-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L1mYQ0pBp4qjHpqogA6yf3JOio/z7Sc2GGQIi/FStjCK5k48V/BM9C62SUrexKnH 4l0aKMIEqb3TBHPcyIu3GA== 0000731939-98-000014.txt : 19980813 0000731939-98-000014.hdr.sgml : 19980813 ACCESSION NUMBER: 0000731939-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980812 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLE INLAND INC CENTRAL INDEX KEY: 0000731939 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 751903917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08634 FILM NUMBER: 98683670 BUSINESS ADDRESS: STREET 1: 303 S TEMPLE DR STREET 2: PO DRAWER N CITY: DIBOLL STATE: TX ZIP: 75941 BUSINESS PHONE: 4098295511 MAIL ADDRESS: STREET 1: 303 SOUTH TEMPLE DR CITY: DIBOLL STATE: TX ZIP: 75941 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended July 4, 1998 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period From ________________________ to _______________________ Commission File Number 001-08634 Temple-Inland Inc. (Exact name of registrant as specified in its charter) Delaware 75-1903917 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 303 South Temple Drive, Diboll, Texas 75941 (Address of principal executive offices) (Zip Code) (409) 829-5511 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No_____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Number of common shares outstanding Class as of July 4, 1998 Common Stock (par value $1.00 per share) 55,597,108 The Exhibit Index appears on page 22 of this report. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Summarized Statements of Income Parent Company (Temple-Inland Inc.) Unaudited Second Quarter First Six Months 1998 1997 1998 1997 (in millions) Revenues Net sales $ 671.2 $ 687.1 $ 1,353.4 $ 1,336.1 Financial services earnings 41.0 32.4 77.7 61.9 ----- ----- ------- ------- 712.2 719.5 1,431.1 1,398.0 Costs and Expenses Cost of sales 562.8 602.2 1,147.0 1,169.3 Selling and administrative 65.5 65.0 130.6 127.7 ----- ----- ------- ------- 628.3 667.2 1,277.6 1,297.0 Operating Income 83.9 52.3 153.5 101.0 Interest - net (27.0) (28.3) (53.3) (56.1) Other 1.7 1.9 3.2 2.7 ----- ----- ------- ------- Income Before Taxes 58.6 25.9 103.4 47.6 Taxes on income 24.0 10.3 42.4 18.8 ----- ----- ------- ------- Net Income $ 34.6 $ 15.6 $ 61.0 $ 28.8 ====== ====== ======== ======== See notes to consolidated financial statements. 3 Summarized Balance Sheets Parent Company (Temple-Inland Inc.) Unaudited July 4, January 3, 1998 1998 (in millions) ASSETS Current Assets Cash $ 15 $ 13 Receivables, less allowances of $10 million in 1998 and $9 million in 1997 318 281 Inventories: Work in process and finished goods 101 109 Raw materials 238 230 ----- ----- 339 339 Prepaid expenses 18 15 ----- ----- Total current assets 690 648 Investment in Financial Services 656 576 Property and Equipment Buildings 557 554 Machinery and equipment 3,760 3,689 Less allowances for depreciation and amortization (2,195) (2,086) ------- ------- 2,122 2,157 Construction in progress 93 115 ----- ----- 2,215 2,272 Timber and timberlands--less depletion 508 507 Land 34 34 ----- ----- Total property and equipment 2,757 2,813 Other Assets 180 163 ----- ----- Total Assets $ 4,283 $ 4,200 ===== ===== See notes to consolidated financial statements. 4 Summarized Balance Sheets - Continued Parent Company (Temple-Inland Inc.) Unaudited July 4, January 3, 1998 1998 (in millions) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 130 $ 135 Accrued expenses 137 150 Employee compensation and benefits 18 23 Current portion of long-term debt 2 3 ----- ----- Total current liabilities 287 311 Long-Term Debt 1,541 1,438 Deferred Income Taxes 268 252 Postretirement Benefits 143 140 Other Liabilities 14 14 Shareholders' Equity 2,030 2,045 ----- ----- Total Liabilities and Shareholders' Equity $ 4,283 $ 4,200 ===== ===== See notes to consolidated financial statements. 5 Summarized Statements of Cash Flows Parent Company (Temple-Inland Inc.) Unaudited First Six Months 1998 1997 (in millions) Cash Provided by (Used for) Operations Net income $ 61.0 $ 28.8 Adjustments to reconcile net income to net cash: Depreciation and depletion 129.5 126.4 Deferred taxes 17.4 .7 Unremitted earnings of affiliates (59.0) (50.4) Receivables (37.5) (26.8) Inventories .6 (4.9) Prepaid expenses (3.5) (4.2) Accounts payable and accrued expenses (23.5) 10.0 Other (12.8) (25.8) ------- ------- 72.2 53.8 Cash Provided by (Used for) Investments Capital expenditures (76.2) (115.0) Investment in joint ventures/ acquisitions (2.0) (7.8) Sale of property and equipment 1.6 1.7 Capital contributions to financial services (40.0) (24.6) Dividends from financial services 25.0 125.0 Acquisition of California Financial Holding Company, net of cash acquired - (22.7) ------- ------- (91.6) (43.4) Cash Provided by (Used for) Financing Change in debt, net 102.1 45.8 Purchase of stock for treasury (48.1) (25.5) Cash dividends paid to shareholders (35.8) (35.5) Other 2.6 5.3 ------- ------- 20.8 (9.9) Net increase in cash and cash equivalents 1.4 .5 Cash and cash equivalents at beginning of period 13.4 14.3 ------- ------- Cash and cash equivalents at end of period $ 14.8 $ 14.8 ======= ======== See notes to consolidated financial statements. 6 Summarized Statements of Income Temple-Inland Financial Services Unaudited Second Quarter First Six Months 1998 1997 1998 1997 (in millions) Interest Income Loans receivable and mortgage loans held for sale $ 142.8 $ 122.4 $ 281.4 $ 240.8 Mortgage-backed and investment securities 38.8 37.1 80.2 74.2 Other earning assets 1.2 5.2 2.0 10.2 ----- ----- ----- ----- Total interest income 182.8 164.7 363.6 325.2 Interest Expense Deposits 89.4 76.3 178.8 151.1 Borrowed funds 35.4 37.8 67.4 73.1 ----- ----- ----- