
|
|
Revised Form of Nonqualified Stock Option Agreement for
Non-Employee Directors issued pursuant to the Temple-Inland Inc.
2003 Stock Incentive Plan (incorporated by reference to
Exhibit 10.10 to the Companys
Form 10-K
for the year ended December 31, 2005, and filed with the
commission on March 8, 2006)
|
|
10
|
.12*
|
|
|
|
Amendment to outstanding Temple-Inland Option Agreements and
Restricted Stock Agreements (incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K
filed with the Commission on December 31, 2007)
|
|
10
|
.13*
|
|
|
|
Amended and restated Temple-Inland Nonqualified Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed with the Commission on December 31, 2007)
|
|
10
|
.14*
|
|
|
|
Amended and restated Temple-Inland Directors Fee Deferral
Plan (incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed with the Commission on December 31, 2007)
|
|
10
|
.15*
|
|
|
|
Amended and Restated Temple-Inland Supplemental Executive
Retirement Plan (1)
|
|
10
|
.16*
|
|
|
|
Employment Agreement between the company and Doyle R. Simons,
dated August 9, 2007 (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K
filed with the Commission on August 10, 2007)
|
|
10
|
.17*
|
|
|
|
Amendment to Employment Agreement between the company and Doyle
R. Simons, dated November 7, 2008 (1)
|
|
10
|
.18*
|
|
|
|
Change in Control Agreement dated November 7, 2008, between
the Company and J. Patrick Maley III (1)
|
|
10
|
.19*
|
|
|
|
Change in Control Agreement dated November 7, 2008, between
the Company and Jack C. Sweeny (1)
|
|
10
|
.20*
|
|
|
|
Change in Control Agreement dated November 7, 2008, between
the Company and Randall D. Levy (1)
|
|
10
|
.21*
|
|
|
|
Change in Control Agreement dated November 7, 2008, between
the Company and Larry C. Norton (1)
|
|
10
|
.22
|
|
|
|
Loan Agreement, dated December 3, 2007, by and among TIN
Land Financing, LLC, Citibank, N.A., Citicorp North America,
Inc., as Agent, and the other Lenders named therein
(incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed with the Commission on December 4, 2007)
|
|
10
|
.23
|
|
|
|
Loan Agreement, dated December 3, 2007, by and among TIN
Timber Financing, LLC, Citibank, N.A., Citicorp North America,
Inc., as Agent, and the other Lenders named therein
(incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K
filed with the Commission on December 4, 2007)
|
|
10
|
.24
|
|
|
|
Pulpwood Supply Agreement, dated October 31, 2007, by and
between TIN Inc. and CPT LOGCO, LLC (incorporated by
reference to Exhibit 10.25 to the Companys Annual
Report on Form 10-K for the year ended December 29,
2007, and filed with the Commission on February 27, 2008)(2)
|
|
10
|
.25
|
|
|
|
Sawtimber Supply Agreement, dated October 31, 2007, by and
between TIN Inc. and CPT LOGCO, LLC (incorporated by
reference to Exhibit 10.26 to the Companys Annual
Report on Form 10-K for the year ended December 29,
2007, and filed with the Commission on February 27, 2008)(2)
|
|
10
|
.26*
|
|
|
|
Temple-Inland Inc. 2008 Incentive Plan (incorporated by
reference to Exhibit 10.27 to the Companys Annual
Report on Form 10-K for the year ended December 29,
2007, and filed with the Commission on February 27, 2008)
|
|
10
|
.27*
|
|
|
|
Form of Nonqualified Stock Option Agreement issued pursuant to
the Temple-Inland Inc. 2008 Stock Incentive
Plan (incorporated by reference to Exhibit 10.28 to
the Companys Annual Report on Form 10-K for the year
ended December 29, 2007, and filed with the Commission on
February 27, 2008)
|
|
10
|
.28*
|
|
|
|
Form of Restricted Stock Units Agreement issued pursuant to the
Temple-Inland Inc. 2008 Incentive Plan (incorporated by
reference to Exhibit 10.29 to the Companys Annual
Report on Form 10-K for the year ended December 29,
2007, and filed with the Commission on February 27, 2008)
|
|
10
|
.29*
|
|
|
|
Form of Restricted Units Agreement issued pursuant to the
Temple-Inland Inc. 2008 Stock Incentive Plan (1)
|
|
10
|
.30*
|
|
|
|
Form of Performance Stock Units Agreement issued pursuant to the
Temple-Inland Inc. 2008 Incentive Plan (1)
|
84
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Exhibit
|
|
|
10
|
.31*
|
|
|
|
Temple-Inland Inc. Bonus Plan for Tier I
Level Executives (1)
|
|
21
|
|
|
|
|
Subsidiaries of the Company (1)
|
|
23
|
|
|
|
|
Consent of Ernst & Young LLP (1)
|
|
31
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to Exchange
Act
rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (1)
|
|
31
|
.2
|
|
|
|
Certification of Chief Financial Officer pursuant to Exchange
Act
rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (1)
|
|
32
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (1)
|
|
32
|
.2
|
|
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (1)
|
|
|
|
* |
|
Management contract or compensatory plan or arrangement. |
|
(1) |
|
Filed herewith |
|
(2) |
|
Portions of this exhibit have been omitted pursuant to a request
for confidential treatment filed with the Securities and
Exchange Commission. The omissions have been indicated with
asterisks (***), and the omitted text has been filed
separately with the Commission. |
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Temple-Inland Inc.
(Registrant)
Doyle R. Simons
Chairman of the Board and
Chief Executive Officer
Date: February 20, 2009
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Doyle
R. Simons
Doyle
R. Simons
|
|
Director, Chairman of the Board, and Chief Executive Officer
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Randall
D. Levy
Randall
D. Levy
|
|
Chief Financial Officer
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Troy
L. Hester
Troy
L. Hester
|
|
Principal Accounting Officer
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Donald
M. Carlton
Donald
M. Carlton
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Cassandra
C. Carr
Cassandra
C. Carr
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ E.
Linn Draper, Jr.
E.
Linn Draper, Jr.
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Larry
R. Faulkner
Larry
R. Faulkner
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Jeffrey
M. Heller
Jeffrey
M. Heller
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ J.
Patrick Maley III
J.
Patrick Maley III
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ W.
Allen Reed
W.
Allen Reed
|
|
Director
|
|
February 20, 2009
|
86
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
M. Smith
Richard
M. Smith
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ Arthur
Temple III
Arthur
Temple III
|
|
Director
|
|
February 20, 2009
|
|
|
|
|
|
/s/ R.A.
Walker
R.A.
Walker
|
|
Director
|
|
February 20, 2009
|
87