UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended January 2, 2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
From to
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Commission File Number 001-08634
Temple-Inland Inc.
(Exact Name of Registrant as
Specified in its Charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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75-1903917
(I.R.S. Employer
Identification No.)
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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:
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Title of Each Class
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Name of Each Exchange On Which Registered
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Common Stock, $1.00 Par Value per Share,
non-cumulative
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New York Stock Exchange
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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 þ No o
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 whether the registrant has submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o 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):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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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
July 2, 2009, was approximately $1,045,570,000. For
purposes of this computation, all officers, directors, and five
percent beneficial owners of the registrant (as indicated in
Item 11) 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 18, 2010, there were 107,517,197 shares
of Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Companys definitive proxy statement to be
prepared in connection with the 2010 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
2009. 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 7, and revenues and unit sales
by product line are contained in Item 6 of this Annual
Report on
Form 10-K.
Narrative
Description of the Business
Corrugated Packaging. Our corrugated packaging
segment provided 84 percent of our 2009 consolidated net
revenues. Our vertically integrated corrugated packaging
operation includes:
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seven mills, and
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63 converting facilities.
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We manufacture containerboard (linerboard and corrugating
medium) and convert it into a complete line of corrugated
packaging. We also manufacture light-weight gypsum facing paper
and white-top linerboard at our mill in Newport, Indiana. We
converted 93 percent of the containerboard we manufactured
in 2009, in combination with containerboard we purchased from
other producers, into corrugated containers at our
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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.
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, beverage, 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 9,000 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.
Building Products. Our building products
segment provided 16 percent of our 2009 consolidated net
revenues. We manufacture a wide range of building products,
including:
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lumber,
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gypsum wallboard,
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particleboard,
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medium density fiberboard (or MDF), and
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fiberboard.
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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.
Raw
Materials
Wood fiber, in various forms, is the principal raw material we
use in manufacturing our products. In 2009, we purchased
approximately 43 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, 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 manufactures
corrugating medium. The principal raw material used by the Rome,
Georgia; Orange, Texas; and Bogalusa, Louisiana, mills is virgin
wood fiber, but each mill also uses recycled fiber for its fiber
requirements. The Ontario, California and Maysville, Kentucky
mills use only recycled fiber. The Newport, Indiana mill uses
recycled fiber and a combination of recycled
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fiber and virgin bleached pulp in manufacturing white-top
linerboard. The mill at New Johnsonville, Tennessee, uses a
combination of virgin wood and recycled fiber.
In 2009, recycled fiber represented approximately
44 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-fired industrial processes. We have a
long-term supply agreement for synthetic gypsum that our
supplier obtains from nearby industries, including 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 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 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
85 percent of our energy requirements in 2009 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.
Employees
We have approximately 11,000 employees, of which
approximately 10,000 are located in the United States.
Approximately 3,700 of our employees in the United States are
represented by a union. The majority of the union representation
is through the United Steelworkers or USW.
In 2009, we entered into a framework bargaining agreement with
the USW that covers our five mills with USW represented
workforces: Rome, Georgia; Bogalusa, Louisiana; New
Johnsonville, Tennessee; Orange, Texas; and Newport, Indiana.
The framework agreement provides for a four-year contract and
will be applied to all contracts expiring in 2009 through 2012.
We have 32 packaging facilities where the employees are
represented by a union, 26 of which are represented by the USW.
In 2010, seven of these contracts will expire and need to be
renegotiated.
We believe we have good working relations with our employees.
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
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cost effective. When we construct new facilities or modernize
existing facilities, we typically use best 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), Toxic Substances Control Act of 1976 (or TSCA), 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 $9 million in 2009. 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 2010, $6 million in 2011,
and $6 million in 2012. The estimated expenditures could be
significantly higher if more stringent laws and regulations are
implemented.
In 2004, the United States Environmental Protection Agency (or
EPA) published the Boiler MACT regulations affecting industrial
boilers and process heaters burning all fuel types with the
exception of small gas-fired units. In 2007 the U.S. Court
of Appeals for the D.C. Circuit remanded and vacated the Boiler
MACT. To date new regulations have not been proposed or issued.
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.
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, $40 million during the period 2010
through 2055 to ensure proper closure of these landfills. We
also have one additional site that we are remediating. We expect
to spend, on an undiscounted basis, $2 million for the
remediation of that site. A reserve has been established for
these closure and remediation costs.
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. 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 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 proceedings
relating to the cleanup of six 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 two 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 six
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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 in the future by regulation or
taxation of greenhouse gas, or GHG, emissions. Although climate
change legislation is pending in Congress, it is difficult at
this time to estimate the likelihood of passage of legislation,
or alternatively, the potential impact of direct regulation of
GHG emissions by the EPA. Several states, including California,
have implemented their own GHG regulatory programs. Our sites
that are subject to state imposed GHG regulations, have not
experienced, and do not anticipate, significant cost increases
as a result, although it is likely that GHG emission
restrictions will increase over time. Potential consequences of
such federal and state regulations include increased capital
requirements at the time of permitting for new emission sources
or major modification of existing sources, and at the time of
renewal of existing permits. Also, such regulations will
potentially increase energy costs above the level of general
inflation, as well as increase direct compliance costs.
Currently, however, it is not possible to estimate the likely
financial impact of potential future GHG regulation on any of
our manufacturing sites.
Coal
Combustion By-products
EPA is considering a regulation designating Coal Combustion
By-products (CCBs) as hazardous waste and regulating their
disposal accordingly. Contingent upon the actual language of
such regulation if enacted, there is a potential direct impact
on our continued use of flue gas desulfurization gypsum (FGD),
also referred to as synthetic gypsum, which makes up
approximately 60 percent of the raw material requirements
for our gypsum wallboard manufacturing. We currently expect that
any regulation in this area will include a beneficial use
exception that would allow continued use of FGD in manufacturing
wallboard. Alternate sources of natural gypsum are available but
at a higher delivered cost. Such designation of FGD as hazardous
waste would reverse the EPAs affirmative determination in
1993 and in 2000 that FGD was non-hazardous and negate the
EPAs express encouragement of the use of CCBs in the
manufacture of building products. The designation of CCBs as
hazardous waste would also have the indirect impact of
potentially raising the cost of electricity as utilities would
incur increased waste disposal costs that would be passed
through to customers. Until any such regulation is actually
proposed for final adoption, it is not possible to estimate the
financial impact of this potential regulation.
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 14 percent of total industry
shipments in 2009, 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.
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Executive
Officers of the Registrant
The names, ages, and titles of our executive officers are:
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Name
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Age
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Office
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Doyle R. Simons
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Chairman of the Board and Chief Executive Officer
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J. Patrick Maley III
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President and Chief Operating Officer
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Jack C. Sweeny
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Group Vice President
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Larry C. Norton
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Group Vice President
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Dennis J. Vesci
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Group Vice President
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Randall D. Levy
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Chief Financial Officer and Treasurer
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J. Bradley Johnston
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Chief Administrative Officer
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C. Morris Davis
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General Counsel
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Scott Smith
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Chief Information Officer
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Grant F. Adamson
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Chief Governance Officer
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Leslie K. ONeal
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Vice President, Assistant General Counsel and Secretary
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Carolyn C. Sloan
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Vice President, Internal Audit
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Troy L. Hester
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Principal Accounting Officer and Corporate Controller
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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 management
capacities in our building products segment, which he joined in
1970.
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.
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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, who joined the
Company in 1980, 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:
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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);
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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
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corporate governance information that includes our
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corporate governance principles,
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audit committee charter,
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management development and executive compensation committee
charter,
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nominating and governance committee charter,
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standards of business conduct and ethics,
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code of ethics for senior financial officers, and
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information on how to communicate directly with our Board of
Directors.
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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. The industries in
which we compete are particularly sensitive to price
fluctuations as well as other factors, 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
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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 regulations. In other sections of this
Annual Report on
Form 10-K,
we provide certain estimates of
8
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.
One example of a potential regulatory change involves the EPA
considering regulations that would classify materials produced
primarily from the combustion of coal in coal-fired industrial
processes (sometimes referred to as coal combustion by-products)
as hazardous materials. Such regulation could impact our use of
synthetic gypsum in the manufacture of gypsum wallboard. If
synthetic gypsum, along with other coal combustion by-products,
is classified as a hazardous material, we would no longer be
able to use it as a raw material, and we would need to find
alternative sources of gypsum. These alternative sources would
likely be materially more expensive than the synthetic gypsum we
currently use. For a more detailed description, please see
Environmental Protection Coal Combustion
By-products on page 5.
Another example is pending legislative and regulatory actions
concerning greenhouse gas (GHG) emissions. Potential
consequences of such federal and state regulations include
increased capital requirements at the time of permitting for new
emission sources or major modification of existing sources, and
at the time of renewal of existing permits. Also, such
regulations will potentially increase energy costs above the
level of general inflation, as well as increase direct
compliance costs.
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 employment, interest rates,
foreclosure rates, and availability of financing, and housing
starts have declined to the lowest levels in decades. 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 or
continued historically low levels of 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
9
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.
In 2007, 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 undertakings are not correct or have been
violated or that the transaction otherwise does not qualify for
the installment method. In any such event, some or all of the
deferred taxes recorded from the gain on the sale of our
timberlands and payable in 2027 could become currently payable.
For a more detailed description, please see Capital
Resources and Liquidity-Financial Assets and Nonrecourse
Financial Liabilities of Special Purpose Entities on
page 34.
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 & Poors Financial Services LLC, a
subsidiary of McGraw-Hill Companies, Inc., and A1 by
Moodys Investors Service, 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. To
date two letter of credit banks have been replaced. 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 recorded from the gain on the sale of our timberlands and
payable in 2027 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. For a more detailed description,
please see Capital Resources and Liquidity-Financial
Assets and Nonrecourse Financial Liabilities of Special Purpose
Entities on page 34.
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.
10
|
|
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
|
|
|
2009
|
|
Location
|
|
Product
|
|
Machines
|
|
|
Capacity
|
|
|
Production
|
|
|
|
|
|
|
|
|
(In tons)
|
|
|
Ontario, California
|
|
Linerboard and corrugating medium
|
|
|
1
|
|
|
|
340,280
|
|
|
|
337,100
|
|
Rome, Georgia
|
|
Linerboard
|
|
|
2
|
|
|
|
877,100
|
|
|
|
757,566
|
|
Orange, Texas
|
|
Linerboard and corrugating medium
|
|
|
2
|
|
|
|
769,700
|
|
|
|
765,471
|
|
Bogalusa, Louisiana
|
|
Linerboard
|
|
|
2
|
|
|
|
895,000
|
|
|
|
861,879
|
|
Maysville, Kentucky
|
|
Linerboard and corrugating medium
|
|
|
1
|
|
|
|
524,900
|
|
|
|
506,361
|
|
New Johnsonville, Tennessee
|
|
Corrugating medium
|
|
|
1
|
|
|
|
371,050
|
|
|
|
362,940
|
|
Newport, Indiana
|
|
Corrugating medium, white-top linerboard,
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
and gypsum facing paper
|
|
|
|
|
|
|
340,280
|
|
|
|
314,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,118,310
|
|
|
|
3,906,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
11
|
|
|
|
|
Corrugator
|
Location
|
|
Size
|
|
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
|
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. |
12
Additionally, we own a graphics resource center in Indianapolis,
Indiana, that has a 100 preprint press. We lease 36
warehouses located throughout much of the United States.
Building
Products
|
|
|
|
|
|
|
|
|
|
|
Rated Annual
|
|
Description
|
|
Location
|
|
Capacity
|
|
|
|
|
|
(In millions of
|
|
|
|
|
|
board feet)
|
|
|
Lumber
|
|
Diboll, Texas
|
|
|
270
|
*
|
Lumber
|
|
Pineland, Texas
|
|
|
360
|
**
|
Lumber
|
|
Buna, Texas
|
|
|
198
|
***
|
Lumber
|
|
Rome, Georgia
|
|
|
180
|
|
Lumber
|
|
DeQuincy, Louisiana
|
|
|
198
|
|
|
|
|
|
|
|
|
Total lumber
|
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes separate finger jointing capacity of 20 million
board feet. |
|
** |
|
Includes separate stud mill capacity of 110 million board
feet. |
|
*** |
|
In 2009, production at this facility was ceased for an
indefinite period. |
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
150
|
|
Particleboard
|
|
Thomson, Georgia
|
|
|
150
|
|
Particleboard
|
|
Diboll, Texas
|
|
|
150
|
|
Particleboard
|
|
Hope, Arkansas
|
|
|
200
|
|
|
|
|
|
|
|
|
Total particleboard
|
|
|
|
|
650
|
|
|
|
|
|
|
|
|
MDF*
|
|
El Dorado, Arkansas
|
|
|
150
|
|
MDF(1)
|
|
Mt. Jewett, Pennsylvania
|
|
|
140
|
|
|
|
|
|
|
|
|
Total MDF
|
|
|
|
|
290
|
|
|
|
|
|
|
|
|
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. |
|
(1) |
|
Leased facilities. |
Other
We occupy approximately 176,000 square feet of leased
office space in Austin, Texas. We own and occupy a
150,000 square feet office building in Diboll, Texas.
|
|
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 of any of these proceedings
should not have a material adverse effect on our financial
position or long-term
13
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 EPA, 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. 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.
Guaranty
Bank
In February 2007, we announced a transformation plan that
included spinning off our financial services segment, Guaranty
Financial Group (including its subsidiary Guaranty Bank), and
our real estate segment, Forestar Group, and selling our
timberlands. In October 2007, we closed the sale of the
timberlands, and in December 2007 we distributed
100 percent of the stock of Guaranty Financial Group and
Forestar to our shareholders consistent with this transformation
plan. Since their spin-off in December 2007, we have had no
ownership in or affiliation with Guaranty Financial Group,
Guaranty Bank, or Forestar. In connection with the spin-off, we
received an opinion from a qualified advisor that Guaranty
Financial Group and Guaranty Bank would be solvent and
adequately capitalized after the spin-off. In addition, Guaranty
Bank satisfied Office of Thrift Supervision criteria to be
considered well capitalized both before and after the spin off.
In August 2009, the Office of Thrift Supervision closed Guaranty
Bank and appointed the Federal Deposit Insurance Corporation
(FDIC) as receiver. Shortly thereafter, Guaranty Financial
Group, filed for bankruptcy. As a result of the process we
followed in connection with the spin-off, we do not believe that
if the receiver made any claim against us that we would have any
liability related to the spin-off of Guaranty Financial Group.
Often in its capacity as receiver for a failed financial
institution, the FDIC will bring professional liability claims
against the directors and officers of the failed institution in
an effort to recoup losses suffered by the deposit insurance
fund. We are not currently aware of any such claims being filed
in connection with the failure of Guaranty Bank. If any such
claims are filed, certain of our employees and directors who
served as officers or directors of Guaranty Bank or Guaranty
Financial Group prior to the spin-off may have a right to seek
indemnification from us for any losses suffered as a result of
such claims. The indemnification would generally not be
available to an individual who had not acted in good faith or
had reason to believe their actions were opposed to our best
interests. We believe that any such claims for indemnification
would be limited to the time during which we owned Guaranty and
would be covered by our director and officer liability
insurance. Accordingly, we do not anticipate that we would incur
any significant liability if any such indemnification claims
actually arise.
Other
We have been named as a defendant in several cases in Louisiana
state court claiming hearing loss as a result of continuous
long-term hazardous noise exposure at one of our facilities. We
have observed an increase in this type of litigation against
operators of industrial facilities. While it is too early for us
to form an opinion
14
as to risk of loss in these matters, we believe that we
substantially complied with workplace health and safety
regulations and good industry practices relating to potential
hearing loss over the various periods of employment. We will
continue to defend vigorously against these allegations.
PART II
|
|
Item 4.
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Price Range
|
|
|
|
|
|
Price Range
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
First Quarter
|
|
$
|
6.47
|
|
|
$
|
2.37
|
|
|
$
|
0.10
|
|
|
$
|
21.68
|
|
|
$
|
11.64
|
|
|
$
|
0.10
|
|
Second Quarter
|
|
$
|
15.64
|
|
|
$
|
4.95
|
|
|
$
|
0.10
|
|
|
$
|
15.54
|
|
|
$
|
11.08
|
|
|
$
|
0.10
|
|
Third Quarter
|
|
$
|
18.90
|
|
|
$
|
10.90
|
|
|
$
|
0.10
|
|
|
$
|
20.49
|
|
|
$
|
10.52
|
|
|
$
|
0.10
|
|
Fourth Quarter
|
|
$
|
22.68
|
|
|
$
|
14.85
|
|
|
$
|
0.10
|
|
|
$
|
15.42
|
|
|
$
|
2.34
|
|
|
$
|
0.10
|
|
For the Year
|
|
$
|
22.68
|
|
|
$
|
2.37
|
|
|
$
|
0.40
|
|
|
$
|
21.68
|
|
|
$
|
2.34
|
|
|
$
|
0.40
|
|
Shareholders
Our stock transfer records indicated that as of
February 18, 2010, there were approximately
4,400 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. On
February 5, 2010, the Board of Directors declared a
quarterly dividend on our Common Stock of $0.11 per share
payable on March 15, 2010, to shareholders of record on
March 1, 2010. 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(2)
|
|
|
Share
|
|
|
Programs
|
|
|
or Programs
|
|
|
Month 1 (10/1/2009 10/31/2009)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
6,650,000
|
|
Month 2 (11/1/2009 11/30/2009)
|
|
|
43
|
|
|
$
|
17.95
|
|
|
|
|
|
|
|
6,650,000
|
|
Month 3 (12/1/2009 12/31/2009)
|
|
|
4,686
|
|
|
$
|
20.49
|
|
|
|
|
|
|
|
6,650,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,729
|
|
|
$
|
20.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
15
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,
2009. 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.
The performance graph is based on a peer index composed of
AbitibiBowater Inc.; Appleton Papers 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.; Neenah Paper Inc.; Newark Group,
Inc.; NewPage Corp.; Packaging Corporation of America; Rock-Tenn
Co.; Smurfit-Stone Container Corporation; Verso Paper Corp.;
Wausau Paper Corp.; and West Fraser Timber Co. Ltd. Some
companies in our peer index do not have publicly traded common
stock and are not included in the performance graph. The
Standard & Poors 500 Stock Index is a broad
equity market index published by Standard &
Poors.
Assumes $100 invested on the last trading day in fiscal year 2004
Total return assumes reinvestment of dividends
Pursuant to SEC rules, the returns of each of the companies in
the 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.
16
|
|
Item 5.
|
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009(a)
|
|
|
2008(b)
|
|
|
2007(c)
|
|
|
2006(d)
|
|
|
2005
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
3,001
|
|
|
$
|
3,190
|
|
|
$
|
3,044
|
|
|
$
|
2,977
|
|
|
$
|
2,825
|
|
Building products
|
|
|
576
|
|
|
|
694
|
|
|
|
806
|
|
|
|
1,119
|
|
|
|
898
|
|
Timber and
timberland(e)
|
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
89
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
3,577
|
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
$
|
4,185
|
|
|
$
|
3,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
347
|
|
|
$
|
225
|
|
|
$
|
287
|
|
|
$
|
255
|
|
|
$
|
120
|
|
Building products
|
|
|
(27
|
)
|
|
|
(40
|
)
|
|
|
8
|
|
|
|
221
|
|
|
|
125
|
|
Timber and
timberland(e)
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
63
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
320
|
|
|
|
185
|
|
|
|
360
|
|
|
|
539
|
|
|
|
317
|
|
Items not included in segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
(70
|
)
|
|
|
(76
|
)
|
|
|
(100
|
)
|
|
|
(107
|
)
|
|
|
(91
|
)
|
Share-based and long-term incentive compensation
|
|
|
(58
|
)
|
|
|
2
|
|
|
|
(34
|
)
|
|
|
(38
|
)
|
|
|
(21
|
)
|
Gain on sale of
timberland(e)
|
|
|
|
|
|
|
|
|
|
|
2,053
|
|
|
|
|
|
|
|
|
|
Other operating income
(expense)(f)
|
|
|
206
|
|
|
|
(29
|
)
|
|
|
(188
|
)
|
|
|
26
|
|
|
|
(85
|
)
|
Other non-operating income
(expense)(f)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(35
|
)
|
|
|
93
|
|
|
|
|
|
Net interest income (expense) on financial assets and
nonrecourse financial liabilities of special purpose
entities(e)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Interest expense on debt
|
|
|
(63
|
)
|
|
|
(81
|
)
|
|
|
(111
|
)
|
|
|
(123
|
)
|
|
|
(109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
332
|
|
|
|
(1
|
)
|
|
|
1,955
|
|
|
|
390
|
|
|
|
11
|
|
Income tax (expense)
benefit(g)
|
|
|
(125
|
)
|
|
|
(7
|
)
|
|
|
(753
|
)
|
|
|
(103
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
207
|
|
|
|
(8
|
)
|
|
|
1,202
|
|
|
|
287
|
|
|
|
18
|
|
Discontinued
operations(h)
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
181
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
207
|
|
|
|
(8
|
)
|
|
|
1,305
|
|
|
|
468
|
|
|
|
176
|
|
Less: Net income (loss) attributable to noncontrolling interest
of special purpose
entities(e)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Temple-Inland Inc.
|
|
$
|
206
|
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
|
$
|
468
|
|
|
$
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations(i)
|
|
$
|
1.89
|
|
|
$
|
(0.08
|
)
|
|
$
|
10.89
|
|
|
$
|
2.53
|
|
|
$
|
0.14
|
|
Discontinued
operations(h)
|
|
|
|
|
|
|
|
|
|
|
0.96
|
|
|
|
1.63
|
|
|
|
1.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.89
|
|
|
$
|
(0.08
|
)
|
|
$
|
11.85
|
|
|
$
|
4.16
|
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common
share(j)
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
11.37
|
|
|
$
|
1.00
|
|
|
$
|
0.90
|
|
Average basic shares outstanding
|
|
|
106.9
|
|
|
|
106.7
|
|
|
|
106.0
|
|
|
|
108.8
|
|
|
|
112.6
|
|
Average diluted shares outstanding
|
|
|
108.0
|
|
|
|
107.4
|
|
|
|
108.1
|
|
|
|
110.8
|
|
|
|
114.5
|
|
Common shares outstanding at year-end
|
|
|
107.4
|
|
|
|
106.5
|
|
|
|
106.1
|
|
|
|
104.9
|
|
|
|
111.0
|
|
Depreciation and amortization
|
|
$
|
200
|
|
|
$
|
206
|
|
|
$
|
214
|
|
|
$
|
225
|
|
|
$
|
218
|
|
Capital expenditures
|
|
$
|
130
|
|
|
$
|
164
|
|
|
$
|
237
|
|
|
$
|
204
|
|
|
$
|
220
|
|
At Year-End:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing assets
|
|
$
|
3,234
|
|
|
$
|
3,395
|
|
|
$
|
3,559
|
|
|
$
|
3,627
|
|
|
$
|
3,411
|
|
Financial assets of special purpose
entities(e)
|
|
|
2,475
|
|
|
|
2,474
|
|
|
|
2,383
|
|
|
|
|
|
|
|
|
|
Assets of discontinued
operations(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,847
|
|
|
|
18,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,709
|
|
|
$
|
5,869
|
|
|
$
|
5,942
|
|
|
$
|
20,474
|
|
|
$
|
21,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (long-term excluding current maturities and nonrecourse
financial liabilities of special purpose entities)
|
|
$
|
710
|
|
|
$
|
1,191
|
|
|
$
|
852
|
|
|
$
|
1,584
|
|
|
$
|
1,498
|
|
Nonrecourse financial liabilities of special purpose
entities(e)
|
|
$
|
2,140
|
|
|
$
|
2,140
|
|
|
$
|
2,140
|
|
|
$
|
|
|
|
$
|
|
|
Liability for pension and postretirement benefits
|
|
$
|
407
|
|
|
$
|
290
|
|
|
$
|
256
|
|
|
$
|
366
|
|
|
$
|
407
|
|
Noncontrolling interest of special purpose
entities(e)
|
|
$
|
92
|
|
|
$
|
91
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Shareholders equity
|
|
$
|
794
|
|
|
$
|
686
|
|
|
$
|
780
|
|
|
$
|
2,189
|
|
|
$
|
2,080
|
|
Ratio of debt to total capitalization
|
|
|
47
|
%
|
|
|
63
|
%
|
|
|
52
|
%
|
|
|
42
|
%
|
|
|
42
|
%
|
|
|
|
(a) |
|
In 2009, we adopted the following new accounting guidance:
(i) Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) 810,
Consolidation adoption required the
reclassification of $91 million of noncontrolling interest
of special purpose entities to shareholders equity; and
(ii) ASC 260, Earning Per Share adoption
reduced our earnings per share by $0.02 in 2009, no effect in
2008, $0.23 in 2007, $0.06 in 2006, and $0.02 in 2005. |
17
|
|
|
(b) |
|
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). 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. |
|
(c) |
|
In 2007, we adopted the following new accounting guidance:
(i) Accounting for Uncertainty in Income Taxes, FASB
Interpretation No. 48 (FIN 48) adoption
increased our assets by $2 million, reduced our liabilities
by $3 million and increased our beginning retained earnings
by $5 million (we also reclassified $11 million from
deferred income taxes to other long-term liabilities); and
(ii) measurement date provisions of Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (ASC 715) adoption reduced our beginning
retained earnings by $5 million. |
|
(d) |
|
In January 2006, we purchased our partners 50 percent
interest in Standard Gypsum LP. Unaudited pro forma information
assuming this acquisition and related financing had occurred at
the beginning of 2005 follows: |
|
|
|
|
|
|
|
For the Year
|
|
|
2005
|
|
Revenues
|
|
$
|
4.04 billion
|
|
Income from continuing operations
|
|
$
|
32 million
|
|
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, we adopted the following new accounting guidance:
(i) Share-Based Payment (ASC 718)
adoption decreased our 2006 income before taxes by
$6 million; (ii) Accounting for Purchases and Sales
of Inventory with the Same Counterparty (ASC
845-10-50-3)
adoption decreased our income before taxes by $7 million in
2006 and $2 million in 2007; and
(iii) Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (ASC 715)
adoption 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. |
|
(e) |
|
Timber and timberland is no longer an active segment as a result
of the sale of our timberlands. In October 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 total
consideration consisted almost entirely of $2.38 billion in
notes due in 2027 that are secured by irrevocable letters of
credit issued by independent financial institutions. We later
contributed the $2.38 billion in notes 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. We include
our 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 the timberland buyers special purpose
entities in 2008. |
18
|
|
|
(f) |
|
Other operating and non-operating income (expense) consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Other operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative fuel mixture tax credits, net of costs
|
|
$
|
213
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
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
|
|
|
(5
|
)
|
|
|
(9
|
)
|
|
|
(55
|
)
|
|
|
(4
|
)
|
|
|
(50
|
)
|
Litigation
|
|
|
|
|
|
|
5
|
|
|
|
(56
|
)
|
|
|
(6
|
)
|
|
|
(16
|
)
|
Environmental remediation
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
(3
|
)
|
Softwood Lumber Agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
Hurricane related costs and, in 2006, related insurance proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
(16
|
)
|
Other charges
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206
|
|
|
$
|
(29
|
)
|
|
$
|
(188
|
)
|
|
$
|
26
|
|
|
$
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substitution costs
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gain on purchase and retirement of debt
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges related to early repayment of debt
|
|
|
|
|
|
|
(4
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
(6
|
)
|
Tax litigation and other settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
2
|
|
Interest and other income
|
|
|
1
|
|
|
|
4
|
|
|
|
5
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(35
|
)
|
|
$
|
93
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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; and $16 million in 2005 related
to the sale of our Pembroke, Canada MDF facility. |
|
(h) |
|
Discontinued operations include 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. |
|
(i) |
|
In 2008, earnings per share 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. |
|
|
Item 6.
|
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
|
19
|
|
|
|
|
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
|
|
|
|
our ability to execute certain strategic and business
improvement initiatives
|
|
|
|
the accuracy of certain judgments and estimates concerning the
integration of acquired operations
|
|
|
|
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 and long-term incentive 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 policies 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
20
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.
|
|
|
|
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 84 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. 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 decrease in the discount rate would increase
the projected benefit obligation by about $44 million and
increase the net periodic pension cost by about $5 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. In addition, beginning in 2010, we will be
required to adopt new accounting guidance regarding the
consolidation of variable interest entities (ASC
810-10).
This new guidance is designed to provide more relevant and
reliable information to users of financial statements. We are
currently evaluating the impact of this new guidance on our
financial statements. 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 and financial services segments.
The transformation plan significantly changed our capital
structure and operations. Since completion of the transformation
plan, we are a manufacturing company focused on corrugated
packaging and building products.
21
Results
of Operations for the Years 2009, 2008 and 2007
Summary
Our two key objectives are:
|
|
|
|
|
Maximizing ROI and
|
|
|
|
Profitably growing our business
|
We strive to accomplish these key objectives through execution
of our strategic initiatives:
|
|
|
|
|
Matching supply and demand
|
|
|
|
Maintaining a high integration level in corrugated packaging
|
|
|
|
Driving for low cost through asset utilization and manufacturing
excellence
|
|
|
|
Improving mix and margins through sales excellence
|
|
|
|
Profitably growing our business
|
In 2009, consistent with our key strategic initiatives:
|
|
|
|
|
Our integration level was at 95 percent.
|
|
|
|
We improved asset utilization and lowered costs in our box plant
system through our box plant transformation.
|
|
|
|
We lowered costs in our mills through enhanced reliability and
targeted investments to reduce energy consumption and enhance
mill flexibility and had record production in our mills.
|
|
|
|
We improved mix and margins through our segmenting, targeting,
and positioning initiative focused on targeted customers for
which we can create value.
|
|
|
|
We continued to realize benefits from the 2008 acquisition of
our partners 50 percent interest in PBL, a joint
venture that manufactures containerboard and gypsum facing paper
at a mill in Newport, Indiana.
|
|
|
|
We continued to drive down our costs throughout our company.
|
A summary of our consolidated results from continuing operations
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions, except per share)
|
|
|
Consolidated revenues
|
|
$
|
3,577
|
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
Income (loss) from continuing operations attributable to
Temple-Inland Inc.
|
|
|
206
|
|
|
|
(8
|
)
|
|
|
1,202
|
|
Income (loss) from continuing operations, per share,
attributable to Temple-Inland Inc.
|
|
|
1.89
|
|
|
|
(0.08
|
)
|
|
|
10.89
|
|
ROI
|
|
|
7.0
|
%
|
|
|
4.5
|
%
|
|
|
7.8
|
%
|
In 2009, significant items affecting income from continuing
operations included:
|
|
|
|
|
We experienced lower prices and volumes for our corrugated
packaging products, and lower prices and volumes for most of our
building products except for gypsum wallboard volumes.
|
|
|
|
We realized benefits from the production of white top linerboard
at the Newport mill and its integration into our corrugated
packaging operations.
|
|
|
|
We continued to see the benefits in our manufacturing operations
from our initiatives to lower costs, improve asset utilization,
and increase operating efficiencies, and realized benefits from
lower costs for energy, freight and fiber in our corrugated
packaging operations.
|
22
|
|
|
|
|
Share-based and long-term incentive compensation increased due
to the impact on our cash-settled awards of the increase in the
market price of our common stock.
|
|
|
|
We recognized other operating income of $213 million
related to alternative fuel mixture tax credits, net of related
costs.
|
|
|
|
We incurred $7 million of other operating expense primarily
associated with 2008 facility closures and severance.
|
|
|
|
We recognized a net gain of $15 million in connection with
the purchase and retirement of $245 million of our
long-term debt.
|
|
|
|
We recognized $17 million of non-operating expense
associated with the substitution of an issuer of irrevocable
letters of credit securing the notes we received in connection
with the 2007 sale of our strategic timberland.
|
|
|
|
Interest expense decreased primarily due to our purchase and
retirement of long-term debt, lower levels of variable rate debt
and, to a lesser degree, lower interest rates on our
variable-rate debt.
|
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 impact on our
cash-settled awards of the decrease in the market price of our
common stock.
|
|
|
|
We incurred $20 million of costs primarily related to our
transformation plan, of which $15 million was 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.
|
|
|
|
Interest expense decreased primarily due to the December 2007
early retirement of $286 million of 6.75% Notes, and
$213 million of 7.875% 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 continued 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.
|
23
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 entities spun-off in 2007 are presented as
discontinued operations.
Our operations are affected to varying degrees by supply and
demand factors and economic conditions including changes in
energy costs, 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.
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 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
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
$
|
3,001
|
|
|
$
|
3,190
|
|
|
$
|
3,044
|
|
Costs and expenses
|
|
|
(2,654
|
)
|
|
|
(2,965
|
)
|
|
|
(2,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
347
|
|
|
$
|
225
|
|
|
$
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment ROI
|
|
|
16.5
|
%
|
|
|
11.3
|
%
|
|
|
14.3
|
%
|
Corrugated packaging results for 2008 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)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Corrugated packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
(3
|
)%
|
|
|
4
|
%
|
|
|
3
|
%
|
Shipments, average
week(a)
|
|
|
1
|
%
|
|
|
(2
|
)%
|
|
|
(1
|
)%
|
Industry shipments, average
week(b)
|
|
|
(7
|
)%
|
|
|
(4
|
)%
|
|
|
(2
|
)%
|
Paperboard
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
(12
|
)%
|
|
|
1
|
%
|
|
|
5
|
%
|
Shipments, in thousand
tons(c)
|
|
|
(116
|
)
|
|
|
166
|
|
|
|
(7
|
)
|
|
|
|
(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 decrease in 2009 paperboard shipments to third parties was
primarily due to a decrease of 150,000 tons of containerboard
shipments offset by an increase of 40,000 tons of light-weight
gypsum facing paper shipments. 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. |
24
In 2009, corrugated packaging prices were down due to economic
conditions. In 2008, corrugated packaging prices were up as a
result of price increases implemented in 2007 and mid-2008;
however economic conditions in 2008 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.
Costs and expenses were down ten percent in 2009 compared with
2008, up eight percent in 2008 compared with 2007, and up one
percent in 2007 compared with 2006. The lower costs in 2009 were
primarily the result of lower prices for wood fiber, recycled
fiber, energy, and freight; lower converting costs; and reduced
outside purchases of white top linerboard and medium due to the
integration of the Newport mill, somewhat offset by an increase
in employee benefit costs. The higher costs in 2008 were
primarily the result of higher prices for recycled fiber,
energy, and freight, and the inclusion of PBL since its purchase
in July 2008. The higher costs in 2007 were primarily the result
of higher raw material costs 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 in August 2006.
Fluctuations in our significant cost and expense components
included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Wood fiber
|
|
$
|
(27
|
)
|
|
$
|
5
|
|
|
$
|
8
|
|
Recycled and purchased pulp fiber
|
|
|
(30
|
)
|
|
|
15
|
|
|
|
77
|
|
Energy, principally natural gas
|
|
|
(62
|
)
|
|
|
61
|
|
|
|
(1
|
)
|
Freight
|
|
|
(27
|
)
|
|
|
29
|
|
|
|
(3
|
)
|
Depreciation
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
(11
|
)
|
Health care
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Pension and postretirement
|
|
|
5
|
|
|
|
|
|
|
|
(12
|
)
|
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 2010. 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
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Number of converting facilities (at year-end)
|
|
|
63
|
|
|
|
63
|
|
|
|
64
|
|
Corrugated packaging shipments, in million tons
|
|
|
3.3
|
|
|
|
3.3
|
|
|
|
3.4
|
|
Paperboard production, in million tons
|
|
|
3.9
|
|
|
|
3.7
|
|
|
|
3.6
|
|
Percent containerboard production used internally
|
|
|
93
|
%
|
|
|
88
|
%
|
|
|
92
|
%
|
Percent of total fiber requirements sourced from recycled fiber
|
|
|
44
|
%
|
|
|
42
|
%
|
|
|
36
|
%
|
Paperboard production in 2009 includes production from our
Newport mill that we acquired in July 2008. In 2009 and 2008, we
reduced our production of containerboard to match our demand. In
2008, we lost production of 38,000 tons of containerboard due to
hurricanes Gustav and Ike.
As part of 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 $3 million for
2009 and $2 million for 2008 are not included in segment
results.
25
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
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
$
|
576
|
|
|
$
|
694
|
|
|
$
|
806
|
|
Costs and expenses
|
|
|
(603
|
)
|
|
|
(734
|
)
|
|
|
(798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss)
|
|
$
|
(27
|
)
|
|
$
|
(40
|
)
|
|
$
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment ROI
|
|
|
(5.0
|
)%
|
|
|
(7.1
|
)%
|
|
|
1.4
|
%
|
Fluctuations in product pricing (which includes freight and is
net of discounts) and shipments follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Lumber:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
(14
|
)%
|
|
|
1
|
%
|
|
|
(13
|
)%
|
Shipments
|
|
|
(7
|
)%
|
|
|
(8
|
)%
|
|
|
1
|
%
|
Gypsum wallboard:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
(4
|
)%
|
|
|
(18
|
)%
|
|
|
(27
|
)%
|
Shipments
|
|
|
10
|
%
|
|
|
(28
|
)%
|
|
|
(26
|
)%
|
Particleboard:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
(7
|
)%
|
|
|
4
|
%
|
|
|
2
|
%
|
Shipments
|
|
|
(17
|
)%
|
|
|
(7
|
)%
|
|
|
(17
|
)%
|
MDF:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average prices
|
|
|
|
|
|
|
12
|
%
|
|
|
1
|
%
|
Shipments
|
|
|
(11
|
)%
|
|
|
4
|
%
|
|
|
(5
|
)%
|
Pricing and demand for most of our building products were down
in 2009 compared with 2008 due to deteriorating conditions in
the housing industry. In 2008, pricing was up for lumber,
particleboard and MDF compared with 2007, and demand for most
products was down due to deteriorating conditions in the housing
industry, which began in late 2007. We expect markets to be
challenged in 2010.
Segment results also include our share of income from our MDF
joint venture of $2 million in 2009, and $1 million in
each of 2008 and 2007. 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 18 percent in 2009 compared
with 2008, down eight percent in 2008 compared with 2007, and
down 11 percent in 2007 compared with 2006. The lower costs
in 2009 and 2008 are primarily attributable to curtailment of
production to match demand for our products and reductions in
employment. In 2009, we recognized a $3 million gain from a
sale in lieu of condemnation of land near our lumber mill in
Rome, Georgia, and we incurred costs of about $1 million
related to an indefinite shutdown of our lumber mill in Buna,
Texas. We incurred severance charges of $3 million in 2008
related to reductions in employment. The lower costs in 2007
were primarily due to lower volumes.
26
Fluctuations in our significant cost and expense components
included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year over Year
|
|
|
|
Increase (Decrease)
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Wood fiber
|
|
$
|
(33
|
)
|
|
$
|
(43
|
)
|
|
$
|
(32
|
)
|
Energy, principally natural gas
|
|
|
(26
|
)
|
|
|
|
|
|
|
(21
|
)
|
Freight
|
|
|
(15
|
)
|
|
|
(6
|
)
|
|
|
(12
|
)
|
Chemicals
|
|
|
(25
|
)
|
|
|
12
|
|
|
|
(5
|
)
|
Depreciation
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
1
|
|
Health care
|
|
|
|
|
|
|
(2
|
)
|
|
|
1
|
|
Pension and postretirement
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
1
|
|
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 2010.
Information about our converting and manufacturing facilities
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Number of converting and manufacturing facilities (at year-end)
|
|
|
16
|
|
|
|
16
|
|
|
|
16
|
|
Operating rates for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber
|
|
|
66
|
%
|
|
|
76
|
%
|
|
|
91
|
%
|
Gypsum wallboard
|
|
|
56
|
%
|
|
|
51
|
%
|
|
|
70
|
%
|
Particleboard
|
|
|
57
|
%
|
|
|
67
|
%
|
|
|
72
|
%
|
MDF
|
|
|
89
|
%
|
|
|
97
|
%
|
|
|
102
|
%
|
The number of converting and manufacturing facilities and the
operating rates include our lumber mill in Buna, Texas, which
was indefinitely shutdown in second quarter 2009. Markets for
our building products continue to be difficult. The lower
operating rates in both 2009 and 2008 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 2008. 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:
|
|
|
|
|
|
|
First 10 Months 2007
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
$
|
76
|
|
Costs and expenses
|
|
|
(11
|
)
|
|
|
|
|
|
Segment operating income
|
|
$
|
65
|
|
|
|
|
|
|
Segment ROI
|
|
|
20.4
|
%
|
In the first ten months 2007, we harvested 2.1 million tons
of sawtimber and 2.9 million tons of pulpwood.
27
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 and long-term incentive
compensation, other operating and non-operating income
(expense), and interest income and expense.
The $6 million and $24 million decrease in general and
administrative expense in 2009 and 2008 was principally due to
our cost reduction efforts, which included a 27 percent
reduction in business support employees in 2008. The decrease in
2009 general and administrative expense was somewhat offset by
an increase in incentive compensation due to a higher ROI in
2009. The $7 million decrease in 2007 was primarily related
to a decrease in incentive compensation due to a lower ROI in
2007.
Our share-based and long-term incentive 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 $60 million increase for 2009 in
share-based and long-term incentive compensation was principally
due to the increase in the market price of our common stock at
year-end 2009 when compared with year-end 2008. The
$36 million decrease in 2008 share-based compensation
was principally due to the decrease in the market price of our
common stock at year-end 2008 when compared with year-end 2007.
Assuming no change to our year-end 2009 share price, it is
likely that our 2010 share-based and long-term incentive
compensation expense will be about $32 million. For each $1
change in the market price of our common stock, our share-based
compensation changes about $2 million to $3 million.
Other operating income (expense) not included in business
segments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Alternative fuel mixture tax credits, net of costs
|
|
$
|
213
|
|
|
$
|
|
|
|
$
|
|
|
Transformation costs
|
|
|
|
|
|
|
(20
|
)
|
|
|
(69
|
)
|
Closure and sale of converting and production facilities and
sale of non-strategic assets
|
|
|
(5
|
)
|
|
|
(9
|
)
|
|
|
(55
|
)
|
Litigation
|
|
|
|
|
|
|
5
|
|
|
|
(56
|
)
|
Environmental remediation
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Other charges
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206
|
|
|
$
|
(29
|
)
|
|
$
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Internal Revenue Code allows an excise tax credit for
alternative fuel mixtures produced for sale or for use in a
trade or business. The credit expired on December 31, 2009.
In March 2009, the IRS approved our registration as an
alternative fuel mixer, allowing us to file for the alternative
fuel mixture tax credit. In 2009, we recognized credits of
$218 million and incurred related costs of $5 million,
primarily related to equipment used in the mixing process and
the purchase of diesel fuel mixed with the alternative fuel.
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. 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 $5 million in 2009 and $9 million in 2008. 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.
In 2007, we resolved claims regarding alleged civil violations
of Section 1 of the Sherman Act and recognized a charge of
$46 million. In 2008, we settled and paid one remaining
state court claim related to these alleged civil violations and
released our remaining reserve. All matters related to these
alleged violations have been resolved. We recognized
$10 million in litigation expense in 2007 related to
alleged violations of
28
the State of Californias on duty meal break laws. We
settled three meal break cases in 2007, one in 2008, and one in
2009, all within established reserves.
Other non-operating income (expense) not included in business
segments consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Substitution costs
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
|
|
Gain on purchase and retirement of debt
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Charges related to early repayment of debt
|
|
|
|
|
|
|
(4
|
)
|
|
|
(40
|
)
|
Interest and other income
|
|
|
1
|
|
|
|
4
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The $17 million in substitution costs recognized as other
non-operating expense in 2009 are fees associated with the
replacement of issuers of irrevocable letters of credit securing
the notes we received in connection with the sale of our
strategic timberland in 2007. The gain of $15 million
recognized in 2009 is associated with the purchase and
retirement of $90 million of our 7.875% Senior Notes
due in 2012, $136 million of our 6.375% Senior Notes
due in 2016, and $19 million of our 6.625% Senior
Notes due in 2018. Other non-operating income (expense) in 2008
includes a $4 million charge related to early repayment of
$50 million in debt of the PBL joint venture. Other
non-operating expense of $40 million in 2007 is associated
with the early repayment of debt in 2007.
Net interest income (expense) on financial assets and
nonrecourse financial liabilities of special purpose entities
relates to interest income on the $2.38 billion of notes
received from the sale of our timberland in 2007 and interest
expense on the $2.14 billion of borrowings secured by a
pledge of the notes received. The notes receivable were
contributed to and the borrowings were made by two wholly-owned,
bankruptcy-remote, special purpose entities, which we
consolidate. The borrowings are nonrecourse beyond these two
entities. At year-end 2009 and 2008, the interest rate on our
financial assets was 0.32 percent and 3.46 percent and
the interest rate on our nonrecourse financial liabilities was
0.82 percent and 2.98 percent.
The change in interest expense in 2009 compared with 2008 was
due to our purchase and retirement of $245 million of
long-term debt with an average interest rate in excess of
7 percent; lower levels of variable rate debt; and, to a
lesser degree, lower interest rates on our variable-rate debt.
The decrease in interest expense in 2008 was primarily related
to the December 2007 early retirement of $286 million of
6.75% Notes and $213 million of 7.875% Senior
Notes. The change in interest expense in 2007 was due to lower
average levels of debt outstanding compared with 2006. At
year-end 2009, we had $555 million of debt with fixed
interest rates that averaged 7.17 percent and
$155 million of debt with variable interest rates that
averaged 1.73 percent. This compares with $841 million
of debt with fixed interest rates that averaged
7.16 percent and $351 million of debt with variable
interest rates that averaged 2.57 percent at year-end 2008.
Goodwill
Our goodwill totals $394 million of which $265 million
is allocated to our corrugated packaging segment and
$129 million to the gypsum wallboard reporting unit of our
building products segment. Substantially all our goodwill is
deductible for income tax purposes.
Goodwill was tested for impairment at the beginning of fourth
quarter 2009 in conjunction with our annual test. Our test
indicated that our goodwill was not impaired and that the
estimated fair value of the reporting units substantially
exceeded their carrying value. In performing this impairment
analysis, we estimated fair value based on discounted cash flow
models, which included estimates of amounts and timing of future
cash flows, discount rates between 9.5 percent to
12 percent based on our weighted average cost of capital
analysis adjusted for market risk premiums, product pricing and
shipments, and input costs.
Since the annual impairment testing for 2009, there were no
changes in the composition of our reporting units or in our
operations to indicate that it was likely that there had been
any significant deterioration in the
29
estimated fair value of our reporting units. Therefore, we did
not test goodwill for impairment at year-end 2009. If economic
and market conditions are depressed for a prolonged time, it is
possible that in future periods our goodwill could become
impaired, and we would be required to recognize impairment
charges, which could possibly be significant.
Income
Taxes
Our effective tax rate, which is income tax expense as a
percentage of income from continuing operations before taxes,
was 37 percent in 2009. Differences between the effective
tax rate and the statutory rate are due to state income taxes,
nondeductible items, and deferred taxes on unremitted foreign
income. We did 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 was
39 percent in 2007. The 2007 rate reflects non-deductible
transformation related expenses, a 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.
We anticipate our 2010 effective tax rate to be about
39 percent.
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 and share-based
compensation expense of $7 million in 2007.
In addition, on August 31, 2007 we sold the chemical
operations acquired in the Gaylord Container Corporation
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
|
|
|
|
(In millions)
|
|
|
Real estate income before taxes
|
|
$
|
41
|
|
Financial services income before taxes
|
|
|
138
|
|
Chemical operations and
other(a)
|
|
|
(13
|
)
|
|
|
|
|
|
Income from discontinued operations before taxes
|
|
|
166
|
|
Income tax expense
|
|
|
(63
|
)
|
|
|
|
|
|
Discontinued operations
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes a $6 million charge for environmental remediation. |
Average
Shares Outstanding
Average diluted shares outstanding increased in 2009 due to the
increase in the dilutive effect of stock options as a result of
the higher market price of our common stock. Average diluted
shares outstanding decreased in 2008 due to decrease in the
dilutive effect of stock options as a result of the lower market
price of our common stock in 2008.
30
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. Pricing and shipments decreased for our corrugated
packaging and most of our building products in 2009. 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
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Cash received from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations (including payments related to our 2007
transformation plan of $50 million in 2008 and
$23 million in
2007)(a)(b)
|
|
$
|
549
|
|
|
$
|
222
|
|
|
$
|
25
|
|
Working capital (including payments related to our 2007
transformation plan of $297 million in
2008)(c)
|
|
|
91
|
|
|
|
(404
|
)
|
|
|
271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from (used for) operations
|
|
|
640
|
|
|
|
(182
|
)
|
|
|
296
|
|
Nonrecourse borrowing secured by financial assets of special
purpose entities (net of costs of $4 million)
|
|
|
|
|
|
|
|
|
|
|
2,136
|
|
Borrowings, net
|
|
|
|
|
|
|
286
|
|
|
|
|
|
Exercise of options and related tax benefits
|
|
|
8
|
|
|
|
|
|
|
|
35
|
|
Other
|
|
|
5
|
|
|
|
4
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sources
|
|
|
653
|
|
|
|
108
|
|
|
|
2,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduce borrowings, net (including a $38 million debt tender
premium in 2007)
|
|
|
(467
|
)
|
|
|
|
|
|
|
(780
|
)
|
Return to shareholders through:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(43
|
)
|
|
|
(43
|
)
|
|
|
(1,212
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
Reinvest in the business through:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(130
|
)
|
|
|
(164
|
)
|
|
|
(237
|
)
|
Acquisition of PBL, net of cash acquired
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
Joint ventures and other
|
|
|
(18
|
)
|
|
|
(30
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total uses
|
|
|
(658
|
)
|
|
|
(294
|
)
|
|
|
(2,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
$
|
(5
|
)
|
|
$
|
(186
|
)
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes voluntary, discretionary contributions to our defined
benefit plan of $30 million in 2009, $30 million in
2008, and $60 million in 2007. |
|
(b) |
|
Includes alternative fuel mixture tax credits, net of related
costs and tax payments, of $175 million in 2009. |
|
(c) |
|
Includes a federal income tax refund of $58 million in 2009. |
Our operating cash flows for 2009, 2008 and 2007 have been
adversely affected by worsening conditions in the housing
markets and by the weakness in the national economy. However,
our 2009 operating cash flows improved significantly primarily
due to our cost reduction efforts in our operations, increased
earnings, lower input costs, and receipt of $175 million of
alternative fuel mixture tax credits, net of related costs and
tax
31
payments. 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 had been
made.
We issued 864,755 net shares of common stock in 2009;
77,736 net shares of common stock in 2008; and
1,009,246 net shares of common stock in 2007 to employees
exercising options.
We paid cash dividends to shareholders of $0.40 per share in
2009 and 2008, and $11.37 per share in 2007 including a special
dividend of $10.25 per share. On February 5, 2010, our
Board of Directors declared a regular quarterly dividend of
$0.11 per share payable on March 15, 2010.
In 2006 and 2007, our Board of Directors approved repurchase
programs aggregating 11.0 million shares. As of year-end
2009 we had purchased 4.4 million shares under these
programs resulting in 6.6 million shares remaining to be
purchased. In 2009, 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.
Capital expenditures were $130 million, or 65 percent
of depreciation and amortization in 2009. The decrease in 2009
capital expenditures is primarily the result of the completion
of the majority of our initial box plant transformation to
increase efficiencies in our corrugated packaging operations.
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. Capital expenditures in 2010 are expected
to be about $200 million to $210 million. The expected
increase is primarily related to additional box plant
transformation designed to further improve asset utilization and
increase efficiencies in our corrugated packaging operations.
In 2009, we used available cash of $467 million to reduce
our net borrowings, including our purchase and retirement of
$245 million of long-term debt. 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.
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 2009, we had
$890 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
|
|
$
|
825
|
|
|
$
|
250
|
|
|
$
|
1,075
|
|
Less: borrowings and commitments
|
|
|
(55
|
)
|
|
|
(130
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused borrowing capacity at year-end 2009
|
|
$
|
770
|
|
|
$
|
120
|
|
|
$
|
890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our committed credit agreements include a $750 million
revolving credit facility that expires in 2011, $25 million
of outstanding borrowings that are to be repaid in 2011, and
$50 million in revolving committed credit agreements that
expire in 2010. Of the $50 million in revolving committed
credit agreements expiring in 2010, $15 million have term
out provisions that extend the final maturities to 2011, and
$10 million have term out provisions that extend the final
maturities to 2012.
Our accounts receivable securitization facility expires in 2012.
Under this facility, a wholly-owned, bankruptcy-remote
subsidiary purchases, on an on-going basis, substantially all of
our trade receivables. As we need
32
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 2009, the
subsidiary owned $337 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. At year-end 2009, the borrowing base was $250 million,
the maximum committed amount of the facility.
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 2009, 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 Investors Service, Inc. (Moodys) or
Standard & Poors Financial Services, LLC, a
subsidiary of McGraw-Hill Companies, Inc. (S&P). Our
long-term debt is currently rated BBB- by S&P and Ba1 by
Moodys. If Moodys upgrades our long-term debt rating
to investment grade, the interest on these notes will decrease
25 basis points. A downgrade in our debt rating by either
Moodys or S&P would result in the interest rate on
these notes being increased 25 basis points per ratings
level for each rating agency. The interest rate on these notes
cannot increase more than 2 percent from the stated rate.
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 2009 our contractual obligations consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due or Expiring by Year
|
|
|
|
Total
|
|
|
2010
|
|
|
2011-12
|
|
|
2013-14
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Long-term debt (including current
maturities)(a)
|
|
$
|
710
|
|
|
$
|
|
|
|
$
|
350
|
|
|
$
|
|
|
|
$
|
360
|
|
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
|
|
|
221
|
|
|
|
40
|
|
|
|
70
|
|
|
|
48
|
|
|
|
63
|
|
Operating
leases(b)
|
|
|
186
|
|
|
|
41
|
|
|
|
56
|
|
|
|
28
|
|
|
|
61
|
|
Purchase obligations
|
|
|
1,512
|
|
|
|
159
|
|
|
|
252
|
|
|
|
200
|
|
|
|
901
|
|
Other long-term
liabilities(a)
|
|
|
56
|
|
|
|
18
|
|
|
|
23
|
|
|
|
2
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,685
|
|
|
$
|
258
|
|
|
$
|
751
|
|
|
$
|
278
|
|
|
$
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Items included on our balance sheet.
|
|
(b) |
|
The present value of future operating lease payments of
$52 million is included on our balance sheet.
|
33
Our contractual obligations due in 2010 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
$122 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
$45 million in other long-term liabilities at year-end
2009. 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. 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 purchase obligations
are valued using minimum required purchase commitments at
year-end 2009 market prices; however, our actual purchases may
exceed our minimum commitments and will be at the then current
market prices.
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 2009, our net deferred income tax liability was
$652 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 2010. Our cash tax rate is impacted by utilization
of our alternative minimum tax credits.
At year-end 2009, we do not have any outstanding derivative
instruments. Our interest rate derivative instruments 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.
On April 23, 2009, the credit rating of SunTrust Bank, was
lowered to a level that required the letters of credit issued by
SunTrust to be replaced by letters of credit issued by another
qualifying financial institution. To replace the letters of
credit issued by SunTrust, Coöperatieve Centrale
Raiffeisen-Boerenleenbank B.A., commonly known as Rabobank
Nederland, at the request of the timberland buyer, issued
substitute letters of credit totaling approximately
$500 million on May 21, 2009 in complete replacement
of SunTrust as a qualified letter of credit issuer in the
transaction. In connection with the substitution, we paid
approximately $3 million in fees to Rabobank Nederland,
which will be amortized through 2027, the remaining life of the
transaction.
As a result of the substitution of SunTrust, we recognized
$17 million of other non-operating expense in 2009, which
consisted of $15 million in fees that we paid in connection
with the issuance of the SunTrust letters of credit, which was
being amortized over the life of the letters of credit, and
$2 million of other fees associated with terminating the
transaction with SunTrust.
Following these substitutions, the four banks issuing letters of
credit in the transaction are now: Barclays Bank plc,
Société Genéralé, and Rabobank Nederland,
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. At year-end 2009,
deferred taxes related to the gain on the sale of our
timberlands were $819 million and our remaining alternative
minimum tax credits were $281 million. In addition, the
excess of the amount of the assets securing the purchase notes
over the obligations under the loan agreements, approximately
$240 million in total, should be available to pay any such
taxes.
35
Off-Balance
Sheet Arrangements
From time to time, we enter into off-balance sheet arrangements
to facilitate our operating activities. At year-end 2009, 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
|
|
2010
|
|
2011-12
|
|
2013-14
|
|
Thereafter
|
|
|
(In millions)
|
|
Joint venture guarantees
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
15
|
|
|
$
|
|
|
|
$
|
|
|
Performance bonds and recourse obligations
|
|
$
|
67
|
|
|
$
|
66
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
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 2009,
this venture had $29 million in long-term debt. We
guaranteed $15 million of the joint venture debt. Our joint
venture partner also provided guarantees of the debt. 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 $17 million
of letters of credits primarily to support environmental cleanup
obligations.
Pension,
Postretirement Medical and Health Care Matters
Our non-cash defined benefit pension expense was
$44 million in 2009, $37 million in 2008, and
$35 million in 2007. In addition, in 2008 we recognized
$15 million of expense related to lump sum settlements of
supplemental payments. We expect our 2010 noncash defined
benefit pension expense to be about $59 million.
Our asset allocation strategy, which we implemented in 2007,
matches the duration of over 80 percent of our pension
assets to our pension liabilities and also matches the overall
credit quality of our pension assets to the implied credit
quality of the yield curve used to discount our liabilities.
This matched approach reduces the volatility of our defined
benefit expense and our funding requirements. 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
$291 million at year-end 2009 and $177 million at
year-end 2008. The change was principally due to a lower than
expected return on plan assets and a decrease in discount rate
from 6.11 percent at year-end 2008 to 5.79 percent at
year-end 2009, partially offset by $30 million in
voluntary, discretionary contributions we made in 2009.
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 $340 million at
year-end 2009 and $228 million at year-end 2008. These
losses will be recognized over the average remaining service
period of our current employees, which is about 9 years. We
expect about $22 million of these losses to be recognized
in 2010, compared with $13 million recognized in 2009.
Our expected long-term rate of return on plan assets is
6.50 percent for 2010 and 6.875 percent for 2009. 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 2009 was 5.79 percent, and
6.11 percent at year-end 2008. We determined these rates
using the Citigroup Pension Discount Curve which we believe
reasonably reflects changes in the present value of our defined
benefit plan obligation because each years cash flow is
discretely discounted at a rate at which it could effectively be
settled.
36
Due to credit balances we have accumulated from our voluntary,
discretionary contributions in prior years, we have no funding
requirement under ERISA in 2010. However, we anticipate making a
$30 million voluntary, discretionary contribution to our
pension plan in 2010.
Beginning in 2008, benefits earned under the supplemental
defined benefit plan are paid upon retirement or when the
employee terminates. In 2009, our lump-sum supplemental defined
benefit plan payments to retirees totaled $6 million. 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 $116 million at
year-end 2009 and $113 million at year-end 2008. We expect
our 2010 payments to participants in our postretirement medical
plans, net of retiree contributions and Medicare subsidies, to
be about $11 million.
Please read Critical Accounting Estimates and
Note 9 to the Consolidated Financial Statements.
We provide health care benefits to substantially all our
eligible employees. Each employee can make an election for group
coverage under various health, life, dependent care, accident
and disability benefit options. For health benefits employees
have an option to choose from either a preferred provider
organization plan or a consumer driven health plan. About
23 percent of our employees participated in a consumer
driven health plan in 2009 compared with 24 percent in 2008.
A summary of the cost of providing health benefits follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Cost incurred by us
|
|
$
|
71
|
|
|
$
|
65
|
|
|
$
|
69
|
|
Cost incurred by employees
|
|
|
28
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99
|
|
|
$
|
96
|
|
|
$
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
and the Effects of Inflation
In 2009, our energy costs, which include energy consumed at the
Newport mill that we acquired in July 2008, were
$273 million and $361 million in 2008. The decrease in
2009 is attributable to lower market prices and reduced usage as
a result of lower operating rates at our building products
facilities. Energy costs increased $61 million in 2008 and
decreased $22 million in 2007. 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 2010.
The Internal Revenue Code allows a refundable tax credit for
alternative fuel mixtures produced for sale or for use in a
trade or business. The credit expired on December 31, 2009.
In March 2009, the IRS approved our registration as an
alternative fuel mixer, allowing us to file for the alternative
fuel mixture tax credit. In 2009, we recognized credits of
$218 million and incurred related costs of $5 million,
primarily related to equipment used in the mixing process and
the purchase of diesel fuel mixed with the alternative fuel.
For income tax purposes we believe the alternative fuel mixture
tax credits are not taxable but may be subject to alternative
minimum tax. However, under generally accepted accounting
principles we are precluded from currently recognizing this tax
benefit in our financial statements. As a result, we established
an $84 million liability related to the tax position taken
regarding these credits.
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.
37
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. We
consider the possibility of a material loss from any of these
proceedings 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 single accounting
period. Please read Legal Proceedings.
38
Calculation
of Non-GAAP Financial Measures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated
|
|
|
Building
|
|
|
Timber and
|
|
|
|
Consolidated
|
|
|
Packaging
|
|
|
Products
|
|
|
Timberland
|
|
|
|
(Dollars in millions)
|
|
|
Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income determined in accordance with GAAP
|
|
$
|
320
|
|
|
$
|
347
|
|
|
$
|
(27
|
)
|
|
$
|
N/A
|
|
Items not included in segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense
|
|
|
(70
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Share-based and long-term incentive compensation
|
|
|
(58
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
192
|
|
|
$
|
347
|
|
|
$
|
(27
|
)
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year total assets or segment assets determined in
accordance with GAAP
|
|
$
|
5,869
|
|
|
$
|
2,366
|
|
|
$
|
580
|
|
|
$
|
N/A
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (excluding current portion of long-term debt)
|
|
|
(445
|
)
|
|
|
(257
|
)
|
|
|
(45
|
)
|
|
|
N/A
|
|
Financial assets of special purpose entities
|
|
|
(2,474
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Municipal bonds related to capital leases included in other
assets
|
|
|
(188
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,762
|
|
|
$
|
2,109
|
|
|
$
|
535
|
|
|
$
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROI
|
|
|
7.0
|
%
|
|
|
16.5
|
%
|
|
|
(5.0
|
)%
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
%
|
39
Statistical
and Other Data
Revenues and unit sales, excluding joint venture operations,
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in millions)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
2,856
|
|
|
$
|
2,975
|
|
|
$
|
2,905
|
|
Paperboard(a)(b)
|
|
|
145
|
|
|
|
215
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,001
|
|
|
$
|
3,190
|
|
|
$
|
3,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber
|
|
$
|
181
|
|
|
$
|
225
|
|
|
$
|
244
|
|
Gypsum wallboard
|
|
|
141
|
|
|
|
135
|
|
|
|
228
|
|
Particleboard
|
|
|
136
|
|
|
|
175
|
|
|
|
181
|
|
Medium density fiberboard
|
|
|
64
|
|
|
|
72
|
|
|
|
62
|
|
Fiberboard
|
|
|
23
|
|
|
|
41
|
|
|
|
52
|
|
Other
|
|
|
31
|
|
|
|
46
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
576
|
|
|
$
|
694
|
|
|
$
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timber and
Timberland(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber and other
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
76
|
|
Unit sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated Packaging
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging, thousands of tons
|
|
|
3,285
|
|
|
|
3,303
|
|
|
|
3,351
|
|
Paperboard, thousands of
tons(a)(b)
|
|
|
353
|
|
|
|
469
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,638
|
|
|
|
3,772
|
|
|
|
3,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Lumber, million board feet
|
|
|
718
|
|
|
|
769
|
|
|
|
838
|
|
Gypsum wallboard, million square feet
|
|
|
1,162
|
|
|
|
1,061
|
|
|
|
1,475
|
|
Particleboard, million square feet
|
|
|
394
|
|
|
|
472
|
|
|
|
506
|
|
Medium density fiberboard, million square feet
|
|
|
124
|
|
|
|
140
|
|
|
|
135
|
|
Fiberboard, million square feet
|
|
|
121
|
|
|
|
213
|
|
|
|
288
|
|
|
|
|
(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 PBL. 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. |
40
|
|
Item 6A.
|
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 exposure
is the result of changes in interest rates and also the use of
different base rates and the timing of the interest rate resets
on the financial assets and nonrecourse financial liabilities of
special purpose entities.
Our variable-rate debt was $155 million at year-end 2009
and $351 million at year-end 2008. A one percent change in
interest rates on our variable-rate debt would change our annual
interest expense by $2 million.
Our $2.38 billion of notes receivable included in financial
assets of special purpose entities require quarterly interest
payments based on variable rates 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 plus a margin and reset daily. A one percent
change in interest rates on these liabilities will change our
annual interest expense by $21 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 2009 on
our variable-rate debt and our net financial assets and
nonrecourse financial liabilities of special purpose entities,
with comparative year-end 2008 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 2009
|
|
|
Year-End 2008
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
Change in
|
|
Variable
|
|
|
Purpose
|
|
|
|
|
|
Variable
|
|
|
Purpose
|
|
|
|
|
Interest Rates
|
|
Rate Debt
|
|
|
Entities - Net
|
|
|
Total
|
|
|
Rate Debt
|
|
|
Entities - Net
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
+2%
|
|
$
|
(3
|
)
|
|
$
|
5
|
|
|
$
|
2
|
|
|
$
|
(7
|
)
|
|
$
|
5
|
|
|
$
|
(2
|
)
|
+1%
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
−1%
|
|
|
2
|
|
|
|
N/A
|
|
|
|
2
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
1
|
|
−2%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
7
|
|
|
|
(5
|
)
|
|
|
2
|
|
Due to the current low interest rate environment, at year-end
2009, the down 1 percent interest rate scenario is not
applicable to our net financial assets and nonrecourse financial
liabilities of special purpose entities and the down
2 percent interest rate scenario is not applicable to our
variable-rate, long-term debt and to the financial assets and
nonrecourse financial liabilities of special purpose entities.
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 2009, we believe the potential loss in fair value
resulting from a hypothetical ten percent change in the
underlying commodity prices would not be significant.
41
|
|
Item 7.
|
Financial
Statements and Supplementary Data
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
Temple-Inland Inc. and Subsidiaries:
|
|
|
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
42
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 2, 2010. Based upon this
assessment, management believes that our internal control over
financial reporting is effective as of January 2, 2010.
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.
43
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 2, 2010 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 2, 2010, 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 2, 2010, and January 3,
2009 and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended January 2, 2010 and our report
dated February 23, 2010 expressed an unqualified opinion
thereon.
Ernst & Young LLP
Austin, Texas
February 23, 2010
44
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 2, 2010,
and January 3, 2009, and the related consolidated
statements of income, shareholders equity, and cash flows
for each of the three years in the period ended January 2,
2010. 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 2, 2010 and January 3, 2009, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended January 2,
2010, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial
statements, during 2009 Temple-Inland changed its method of
calculating and disclosing earnings per share as a result of
adopting new guidance applicable to the allocation of
undistributed earnings to participating securities.
Additionally, during 2009 the Company changed its method of
disclosing noncontrolling interests as a result of adopting new
guidance requiring the disclosure of noncontrolling interests as
a component of shareholders equity.
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 2, 2010, 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 23, 2010 expressed an unqualified opinion thereon.
Ernst & Young LLP
Austin, Texas
February 23, 2010
45
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36
|
|
|
$
|
41
|
|
Trade receivables, net of allowance for doubtful accounts of $14
in 2009 and 2008
|
|
|
411
|
|
|
|
407
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Work in process and finished goods
|
|
|
97
|
|
|
|
104
|
|
Raw materials
|
|
|
182
|
|
|
|
217
|
|
Supplies and other
|
|
|
134
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
413
|
|
|
|
458
|
|
Deferred tax asset
|
|
|
69
|
|
|
|
66
|
|
Income taxes receivable
|
|
|
13
|
|
|
|
57
|
|
Prepaid expenses and other
|
|
|
50
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
992
|
|
|
|
1,073
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Land and buildings
|
|
|
682
|
|
|
|
671
|
|
Machinery and equipment
|
|
|
3,581
|
|
|
|
3,577
|
|
Construction in progress
|
|
|
54
|
|
|
|
36
|
|
Less allowances for depreciation
|
|
|
(2,722
|
)
|
|
|
(2,620
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
1,595
|
|
|
|
1,664
|
|
Financial Assets of Special Purpose Entities
|
|
|
2,475
|
|
|
|
2,474
|
|
Goodwill
|
|
|
394
|
|
|
|
394
|
|
Other Assets
|
|
|
253
|
|
|
|
264
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
5,709
|
|
|
$
|
5,869
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
186
|
|
|
$
|
162
|
|
Accrued employee compensation and benefits
|
|
|
91
|
|
|
|
84
|
|
Accrued interest
|
|
|
17
|
|
|
|
30
|
|
Accrued property taxes
|
|
|
12
|
|
|
|
12
|
|
Other accrued expenses
|
|
|
148
|
|
|
|
140
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
1
|
|
Current portion of pension and postretirement benefits
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
471
|
|
|
|
446
|
|
Long-Term Debt
|
|
|
710
|
|
|
|
1,191
|
|
Nonrecourse Financial Liabilities of Special Purpose
Entities
|
|
|
2,140
|
|
|
|
2,140
|
|
Deferred Tax Liability
|
|
|
721
|
|
|
|
750
|
|
Liability for Pension Benefits
|
|
|
285
|
|
|
|
172
|
|
Liability for Postretirement Benefits
|
|
|
105
|
|
|
|
101
|
|
Other Long-Term Liabilities
|
|
|
391
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
4,823
|
|
|
|
5,092
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Temple-Inland Inc. 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 2009
and 2008, including shares held in the treasury
|
|
|
124
|
|
|
|
124
|
|
Additional paid-in capital
|
|
|
433
|
|
|
|
461
|
|
Accumulated other comprehensive loss
|
|
|
(256
|
)
|
|
|
(189
|
)
|
Retained earnings
|
|
|
1,099
|
|
|
|
936
|
|
Cost of shares held in the treasury: 16,228,916 shares in
2009 and 17,098,808 shares in 2008
|
|
|
(606
|
)
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
Total Temple-Inland Inc. Shareholders Equity
|
|
|
794
|
|
|
|
686
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest of Special Purpose Entities
|
|
|
92
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
|
886
|
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
|
$
|
5,709
|
|
|
$
|
5,869
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
46
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
NET REVENUES
|
|
$
|
3,577
|
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
(3,092
|
)
|
|
|
(3,533
|
)
|
|
|
(3,390
|
)
|
Selling
|
|
|
(110
|
)
|
|
|
(113
|
)
|
|
|
(112
|
)
|
General and administrative
|
|
|
(181
|
)
|
|
|
(128
|
)
|
|
|
(197
|
)
|
Gain on sale of timberland
|
|
|
|
|
|
|
|
|
|
|
2,053
|
|
Other operating income (expense)
|
|
|
204
|
|
|
|
(28
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,179
|
)
|
|
|
(3,802
|
)
|
|
|
(1,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
398
|
|
|
|
82
|
|
|
|
2,091
|
|
Other non-operating income (expense)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(35
|
)
|
Interest income on financial assets of special purpose entities
|
|
|
26
|
|
|
|
80
|
|
|
|
19
|
|
Interest expense on nonrecourse financial liabilities of special
purpose entities
|
|
|
(28
|
)
|
|
|
(82
|
)
|
|
|
(9
|
)
|
Interest expense on debt
|
|
|
(63
|
)
|
|
|
(81
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
|
|
|
332
|
|
|
|
(1
|
)
|
|
|
1,955
|
|
Income tax expense
|
|
|
(125
|
)
|
|
|
(7
|
)
|
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) FROM CONTINUING OPERATIONS
|
|
|
207
|
|
|
|
(8
|
)
|
|
|
1,202
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
|
207
|
|
|
|
(8
|
)
|
|
|
1,305
|
|
Net income attributable to noncontrolling interest of special
purpose entities
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO TEMPLE-INLAND INC.
|
|
$
|
206
|
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
106.9
|
|
|
|
106.7
|
|
|
|
106.0
|
|
Diluted
|
|
|
108.0
|
|
|
|
107.4
|
|
|
|
108.1
|
|
EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.91
|
|
|
$
|
(0.08
|
)
|
|
$
|
11.09
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.91
|
|
|
$
|
(0.08
|
)
|
|
$
|
12.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1.89
|
|
|
$
|
(0.08
|
)
|
|
$
|
10.89
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1.89
|
|
|
$
|
(0.08
|
)
|
|
$
|
11.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE (Includes special dividend of $10.25
in 2007)
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
|
$
|
11.37
|
|
Please read the notes to consolidated financial statements.
47
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
CASH PROVIDED BY (USED FOR) OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
206
|
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
Noncontrolling interest
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
200
|
|
|
|
206
|
|
|
|
214
|
|
Impairments
|
|
|
2
|
|
|
|
3
|
|
|
|
64
|
|
Gains related to purchase and retirement of debt
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
Write-off of fees related to special purpose entities
|
|
|
17
|
|
|
|
|
|
|
|
|
|
Non-cash share-based compensation
|
|
|
58
|
|
|
|
(2
|
)
|
|
|
39
|
|
Non-cash pension and postretirement expense
|
|
|
50
|
|
|
|
60
|
|
|
|
44
|
|
Cash contribution to pension and postretirement plans
|
|
|
(47
|
)
|
|
|
(93
|
)
|
|
|
(80
|
)
|
Deferred income taxes
|
|
|
71
|
|
|
|
55
|
|
|
|
435
|
|
Earnings of joint ventures
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
(5
|
)
|
Dividends from joint ventures
|
|
|
6
|
|
|
|
12
|
|
|
|
8
|
|
Loss on early payment of debt
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Gain on sale of timberland
|
|
|
|
|
|
|
|
|
|
|
(2,053
|
)
|
Other
|
|
|
1
|
|
|
|
(4
|
)
|
|
|
14
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(3
|
)
|
|
|
27
|
|
|
|
19
|
|
Inventories
|
|
|
44
|
|
|
|
11
|
|
|
|
(30
|
)
|
Accounts payable and accrued expenses
|
|
|
10
|
|
|
|
(395
|
)
|
|
|
274
|
|
Prepaid expenses and other
|
|
|
40
|
|
|
|
(47
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640
|
|
|
|
(182
|
)
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) INVESTING
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(130
|
)
|
|
|
(164
|
)
|
|
|
(225
|
)
|
Reforestation and net acquisition of timber and timberland
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Sale of timberland
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
Sales of non-strategic assets and operations and proceeds from
sale of property and equipment
|
|
|
5
|
|
|
|
4
|
|
|
|
24
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
(57
|
)
|
|
|
|
|
Investment in joint ventures
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
(5
|
)
|
Other
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
(227
|
)
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) FINANCING
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of debt
|
|
|
(271
|
)
|
|
|
(64
|
)
|
|
|
(567
|
)
|
Borrowings under accounts receivable securitization facility, net
|
|
|
(60
|
)
|
|
|
189
|
|
|
|
(163
|
)
|
Borrowings under revolving credit facility, net
|
|
|
(136
|
)
|
|
|
161
|
|
|
|
(12
|
)
|
Change in book overdrafts
|
|
|
2
|
|
|
|
(17
|
)
|
|
|
13
|
|
Fees, related to special purpose entities and other debt
|
|
|
(20
|
)
|
|
|
|
|
|
|
(42
|
)
|
Nonrecourse borrowings of special purpose entities
|
|
|
|
|
|
|
|
|
|
|
2,140
|
|
Cash dividends paid to shareholders
|
|
|
(43
|
)
|
|
|
(43
|
)
|
|
|
(1,212
|
)
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
Exercise of stock options
|
|
|
6
|
|
|
|
1
|
|
|
|
20
|
|
Tax benefit (expense) on share-based compensation
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(520
|
)
|
|
|
226
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
Net cash used for investing activities
|
|
|
|
|
|
|
|
|
|
|
(619
|
)
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(5
|
)
|
|
|
(186
|
)
|
|
|
197
|
|
Cash and cash equivalents at beginning of year
|
|
|
41
|
|
|
|
227
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at year-end
|
|
$
|
36
|
|
|
$
|
41
|
|
|
$
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
48
TEMPLE-INLAND
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Controlling
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Income /(Loss)
|
|
|
Earnings
|
|
|
Stock
|
|
|
Interest
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
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 benefit plans
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Impact of adoption of new income tax accounting guidance, net of
tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Impact of adoption of new measurement date for pension
accounting, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Spin-off of real estate segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
Spin-off of financial services segment
|
|
|
|
|
|
|
|
|
|
|
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 benefit plans
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
Consolidation of variable interest entity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2008
|
|
$
|
124
|
|
|
$
|
461
|
|
|
$
|
(189
|
)
|
|
$
|
936
|
|
|
$
|
(646
|
)
|
|
$
|
91
|
|
|
$
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
|
|
1
|
|
|
|
207
|
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income for the year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid on common stock $0.40 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
(43
|
)
|
Share-based compensation, net of distributions
5,137 shares
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Exercise of stock options 864,755 net shares
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
6
|
|
Tax benefit from exercise of stock options
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2009
|
|
$
|
124
|
|
|
$
|
433
|
|
|
$
|
(256
|
)
|
|
$
|
1,099
|
|
|
$
|
(606
|
)
|
|
$
|
92
|
|
|
$
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Please read the notes to consolidated financial statements.
49
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 ventures
under 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 2009 had 52 weeks, fiscal year 2008 had 53 weeks,
and fiscal year 2007 had 52 weeks. Fiscal year 2009 ended
January 2, 2010, fiscal year 2008 ended January 3,
2009, and fiscal year 2007 ended December 29, 2007.
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 received in connection with the sale of
our timberlands and irrevocable letters of credit securing the
notes 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 and financial services segments. These spin-offs reduced
retained earnings by $1.6 billion. Our financial
information has been reclassified to reflect these segments as
discontinued operations for all periods prior to the spin-offs.
|
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
collection issues identified during our evaluation. Our
allowance for doubtful accounts was $14 million at year-end
2009 and year-end 2008. The provision for doubtful accounts was
$4 million in 2009, $4 million in 2008, and
$3 million in 2007
50
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and is included in selling expenses. Accounts charged-off, net
of recoveries were $4 million in 2009, $4 million in
2008, and $3 million in 2007.
Asset
Retirement 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.
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.
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 $16 million at year-end 2009 and $26 million at
year-end 2008 and is included in other assets. The amortization
of these capitalized costs was $11 million in 2009,
$13 million in 2008, and $15 million in 2007 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):
2010 $9; 2011 $5; 2012 $1;
2013 $1; and 2014 $0.
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 have no derivative instruments outstanding
at year-end 2009 or 2008.
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.
51
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value Measurements
Financial instruments for which we did not elect fair value
option includes cash and cash equivalents, accounts receivable,
other current assets, current and long-term debt, accounts
payable, other current liabilities, and the financial assets and
nonrecourse financial liabilities of special purpose entities.
With the exception of long-term debt, the carrying amounts of
these financial instruments approximate their fair values due to
their short-term nature or variable interest rates.
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.
Since the annual impairment testing for 2009, there were no
changes in the composition of our reporting units or in our
operations to indicate that it was likely that there had been
any significant deterioration in the estimated fair value of our
reporting units. Therefore, we did not test goodwill for
impairment at year-end 2009.
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 adjusted for market risk
premiums.
Intangible assets with finite useful lives are amortized over
their estimated lives.
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.
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.
We value non-monetary exchanges of similar inventory at carrying
value of the inventory given up instead of the fair value of the
inventory received. 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.
52
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pension
and Postretirement Plans
We recognize the funded status of our pension plans as assets or
liabilities in our consolidated financial statements. The funded
status is the difference between our projected benefit
obligation and fair value of plan assets.
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
|
|
|
|
Useful Lives
|
|
|
2009
|
|
Classification
|
|
(In millions)
|
|
|
Land and land improvements
|
|
|
N/A
|
|
|
$
|
43
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
|
294
|
|
Machinery and equipment:
|
|
|
|
|
|
|
|
|
Paper machines
|
|
|
22 years
|
|
|
|
694
|
|
Mill equipment
|
|
|
5 to 25 years
|
|
|
|
60
|
|
Converting equipment
|
|
|
5 to 25 years
|
|
|
|
415
|
|
Other production equipment
|
|
|
5 to 25 years
|
|
|
|
4
|
|
Transportation equipment
|
|
|
3 to 20 years
|
|
|
|
20
|
|
Office and other equipment
|
|
|
2 to 10 years
|
|
|
|
11
|
|
Construction in progress
|
|
|
N/A
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,595
|
|
|
|
|
|
|
|
|
|
|
We include in property and equipment $44 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
and Long-term Incentive Compensation
We account for share-based compensation using 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. We generally expense these share-based and
long-term incentive awards over the vesting period or earlier
based on retirement eligibility criteria.
53
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Special
Purpose and Variable Interest Entities
We consolidate special purpose and variable interest entities if
we determine that we are the primary beneficiary of these
special purpose and variable interest entities.
New
Accounting Standards Adopted in 2009
The FASB Accounting Standards
CodificationTM
and the Hierarchy of Generally Accepted Accounting Principles
(Statement of Financial Accounting Standards (SFAS)
No. 168) Specifies that The FASB Accounting
Standards
CodificationTM
(ASC) is the source of authoritative U.S. generally
accepted accounting principles for nongovernmental entities,
except for a few standards that will remain authoritative until
they are integrated into the codification. Adoption did not have
an impact on our earnings or financial position. However, our
references to accounting literature in these notes have been
changed to codification references. SFAS No. 168 was
codified in ASC 105, Generally Accepted Accounting
Principles.
ASC 810, Consolidation Specifies that
noncontrolling interests be reported as a part of equity, not as
a liability or other item outside of equity. Upon adoption we
reclassified $91 million of noncontrolling interest of
special purpose entities to shareholders equity.
ASC 260, Earnings per Share Specifies that
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents are participating
securities and should be included in computing earnings per
share pursuant to the two-class method. Adoption reduced our
earnings per share by $0.02 in 2009, $0.00 in 2008, and $0.23 in
2007.
In addition, we adopted ASC 805, Business, Combinations;
ASC 818, Derivatives and Hedging; ASC 820, Fair Value
Measurements and Disclosures; ASC 320,
Investments Debt and Equity Securities; ASC
855, Subsequent Events; and ASC 715,
Compensation Retirement Benefits. Adoption of
these new standards did not have a significant effect on our
earnings or financial position.
Pending
Accounting Standards
In 2010, we will be required to adopt certain amendments to ASC
810, Consolidation that revise how the primary
beneficiary of a variable interest entity is determined and the
frequency of assessing the need to consolidate a variable
interest entity. We are currently evaluating this new guidance.
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. A summary of the
54
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 2008, 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 only significant joint venture investment at year-end 2009
and 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
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Current assets
|
|
$
|
7
|
|
|
$
|
8
|
|
Total assets
|
|
|
83
|
|
|
|
88
|
|
Current
liabilities(a)
|
|
|
2
|
|
|
|
7
|
|
Long-term debt
|
|
|
29
|
|
|
|
29
|
|
Equity
|
|
|
52
|
|
|
|
52
|
|
Our investment in joint ventures:
|
|
|
|
|
|
|
|
|
50 percent share in joint ventures equity
|
|
$
|
26
|
|
|
$
|
26
|
|
|
|
|
(a) |
|
Includes current maturities of debt of $5 million in 2008. |
55
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008(a)
|
|
|
2007(a)
|
|
|
|
(In millions)
|
|
|
Net revenues
|
|
$
|
55
|
|
|
$
|
147
|
|
|
$
|
200
|
|
Operating income
|
|
|
3
|
|
|
|
13
|
|
|
|
13
|
|
Earnings
|
|
|
3
|
|
|
|
10
|
|
|
|
5
|
|
Our equity in earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
50 percent share of earnings
|
|
$
|
2
|
|
|
$
|
5
|
|
|
$
|
3
|
|
Amortization of PBL joint venture basis difference
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of joint ventures
|
|
$
|
2
|
|
|
$
|
7
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes PBL revenues, operating income and earnings prior to
acquisition in July 2008. |
We and our joint venture partners contribute and receive
distributions from these ventures equally. In 2009, we
contributed $4 million and received $6 million. In
2008, we contributed $7 million and received
$12 million in distributions of which $6 million was
from PBL prior to our acquisition, and in 2007 we contributed
$4 million and received $8 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). In 2008 and 2007, 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 $1 million in 2009, $2 million
in 2008, and $2 million in 2007 and are included as a
reduction of selling expense. Prior to July 2008, we purchased
finished products at market rates from the PBL joint venture
totaling $12 million in 2008 and $47 million in 2007.
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
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Borrowings under bank credit agreements average
interest rate of 1.94% in 2009 and 4.10% in 2008
|
|
$
|
25
|
|
|
$
|
161
|
|
Accounts receivable securitization facility average
interest rate of 1.08% in 2009 and 2.83% in 2008
|
|
|
130
|
|
|
|
190
|
|
7.875% Senior Notes, payable in 2012, net of discounts
|
|
|
195
|
|
|
|
285
|
|
6.375% Senior Notes, payable in 2016, net of
discounts interest rate of 6.625% at year-end 2009
and 2008
|
|
|
114
|
|
|
|
249
|
|
6.625% Senior Notes, payable in 2018, net of
discounts interest rate of 6.875% at year-end 2009
and 2008
|
|
|
230
|
|
|
|
249
|
|
Revenue bonds, payable 2008 through 2024 average
interest rate of 5.77% in 2009 and 5.72% in 2008
|
|
|
16
|
|
|
|
41
|
|
6.75% Notes, payable in 2009
|
|
|
|
|
|
|
14
|
|
Other indebtedness average interest rate of 8.48% in
2009 and 8.12% in 2008
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
710
|
|
|
|
1,192
|
|
Less current portion of long-term debt
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
710
|
|
|
$
|
1,191
|
|
|
|
|
|
|
|
|
|
|
At year-end 2009, we had $825 million in committed credit
agreements. These committed agreements include a
$750 million credit agreement that expires in 2011,
$25 million of outstanding borrowings that are to be repaid
in 2011, and $50 million in revolving committed credit
agreements that expire in 2010. Of the $50 million in
revolving committed credit agreements that expire in 2010,
$15 million have term out provisions that extend the final
maturities to 2011, and $10 million have term out
provisions that extend the final maturities to 2012. At year-end
2009, our unused capacity under these facilities was
$770 million.
At year-end 2009, we had a $250 million accounts receivable
securitization facility that expires in 2012. 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 pledged
receivables prior to distributions back to us. We include this
subsidiary in our consolidated financial statements. At year-end
2009, the subsidiary owned $337 million in net trade
receivables against which it had borrowed $130 million
under this facility. At year-end 2009, the unused capacity under
this facility was $120 million. 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. At year-end
2009, the borrowing base was $250 million, the maximum
committed amount of the facility.
In 2009, we recognized a gain of $15 million associated
with the purchase and retirement of $90 million of our
7.875% Senior Notes due in 2012, $136 million of our
6.375% Senior Notes due in 2016, and $19 million of
our 6.625% Senior Notes due in 2018.
Maturities of our debt during the next five years are (in
millions): 2010 $0; 2011 $25;
2012 $325; 2013 $0; 2014 $0;
and thereafter $360.
In December 2007, we completed cash tender offers for
$286 million of 6.75% Notes payable in 2009 and
$213 million of 7.875% 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.
57
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We capitalized and deducted from interest expense interest
incurred on major construction and information technology
projects of less than $1 million in 2009 and 2008, and
$1 million in 2007. We paid interest on long-term debt of
$69 million in 2009, $83 million in 2008, and
$125 million in 2007.
|
|
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
(0.32 percent at year-end 2009 and 3.46 percent at
year-end 2008). We recognized interest income of
$26 million on these notes receivable in 2009,
$80 million in 2008, and $19 million in 2007. We
received interest payments of $38 million on these notes
receivable in 2009 and $85 million in 2008.
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 securing the notes 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 (0.82 percent at
year-end 2009 and 2.98 percent at year-end 2008). We
recognized $28 million of interest expense on these
nonrecourse loans in 2009, $82 million in 2008, and
$9 million in 2007. We paid $33 million of interest on
these nonrecourse loans in 2009 and $82 million in 2008.
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 in shareholders equity. The
impact of this consolidation on our statements of income was not
material in 2008.
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.
On April 23, 2009, the credit rating of SunTrust Bank, was
lowered to a level that required the letters of credit issued by
SunTrust to be replaced by letters of credit issued by another
qualifying financial institution. To replace the letters of
credit issued by SunTrust, Coöperatieve Centrale
Raiffeisen-Boerenleenbank B.A., commonly known as Rabobank
Nederland, at the request of the timberland buyer, issued
substitute letters of credit totaling approximately
$500 million on May 21, 2009 in complete replacement
of SunTrust as a qualified letter of credit issuer in the
transaction. In connection with the substitution, we paid
approximately $3 million in fees to Rabobank Nederland,
which will be amortized through 2027, the remaining life of the
transaction.
58
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As a result of the substitution of SunTrust, we recognized
$17 million of other non-operating expense in 2009, which
consisted of $15 million in fees that we paid in connection
with the issuance of the SunTrust letters of credit, which were
being amortized over the life of the letters of credit, and
$2 million of other fees associated with terminating the
transaction with SunTrust.
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.
|
|
Note 6
|
Asset
Retirement and Environmental Obligations
|
Our asset retirement and environmental obligations are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Asset retirement obligations
|
|
$
|
9
|
|
|
$
|
14
|
|
Accrued environmental obligations
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total asset retirement and environmental obligations
|
|
$
|
11
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
Asset retirement and environmental obligations due within one
year classified as other accrued expenses
|
|
$
|
|
|
|
$
|
4
|
|
Long-term asset retirement and environmental obligations
classified as other long-term liabilities
|
|
|
11
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
Total asset retirement and environmental obligations
|
|
$
|
11
|
|
|
$
|
20
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending aggregate carrying
amount of asset retirement obligations is as follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Beginning of year
|
|
$
|
14
|
|
|
$
|
13
|
|
Accretion expense
|
|
|
1
|
|
|
|
1
|
|
Changes in timing of retirement obligations
|
|
|
(4
|
)
|
|
|
|
|
Liabilities incurred
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
9
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
In 2006 and 2007, our Board of Directors approved repurchase
programs aggregating 11.0 million shares. As of year-end
2009, we had purchased 4.4 million shares under these
programs resulting in 6.6 million shares remaining to be
purchased. In 2009, 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.
59
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 8
|
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
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
Plans
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance at beginning of year 2007
|
|
$
|
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 financial services segment
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during the year
|
|
|
|
|
|
|
(114
|
)
|
|
|
5
|
|
|
|
(109
|
)
|
|
|
|
|
Deferred taxes on changes
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change for 2009
|
|
|
|
|
|
|
(72
|
)
|
|
|
5
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end 2009
|
|
$
|
|
|
|
$
|
(223
|
)
|
|
$
|
(33
|
)
|
|
$
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Pension
and Postretirement Plans
|
Pension and postretirement plans expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
401(k) plan match
|
|
$
|
18
|
|
|
$
|
16
|
|
|
$
|
17
|
|
Defined benefit
|
|
|
44
|
|
|
|
37
|
|
|
|
35
|
|
Postretirement medical
|
|
|
6
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
68
|
|
|
$
|
61
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our 401(k) plans cover substantially all employees and are 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 provides for medical coverage, including
a prescription drug subsidy, for certain participants. We
applied for the Medicare Prescription Drug subsidy in October
2008, which reduced our year-end 2008 postretirement
60
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
benefits liability $12 million. We fund postretirement plan
benefits as paid. The estimated future postretirement plan
liability is unfunded.
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
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Supplemental
|
|
|
Total
|
|
|
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Benefit obligation beginning of year
|
|
$
|
(1,355
|
)
|
|
$
|
(1,310
|
)
|
|
$
|
(30
|
)
|
|
$
|
(59
|
)
|
|
$
|
(1,385
|
)
|
|
$
|
(1,369
|
)
|
|
$
|
(113
|
)
|
|
$
|
(137
|
)
|
Service cost
|
|
|
(23
|
)
|
|
|
(26
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
(24
|
)
|
|
|
(28
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Interest cost
|
|
|
(80
|
)
|
|
|
(80
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(82
|
)
|
|
|
(82
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Plan amendments
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
Actuarial gain (loss)
|
|
|
(48
|
)
|
|
|
1
|
|
|
|
(8
|
)
|
|
|
2
|
|
|
|
(56
|
)
|
|
|
3
|
|
|
|
(6
|
)
|
|
|
24
|
|
Acquisition
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
New prior service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Benefits paid by the plan
|
|
|
74
|
|
|
|
71
|
|
|
|
|
|
|
|
6
|
|
|
|
74
|
|
|
|
77
|
|
|
|
14
|
|
|
|
16
|
|
Medicare subsidies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Lump-sum settlements
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
42
|
|
|
|
6
|
|
|
|
42
|
|
|
|
|
|
|
|
1
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation year-end
|
|
|
(1,432
|
)
|
|
|
(1,355
|
)
|
|
|
(35
|
)
|
|
|
(30
|
)
|
|
|
(1,467
|
)
|
|
|
(1,385
|
)
|
|
|
(116
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets beginning of year
|
|
|
1,208
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
1,208
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
Actual return
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Benefits paid by the plan
|
|
|
(74
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
(74
|
)
|
|
|
(77
|
)
|
|
|
(14
|
)
|
|
|
(16
|
)
|
Lump-sum settlements
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(42
|
)
|
|
|
(6
|
)
|
|
|
(42
|
)
|
|
|
|
|
|
|
(1
|
)
|
Medicare subsidies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Contributions we made
|
|
|
30
|
|
|
|
30
|
|
|
|
6
|
|
|
|
48
|
|
|
|
36
|
|
|
|
78
|
|
|
|
11
|
|
|
|
15
|
|
Participant contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets year-end
|
|
|
1,176
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
1,176
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at year-end
|
|
$
|
(256
|
)
|
|
$
|
(147
|
)
|
|
$
|
(35
|
)
|
|
$
|
(30
|
)
|
|
$
|
(291
|
)
|
|
$
|
(177
|
)
|
|
$
|
(116
|
)
|
|
$
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and (liabilities) included in the consolidated balance
sheet and reconciliation to funded status follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
Defined Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Liability/funded status
|
|
$
|
(291
|
)
|
|
$
|
(177
|
)
|
|
$
|
(116
|
)
|
|
$
|
(113
|
)
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized net loss (gain)
|
|
$
|
340
|
|
|
$
|
228
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
Unrecognized prior service cost (credit)
|
|
|
27
|
|
|
|
33
|
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
367
|
|
|
$
|
261
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
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.
Our asset allocation strategy matches the duration of over
80 percent of our pension assets to our pension liabilities
and also matches the overall credit quality of the pension
assets to the implied credit quality of the yield curve used to
discount our liabilities. This matched approach reduces the
volatility of our defined benefit expense and our funding
requirements. 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
|
|
|
|
|
|
|
Plan Assets
|
|
|
|
Range of
|
|
|
at
|
|
|
|
Target
|
|
|
Year-End
|
|
|
|
Allocations
|
|
|
2009
|
|
|
2008
|
|
|
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
78-88
|
%
|
|
|
84
|
%
|
|
|
86
|
%
|
Equity securities
|
|
|
10-15
|
%
|
|
|
13
|
|
|
|
9
|
|
Real estate
|
|
|
0-7
|
%
|
|
|
3
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities include 591,896 shares of Temple-Inland
common stock totaling $12 million or 1.1 percent of
total plan assets at year-end 2009 and $3 million or
0.2 percent of total plan assets at year-end 2008.
At year-end 2009, the fair value of our qualified defined
benefit plan assets for each valuation hierarchy (See
Note 16) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
27
|
|
Debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
472
|
|
Government securities
|
|
|
|
|
|
|
464
|
|
|
|
|
|
|
|
464
|
|
Other fixed income
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Equity securities
|
|
|
17
|
|
|
|
129
|
|
|
|
|
|
|
|
146
|
|
Private equity
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Real estate
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of qualified defined benefit plan assets
|
|
$
|
17
|
|
|
$
|
1,129
|
|
|
$
|
41
|
|
|
|
1,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Receivables and payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fair value of qualified defined benefit plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair value of the Level 3 defined benefit plan assets
principally consists of real estate partnership and private
equity investments, which are not readily marketable, and as a
result are valued by the general partners. A summary of changes
in the fair value of our Level 3 assets for the year 2009
is as follows:
|
|
|
|
|
|
|
Level 3
|
|
|
|
(In millions)
|
|
|
Fair value beginning of the year 2009
|
|
$
|
72
|
|
Unrealized gains/(losses)
|
|
|
(34
|
)
|
Purchases, sales, issuances, and settlements (net)
|
|
|
3
|
|
|
|
|
|
|
Fair value end of the year 2009
|
|
$
|
41
|
|
|
|
|
|
|
Accumulated
Benefit Obligation
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 an accumulated benefit obligation in excess of plan
assets as follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Projected benefit obligation
|
|
$
|
(1,467
|
)
|
|
$
|
(1,385
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
(1,411
|
)
|
|
$
|
(1,328
|
)
|
Fair value of plan assets
|
|
|
1,176
|
|
|
|
1,208
|
|
|
|
|
|
|
|
|
|
|
Excess of accumulated benefit obligation over fair value of plan
assets
|
|
$
|
(235
|
)
|
|
$
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
Excess of accumulated benefit obligation over fair value of plan
assets consists of:
|
|
|
|
|
|
|
|
|
Qualified plan
|
|
$
|
(201
|
)
|
|
$
|
(91
|
)
|
Supplemental plan
|
|
|
(34
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(235
|
)
|
|
$
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
Components
of Net Periodic Benefit Expense and Other Amounts Recognized in
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
Defined Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net periodic benefit expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service costs benefits earned during the year
|
|
$
|
24
|
|
|
$
|
28
|
|
|
$
|
27
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost on benefit obligation
|
|
|
82
|
|
|
|
82
|
|
|
|
78
|
|
|
|
7
|
|
|
|
8
|
|
|
|
8
|
|
Expected return on plan assets
|
|
|
(80
|
)
|
|
|
(83
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service costs
|
|
|
5
|
|
|
|
5
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Amortization of actuarial net loss
|
|
|
13
|
|
|
|
5
|
|
|
|
14
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit
expense(a)
|
|
|
44
|
|
|
|
37
|
|
|
|
36
|
|
|
|
6
|
|
|
|
8
|
|
|
|
8
|
|
Amounts recognized in other comprehensive income, pre-tax
|
|
|
106
|
|
|
|
82
|
|
|
|
(90
|
)
|
|
|
8
|
|
|
|
(16
|
)
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit expense and other
comprehensive income, pre-tax
|
|
$
|
150
|
|
|
$
|
119
|
|
|
$
|
(54
|
)
|
|
$
|
14
|
|
|
$
|
(8
|
)
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes $15 million of expense in 2008 related to lump-sum
settlements of supplemental benefits. Includes $1 million
in 2007 allocated to discontinued operations. |
63
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assumptions
The assumptions we used to determine our defined benefit and
postretirement obligations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Discount rate
|
|
|
5.79
|
%
|
|
|
6.11
|
%
|
|
|
5.37
|
%
|
|
|
6.20
|
%
|
Expected return on plan assets
|
|
|
6.50
|
%
|
|
|
6.875
|
%
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
3.20
|
%
|
|
|
3.50
|
%
|
|
|
|
|
|
|
|
|
The assumptions we used to determine our annual net periodic
benefit expense were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefits
|
|
|
Postretirement Benefits
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
Discount rate
|
|
|
6.11
|
%
|
|
|
6.125
|
%
|
|
|
6.00
|
%
|
|
|
6.20
|
%
|
|
|
6.125
|
%
|
|
|
6.00
|
%
|
|
|
|
|
Expected return on plan assets
|
|
|
6.875
|
%
|
|
|
6.875
|
%
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate of compensation increase
|
|
|
3.50
|
%
|
|
|
3.70
|
%
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The discount rate we use to determine the present value of the
benefit obligation is the Citigroup Pension Discount Curve. We
believe the use of the Citigroup Pension Discount Curve
reasonably reflects changes in the present value of our defined
benefit plan obligation because each years cash flow is
discretely discounted at a rate at which it could effectively be
settled.
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 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 1.25 percent in 2009,
0.4 percent in 2008, and 9.8 percent in 2007.
We use the 1994 Group Annuity Mortality Tables to determine our
benefit obligation 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
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Health care trend rate assumed for the next year
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
|
|
9.0
|
%
|
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
|
|
|
2016
|
|
|
|
2015
|
|
|
|
2014
|
|
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
|
)
|
64
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
Flows
Due to credit balances we have accumulated from our voluntary,
discretionary contributions in prior years, we have no funding
requirements under ERISA in 2010. Beginning in 2008, benefits
earned under the supplemental defined benefit plan are paid upon
retirement or when the employee terminates. In 2009, our
supplemental defined benefit plan payments to retirees totaled
$6 million. 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 2010 represents the estimated health claims to
be paid for plan participants, net of retiree contributions and
Medicare subsidies.
At year-end 2009, 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)
|
|
|
2010
|
|
$
|
79
|
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
1
|
|
2011
|
|
|
82
|
|
|
|
6
|
|
|
|
11
|
|
|
|
1
|
|
2012
|
|
|
85
|
|
|
|
5
|
|
|
|
11
|
|
|
|
1
|
|
2013
|
|
|
89
|
|
|
|
5
|
|
|
|
11
|
|
|
|
1
|
|
2014
|
|
|
92
|
|
|
|
4
|
|
|
|
11
|
|
|
|
1
|
|
2015 - 2019
|
|
|
501
|
|
|
|
12
|
|
|
|
47
|
|
|
|
4
|
|
|
|
Note 10
|
Share-Based
and Long-Term Incentive 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. We also have
long-term incentives for key employees in the form of fixed
value awards that vest over multiple years. As a result of the
spin-off of our real estate and financial services segments at
year-end 2007, all outstanding share-based awards were equitably
adjusted into three separate awards. The adjustment was made so
that immediately following the spin-off, the number of shares
relating to each award reflected the distribution ratios and,
for options, the per share option exercise price of the original
award was proportionally allocated between Temple-Inland and the
spun-off entities 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. Employees of the spun-off entities 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:
65
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 or continued vesting upon
retirement, death, disability, or if there is a change in
control.
A summary of activity for 2009 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
Current
|
|
|
|
Units
|
|
|
Value per Unit
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In millions)
|
|
|
Not vested cash-settled units beginning of 2009
|
|
|
1,871
|
|
|
$
|
32
|
|
|
|
|
|
Granted
|
|
|
1,395
|
|
|
|
6
|
|
|
|
|
|
Vested
|
|
|
(493
|
)
|
|
|
35
|
|
|
|
|
|
Forfeited
|
|
|
(20
|
)
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested cash-settled units at year-end 2009
|
|
|
2,753
|
|
|
|
18
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not vested cash-settled units at year-end 2009 subject to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time vesting requirements
|
|
|
862
|
|
|
|
|
|
|
$
|
18
|
|
Performance requirements
|
|
|
1,891
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,753
|
|
|
|
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of units vested and to be settled in cash was
$39 million at year-end 2009, of which $18 million is
included in other current liabilities and $21 million in
long-term liabilities, and $10 million at year-end 2008, of
which $4 million is included in other current liabilities
and $6 million is included in long-term liabilities. The
fair value of awards settled in cash was $5 million in
2009, $7 million in 2008, and less than $1 million in
2007.
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 2009, 2008 or 2007. There
were no restricted stock awards outstanding at year-end 2009.
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 was less than
$1 million in 2009, $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
spun-off entities, 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
66
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
stock traded ex-dividend and the opening price on the day the
stock began trading ex-dividend. A summary of our activity for
2009 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 2009
|
|
|
6,903
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,600
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(972
|
)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(214
|
)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding year-end 2009
|
|
|
7,317
|
|
|
|
15
|
|
|
|
7
|
|
|
$
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable year-end 2009
|
|
|
3,686
|
|
|
|
16
|
|
|
|
5
|
|
|
$
|
19
|
|
The intrinsic value of options exercised was $8 million in
2009, less than $1 million in 2008, and $29 million in
2007.
We estimated the fair value of the options granted using the
Black-Scholes-Merton option-pricing model and the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected dividend yield
|
|
|
3.2
|
%
|
|
|
2.1
|
%
|
|
|
2.3
|
%
|
Expected stock price volatility
|
|
|
57.5
|
%
|
|
|
28.2
|
%
|
|
|
22.8
|
%
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
|
3.3
|
%
|
|
|
4.9
|
%
|
Expected life of options in years
|
|
|
8
|
|
|
|
8
|
|
|
|
6
|
|
Weighted average estimated fair value of options granted
adjusted for spin-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Temple-Inland options
|
|
$
|
2.49
|
|
|
$
|
2.02
|
|
|
$
|
7.39
|
|
Real estate options
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.09
|
|
Financial services options
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average estimated fair value of options at original
grant date
|
|
$
|
2.49
|
|
|
$
|
2.02
|
|
|
$
|
12.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The expected dividend yield is calculated based on our
historical annual dividend payments. 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 risk-free interest rate is based on
U.S. Treasury securities in effect at the date of the grant
of the stock options. 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.
67
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-Based
and Long-Term Incentive Compensation Expense
Share-based and long-term incentive compensation expense
(income) consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Restricted or performance units-cash
|
|
$
|
47
|
|
|
$
|
(12
|
)
|
|
$
|
23
|
|
Restricted or performance units-stock
|
|
|
|
|
|
|
1
|
|
|
|
6
|
|
Stock options
|
|
|
6
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
53
|
|
|
$
|
(2
|
)
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term incentive compensation expense
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based and long-term incentive compensation expense
|
|
$
|
58
|
|
|
$
|
(2
|
)
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based and long-term incentive compensation expense
(income) is included in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Cost of sales
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
7
|
|
Selling expense
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
General and administrative
|
|
|
50
|
|
|
|
(7
|
)
|
|
|
25
|
|
Other operating income (expense)
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58
|
|
|
$
|
(2
|
)
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of awards granted to retirement-eligible
employees and expensed at the date of grant was $2 million
in 2009, $3 million in 2008, and $3 million in 2007.
Unrecognized share-based and long-term incentive compensation
for all awards not vested was $40 million at year-end 2009.
It is likely that this cost will be recognized as expense over
the next 2 years.
|
|
Note 11
|
Other
Operating Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Alternative fuel mixture tax credits, net of costs
|
|
$
|
213
|
|
|
$
|
|
|
|
$
|
|
|
Transformation costs
|
|
|
|
|
|
|
(20
|
)
|
|
|
(69
|
)
|
Closures and sales of converting and production facilities and
sales of non-strategic assets
|
|
|
(5
|
)
|
|
|
(9
|
)
|
|
|
(55
|
)
|
Litigation
|
|
|
|
|
|
|
5
|
|
|
|
(56
|
)
|
Environmental remediation
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
Other charges
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
Gain (loss) on sale or retirement of operating property and
equipment
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Equity in earnings of joint ventures
|
|
|
1
|
|
|
|
7
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
204
|
|
|
$
|
(28
|
)
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Internal Revenue Code allows an excise tax credit for
alternative fuel mixtures produced for sale or for use in a
trade or business. The credit expired on December 31, 2009.
In March 2009, the IRS approved our registration as an
alternative fuel mixer, allowing us to file for the alternative
fuel mixture tax credit. In 2009, we recognized credits of
$218 million and incurred related costs of $5 million,
primarily related to equipment used in the mixing process and
the purchase of diesel fuel mixed with the alternative fuel.
68
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 possibly consolidating
and closing facilities.
We recognized other operating expense of $7 million in
2009, which is primarily associated with 2008 facility closures
and severance. 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. 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. We
also recognized $5 million of expense primarily related to
employee costs associated with our cost reduction efforts.
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.
In 2007, we resolved claims regarding alleged violations of
Section 1 of the Sherman Act and recognized a charge of
$46 million. In 2008, we settled and paid one remaining
state court claim related to these alleged violations and
released our remaining reserve of $5 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 in 2009, all within established
reserves.
Activity within our accruals for exit costs was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Additions/
|
|
|
Cash
|
|
|
Year-
|
|
|
|
of Year
|
|
|
Revisions
|
|
|
Payments
|
|
|
End
|
|
|
|
(In millions)
|
|
|
For the Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary employee terminations
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
Demolition and environmental remediation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In 2007, we revised our estimates relating to the demolition and
related environmental remediation costs associated with our exit
activities. We added $6 million to this accrual in 2007 by
charging other operating expense and transferred $6 million
to our real estate segment as part of the spin-off. |
69
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax expense on income (loss) from continuing operations
consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Current tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
(44
|
)
|
|
$
|
55
|
|
|
$
|
(278
|
)
|
Foreign, state and other
|
|
|
(8
|
)
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52
|
)
|
|
|
48
|
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
|
(65
|
)
|
|
|
(54
|
)
|
|
|
(410
|
)
|
Foreign, state and other
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
(55
|
)
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(125
|
)
|
|
$
|
(7
|
)
|
|
$
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (paid) refunded, net
|
|
$
|
(6
|
)
|
|
$
|
(271
|
)
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Income (loss) from continuing operations before taxes consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
U.S.
|
|
$
|
319
|
|
|
$
|
(16
|
)
|
|
$
|
1,948
|
|
Non-U.S.
|
|
|
13
|
|
|
|
15
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
332
|
|
|
$
|
(1
|
)
|
|
$
|
1,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of income taxes at the federal statutory rate
and income tax expense on continuing operations follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Taxes at federal statutory rate
|
|
$
|
116
|
|
|
$
|
|
|
|
$
|
684
|
|
State, net of federal benefit
|
|
|
8
|
|
|
|
2
|
|
|
|
60
|
|
Foreign
|
|
|
4
|
|
|
|
2
|
|
|
|
|
|
Other
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
125
|
|
|
$
|
7
|
|
|
$
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of deferred taxes are:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Property, equipment, and intangible assets
|
|
$
|
(375
|
)
|
|
$
|
(361
|
)
|
Deferred gain on sale of timberland
|
|
|
(819
|
)
|
|
|
(818
|
)
|
U.S. taxes on unremitted foreign earnings
|
|
|
(20
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,214
|
)
|
|
|
(1,195
|
)
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Alternative minimum tax credits
|
|
|
281
|
|
|
|
281
|
|
Foreign and state net operating loss carryforwards
|
|
|
22
|
|
|
|
24
|
|
Pension and postretirement benefits
|
|
|
160
|
|
|
|
116
|
|
Employee benefits
|
|
|
51
|
|
|
|
35
|
|
Accruals not deductible until paid
|
|
|
42
|
|
|
|
45
|
|
Other
|
|
|
29
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
585
|
|
|
|
537
|
|
Less valuation allowance
|
|
|
(23
|
)
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
562
|
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liability
|
|
$
|
(652
|
)
|
|
$
|
(684
|
)
|
|
|
|
|
|
|
|
|
|
The net deferred tax liability is classified on our balance
sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Current deferred tax assets
|
|
$
|
69
|
|
|
$
|
66
|
|
Non-current deferred tax liabilities
|
|
|
(721
|
)
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(652
|
)
|
|
$
|
(684
|
)
|
|
|
|
|
|
|
|
|
|
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 credits can be carried
forward indefinitely. Our foreign and state net operating loss
carryforwards and credits will expire from 2010 through 2028. A
valuation allowance is provided for these foreign and state net
operating loss carryforwards and credits.
We file U.S. federal income tax returns and income tax
returns in various states and foreign jurisdictions. In 2009,
the Internal Revenue Service opened an examination of our 2006
through 2008 income tax returns. The examination is in its
preliminary stages. 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 2009, and we
do not expect that the resolution of these matters will have a
significant effect on our earnings or financial position.
71
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of unrecognized tax benefits follows:
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Balance beginning of year
|
|
$
|
24
|
|
|
$
|
26
|
|
Additions based on tax positions related to the current year
|
|
|
89
|
|
|
|
2
|
|
Reductions for tax positions of prior years
|
|
|
(5
|
)
|
|
|
(1
|
)
|
Settlements/collections
|
|
|
|
|
|
|
(2
|
)
|
Expiration of statute of limitations
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
$
|
108
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
The 2009 additions to the unrecognized tax benefits include
$84 million related to our tax position for alternative
fuel mixture tax credits. For income tax purposes we believe the
alternative fuel mixture tax credits are not taxable. Of the
$108 million of unrecognized tax benefits at year-end 2009,
$96 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. 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 14
|
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): 2010 $41;
2011 $32; 2012 $24; 2013
$18; 2014 $10; and thereafter $61. Total
rent expense was $50 million in 2009, $53 million in
2008, and $54 million in 2007. 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 $45 million in other long-term liabilities
at year-end 2009.
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
72
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
At year-end 2009, we had unconditional purchase obligations,
principally for sawtimber, pulpwood and gypsum, aggregating
$1.5 billion that will be paid over the next ten to
eighteen years. This includes $1.3 billion related to fiber
supply agreements for pulpwood (18 year remaining term) and
sawtimber (10 year remaining term). Both of these
agreements are subject to extension. These purchase obligations
are valued using minimum required purchase commitments at
year-end 2009 market prices; however, our actual purchases may
exceed our minimum commitments and will be at the then current
market prices.
In connection with our Del-Tin joint venture operation, we have
guaranteed debt of $15 million at year-end 2009. Generally
we would fund this guarantee for lack of specific performance by
the joint venture, such as non-payment of debt.
|
|
Note 15
|
Derivative
Instruments and Variable Interest Entities
|
We have used interest rate swap 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 2009 and 2008, we did
not have any interest rate swap agreements.
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. At year-end 2009 and 2008, we did not have any
significant commodity derivative instruments.
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 lessor
will not provide the necessary financial information. We account
for the lease as an operating lease, and at year-end 2009 our
financial interest was limited to our obligation to make the
remaining $122 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, $52 million and
$57 million of our future operating lease payments are
included on our balance sheet at year-end 2009 and 2008.
|
|
Note 16
|
Fair
Values and Fair Value Measurements of Financial
Instruments
|
Fair value measures are classified into a three-tiered 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
|
|
|
Level 3
|
Unobservable inputs in which there is little or no market data,
which require a reporting entity to develop its own assumptions
|
73
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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).
|
We elected not to use the fair value option for cash and cash
equivalents, accounts receivable, other current assets, current
and long-term debt, accounts payable, other current liabilities,
and the financial assets and nonrecourse financial liabilities
of special purpose entities. With the exception of long-term
debt, the carrying amounts of these financial instruments
approximate their fair values due to their short-term nature or
variable interest rates.
Information about our fixed rate long-term debt that is not
measured at fair value follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End 2009
|
|
|
At Year-End 2008
|
|
|
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Valuation Technique
|
|
|
|
(In millions)
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate, long-term debt
|
|
$
|
555
|
|
|
$
|
580
|
|
|
$
|
841
|
|
|
$
|
680
|
|
|
|
Level 2 -Market approach
|
|
Decreased trading volumes in the secondary corporate bond
markets in fourth quarter 2008 made it difficult to estimate the
fair value of our fixed-rate, long-term debt. As a result, the
year-end 2008 valuation may not have been indicative of the
value of a transaction between willing market participants.
Differences between carrying value and fair value of our
long-term debt 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. At year-end
2009 and 2008, we had guaranteed joint venture obligations
principally related to fixed-rate debt instruments and letters
of credit totaling $15 million and $17 million,
respectively. The estimated fair value of these guarantees is
not significant.
74
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 17
|
Earnings
Per Share
|
We compute earnings per share by dividing income by weighted
average shares outstanding using the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Earnings for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
207
|
|
|
$
|
(8
|
)
|
|
$
|
1,305
|
|
Less: Distributed and undistributed amounts allocated to
participating securities
|
|
|
(2
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
(8
|
)
|
|
|
1,280
|
|
Less: Net income attributable to noncontrolling interest of
special purpose entities
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations available to common
shareholders
|
|
$
|
204
|
|
|
$
|
(8
|
)
|
|
$
|
1,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
106.9
|
|
|
|
106.7
|
|
|
|
106.0
|
|
Dilutive effect of stock options
|
|
|
1.1
|
|
|
|
0.7
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
108.0
|
|
|
|
107.4
|
|
|
|
108.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding exclude unvested restricted
shares. At year-end 2009 and 2008, 3,681,736 and 6,902,882 stock
options outstanding held by our employees and 303,712 and
1,126,374 stock options outstanding held by employees of
spun-off entities were not included in the computation of
diluted earnings per share because they were anti-dilutive.
Certain employees of our spun-off entities 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 spun-off entities follows:
|
|
|
|
|
|
|
|
|
|
|
At Year End
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Shares in thousands)
|
|
|
Options held
|
|
|
557
|
|
|
|
1,126
|
|
Options exercisable
|
|
|
512
|
|
|
|
832
|
|
Weighted average exercise price
|
|
$
|
18
|
|
|
$
|
15
|
|
Weighted average remaining contractual term (in years)
|
|
|
5
|
|
|
|
6
|
|
|
|
Note 18
|
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 segment 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 and long-term incentive 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 income or
expense. The accounting
75
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 business support expense allocations are netted in
costs and expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items Not
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in
|
|
|
|
|
|
|
Corrugated
|
|
|
Building
|
|
|
Timber and
|
|
|
Segments and
|
|
|
|
|
|
|
Packaging
|
|
|
Products
|
|
|
Timberland
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
For the year or at year-end 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
3,001
|
|
|
$
|
576
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,577
|
|
Depreciation and amortization
|
|
|
145
|
|
|
|
44
|
|
|
|
|
|
|
|
11
|
|
|
|
200
|
|
Equity income (loss) from joint ventures
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Income (loss) from continuing operations before taxes
|
|
|
347
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
12
|
(a)
|
|
|
332
|
|
Total assets
|
|
|
2,295
|
|
|
|
545
|
|
|
|
|
|
|
|
2,869
|
|
|
|
5,709
|
|
Investment in joint ventures
|
|
|
3
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Goodwill
|
|
|
265
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
394
|
|
Capital expenditures
|
|
|
107
|
|
|
|
21
|
|
|
|
|
|
|
|
2
|
|
|
|
130
|
|
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 joint ventures
|
|
|
3
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
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 joint ventures
|
|
|
11
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Goodwill
|
|
|
236
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
365
|
|
Capital expenditures and reforestation
|
|
|
167
|
|
|
|
42
|
|
|
|
13
|
|
|
|
15
|
|
|
|
237
|
|
|
|
|
(a) |
|
Items not included in segments consist of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
General and administrative expense
|
|
$
|
(70
|
)
|
|
$
|
(76
|
)
|
|
$
|
(100
|
)
|
Share-based and long-term incentive compensation
|
|
|
(58
|
)
|
|
|
2
|
|
|
|
(34
|
)
|
Gain on sale of timberland
|
|
|
|
|
|
|
|
|
|
|
2,053
|
|
Other operating income (expense)
|
|
|
206
|
|
|
|
(29
|
)
|
|
|
(188
|
)
|
Other non-operating income (expense)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(35
|
)
|
Net interest income on financial assets and nonrecourse
financial liabilities of special purpose entities
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
10
|
|
Interest expense on debt
|
|
|
(63
|
)
|
|
|
(81
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12
|
|
|
$
|
(186
|
)
|
|
$
|
1,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income (expense) applies to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corrugated packaging
|
|
$
|
210
|
|
|
$
|
4
|
|
|
$
|
(64
|
)
|
Building products
|
|
|
|
|
|
|
(9
|
)
|
|
|
(63
|
)
|
Unallocated
|
|
|
(4
|
)
|
|
|
(24
|
)
|
|
|
(61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
206
|
|
|
$
|
(29
|
)
|
|
$
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues and property and equipment based on geographic location
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Revenues from external customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,379
|
|
|
$
|
3,680
|
|
|
$
|
3,739
|
|
Mexico
|
|
|
198
|
|
|
|
204
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,577
|
|
|
$
|
3,884
|
|
|
$
|
3,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Year-End
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,567
|
|
|
$
|
1,635
|
|
|
$
|
1,596
|
|
Mexico
|
|
|
28
|
|
|
|
29
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,595
|
|
|
$
|
1,664
|
|
|
$
|
1,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19
|
Summary
of Quarterly Results of Operations (Unaudited)
|
Selected quarterly financial results for 2009 and 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions, except per share)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
941
|
|
|
$
|
906
|
|
|
$
|
885
|
|
|
$
|
845
|
|
Gross profit
|
|
$
|
144
|
|
|
$
|
125
|
|
|
$
|
132
|
|
|
$
|
84
|
|
Net income attributable to Temple-Inland
Inc.(a)
|
|
$
|
35
|
|
|
$
|
66
|
|
|
$
|
67
|
|
|
$
|
38
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.62
|
|
|
$
|
0.62
|
|
|
$
|
0.35
|
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
0.61
|
|
|
$
|
0.61
|
|
|
$
|
0.34
|
|
|
|
|
(a) |
|
Net income attributable to Temple-Inland Inc. includes the
following items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In millions)
|
|
|
Other operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative fuel mixture tax credits, net of related costs
|
|
$
|
|
|
|
$
|
77
|
|
|
$
|
69
|
|
|
$
|
67
|
|
Closure and sale of converting and production facilities and
sale of non-strategic assets
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Other charges
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
75
|
|
|
$
|
68
|
|
|
$
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substitution costs
|
|
$
|
|
|
|
$
|
(17
|
)
|
|
$
|
|
|
|
$
|
|
|
Gain (loss) on purchase and retirement of debt
|
|
|
10
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10
|
|
|
$
|
(9
|
)
|
|
$
|
(3
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Net income (loss) attributable to Temple-Inland
Inc.(a)
|
|
$
|
(13
|
)
|
|
$
|
8
|
|
|
$
|
3
|
|
|
$
|
(6
|
)
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
Diluted :
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
0.03
|
|
|
$
|
(0.06
|
)
|
|
|
|
(a) |
|
Net income (loss) attributable to Temple-Inland Inc. includes
the following items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 20
|
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 and share-based
compensation expense of $7 million for the year 2007.
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.
78
TEMPLE-INLAND
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of earnings from our discontinued operations follows:
|
|
|
|
|
|
|
For the Year 2007
|
|
|
|
(In millions)
|
|
|
Real estate income before taxes
|
|
$
|
41
|
|
Financial services income before taxes
|
|
|
138
|
|
Chemical operations and
other(a)
|
|
|
(13
|
)
|
|
|
|
|
|
Income from discontinued operations before taxes
|
|
|
166
|
|
Income tax expense
|
|
|
(63
|
)
|
|
|
|
|
|
Discontinued operations
|
|
$
|
103
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes a $6 million charge for environmental remediation. |
|
|
Note 21
|
Subsequent
Events
|
On February 5, 2010, our Board of Directors declared a
quarterly dividend of $0.11 per share payable on March 15,
2010.
We evaluated events through February 23, 2010, the date
these financial statements are being filed with the Securities
and Exchange Commission.
79
|
|
Item 8.
|
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 8A.
|
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 2009 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 8B.
|
Other
Information
|
None.
80
PART III
|
|
Item 9.
|
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
|
|
|
46
|
|
|
|
2007
|
|
|
Chairman and Chief Executive Officer of Temple-Inland Inc.
|
Donald M. Carlton
|
|
|
72
|
|
|
|
2003
|
|
|
Former President and Chief Executive Officer of Radian
International LLC
|
Cassandra C. Carr
|
|
|
65
|
|
|
|
2004
|
|
|
Senior Advisor, Public Strategies, Inc.
|
E. Linn Draper, Jr.
|
|
|
68
|
|
|
|
2004
|
|
|
Former Chairman, President and Chief Executive Officer of
American Electric Power Company, Inc.
|
Larry R. Faulkner
|
|
|
64
|
|
|
|
2005
|
|
|
President of Houston Endowment Inc.
|
Jeffrey M. Heller
|
|
|
70
|
|
|
|
2004
|
|
|
Former Vice Chairman of Electronic Data Systems, Inc.
|
J. Patrick Maley, III
|
|
|
48
|
|
|
|
2007
|
|
|
President and Chief Operating Officer of Temple-Inland Inc.
|
W. Allen Reed
|
|
|
62
|
|
|
|
2000
|
|
|
Former Chairman of the Board of General Motors Asset Management
Corporation
|
Richard M. Smith
|
|
|
64
|
|
|
|
2006
|
|
|
Chairman of Newsweek
|
Arthur Temple III
|
|
|
67
|
|
|
|
1983
|
|
|
Chairman of the Board of First Bank & Trust, East Texas and
the T.L.L. Temple Foundation
|
R.A. (Al) Walker
|
|
|
53
|
|
|
|
2008
|
|
|
Chief Operating 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 10.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference from our Definitive Proxy Statement.
81
|
|
Item 11.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information at year-end 2009 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(1)
|
|
Rights(1)
|
|
Reflected in
Column(a))(1)
|
|
Equity compensation plans approved by security holders
|
|
7,874,322
|
|
$15
|
|
None
|
Equity compensation plans not approved by security holders
|
|
None
|
|
None
|
|
None
|
Total
|
|
7,874,322
|
|
$15
|
|
None
|
|
|
|
(1) |
|
Includes 7,874,322 options outstanding, of which 7,316,920
relate to our employees and have a weighted average term of
seven years and 557,402 relate to employees of spun-off
entities, Guaranty Financial Group Inc. and Forestar Group Inc.,
and have a weighted average term of five years. Includes
143,446 shares payable to directors for deferred fees.
Includes 14,672 stock-settled restricted stock units that
related to deferred bonuses and deferred vested restricted
shares that could not be paid out until after retirement due to
Code Section 162(m) policy. |
The remaining information required by this item is incorporated
by reference from our Definitive Proxy Statement.
|
|
Item 12.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference from our Definitive Proxy Statement.
|
|
Item 13.
|
Principal
Accounting Fees and Services
|
The information required by this item is incorporated by
reference from our Definitive Proxy Statement.
PART IV
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Item 14.
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Exhibits,
Financial Statement Schedules
|
(a) Documents Filed as Part of Report.
1. Financial Statements
Our consolidated financial statements are included in
Part II, Item 7 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 7 above.
82
(b) Exhibits
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Exhibit
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Number
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Exhibit
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3
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.01
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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)
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3
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.02
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Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.02 to the Companys
Form 8-K
dated February 5, 2010, and filed with the Commission on
February 9, 2010)
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4
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.01
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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)
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4
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.02
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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)
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4
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.03
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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)
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4
|
.04
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|
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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)
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4
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.05
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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)
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4
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.06
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|
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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)
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4
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.07
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|
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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)
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4
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.08
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|
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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)
|
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4
|
.09
|
|
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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)
|
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10
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.01
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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)
|
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10
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.02*
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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)
|
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10
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.03*
|
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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)
|
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10
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.04*
|
|
|
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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)
|
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10
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.05*
|
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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)
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83
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Exhibit
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Number
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Exhibit
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10
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.06*
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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)
|
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10
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.07*
|
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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)
|
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10
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.08*
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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)
|
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10
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.09*
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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)
|
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10
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.10*
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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)
|
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10
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.11*
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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)
|
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10
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.12*
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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)
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10
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.13*
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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)
|
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10
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.14*
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Amended and Restated Temple-Inland Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.15
to the Companys
Form 10-K
for the year ended January 3, 2009, and filed with the
commission on February 23, 2009)
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10
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.15*
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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)
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10
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.16*
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Amendment to Employment Agreement between the Company and Doyle
R. Simons, dated November 7, 2008 (incorporated by
reference to Exhibit 10.17 to the Companys
Form 10-K
for the year ended January 3, 2009, and filed with the
commission on February 23, 2009)
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10
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.17*
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Second Amendment to Employment Agreement between the Company and
Doyle R. Simons, dated November 6, 2009(1)
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10
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.18*
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Change in Control Agreement dated November 7, 2008, between
the Company and J. Patrick Maley III (incorporated by
reference to Exhibit 10.18 to the Companys
Form 10-K
for the year ended January 3, 2009, and filed with the
commission on February 23, 2009)
|
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10
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.19*
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First Amendment to Change in Control Agreement between the
Company and J. Patrick Maley III dated August 7,
2009(1)
|
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10
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.20*
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Change in Control Agreement dated November 7, 2008, between
the Company and Dennis J. Vesci(1)
|
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10
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.21*
|
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First Amendment to Change in Control Agreement between the
Company and Dennis J. Vesci dated August 7, 2009(1)
|
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10
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.22*
|
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Change in Control Agreement dated November 7, 2008, between
the Company and Randall D. Levy (incorporated by reference to
Exhibit 10.20 to the Companys
Form 10-K
for the year ended January 3, 2009, and filed with the
commission on February 23, 2009)
|
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10
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.23*
|
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First Amendment to Change in Control Agreement between the
Company and Randall D. Levy dated August 7, 2009(1)
|
|
10
|
.24*
|
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Change in Control Agreement dated November 7, 2008, between
the Company and Larry C. Norton (incorporated by reference to
Exhibit 10.21 to the Companys
Form 10-K
for the year ended January 3, 2009, and filed with the
commission on February 23, 2009)
|
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10
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.25*
|
|
|
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First Amendment to Change in Control Agreement between the
Company and Larry C. Norton dated August 7, 2009(1)
|
84
|
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|
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Exhibit
|
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Number
|
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Exhibit
|
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10
|
.26
|
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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)
|
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10
|
.27
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|
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|
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)
|
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10
|
.28
|
|
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|
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)
|
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10
|
.29
|
|
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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)
|
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10
|
.30*
|
|
|
|
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)
|
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10
|
.31*
|
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|
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)
|
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10
|
.32*
|
|
|
|
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
|
.33*
|
|
|
|
Form of Restricted Units Agreement issued pursuant to the
Temple-Inland Inc. 2008 Stock Incentive Plan (incorporated by
reference to Exhibit 10.29 to the Companys Annual
Report on
Form 10-K
for the year ended January 3, 2009, and filed with the
Commission on February 23, 2009)
|
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10
|
.34*
|
|
|
|
Revised Form of Performance Stock Units Agreement issued
pursuant to the Temple-Inland Inc. 2008 Incentive Plan(1)
|
|
10
|
.35*
|
|
|
|
Temple-Inland Inc. Bonus Plan for Tier I
Level Executives (incorporated by reference to
Exhibit 10.31 to the Companys Annual Report on
Form 10-K
for the year ended January 3, 2009, and filed with the
Commission on February 23, 2009)
|
|
10
|
.36*
|
|
|
|
Temple-Inland Inc. 2010 Incentive Plan(1)
|
|
10
|
.37*
|
|
|
|
Temple-Inland Inc. 2010 Bonus Plan for Tier I
Level Executives(1)
|
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21
|
|
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|
|
Subsidiaries of the Company(1)
|
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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 23, 2010
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.
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Signature
|
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Capacity
|
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Date
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|
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/s/ Doyle
R. Simons
Doyle
R. Simons
|
|
Director, Chairman of the Board,
and Chief Executive Officer
|
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February 23, 2010
|
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|
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/s/ Randall
D. Levy
Randall
D. Levy
|
|
Chief Financial Officer
|
|
February 23, 2010
|
|
|
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|
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/s/ Troy
L. Hester
Troy
L. Hester
|
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Principal Accounting Officer
|
|
February 23, 2010
|
|
|
|
|
|
/s/ Donald
M. Carlton
Donald
M. Carlton
|
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Director
|
|
February 23, 2010
|
|
|
|
|
|
/s/ Cassandra
C. Carr
Cassandra
C. Carr
|
|
Director
|
|
February 23, 2010
|
|
|
|
|
|
/s/ E.
Linn Draper, Jr.
E.
Linn Draper, Jr.
|
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Director
|
|
February 23, 2010
|
|
|
|
|
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/s/ Larry
R. Faulkner
Larry
R. Faulkner
|
|
Director
|
|
February 23, 2010
|
|
|
|
|
|
/s/ Jeffrey
M. Heller
Jeffrey
M. Heller
|
|
Director
|
|
February 23, 2010
|
|
|
|
|
|
/s/ J.
Patrick Maley III
J.
Patrick Maley III
|
|
Director
|
|
February 23, 2010
|
|
|
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|
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/s/ W.
Allen Reed
W.
Allen Reed
|
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Director
|
|
February 23, 2010
|
86
|
|
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Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
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/s/ Richard
M. Smith
Richard
M. Smith
|
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Director
|
|
February 23, 2010
|
|
|
|
|
|
/s/ Arthur
Temple III
Arthur
Temple III
|
|
Director
|
|
February 23, 2010
|
|
|
|
|
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/s/ R.A.
Walker
R.A.
Walker
|
|
Director
|
|
February 23, 2010
|
87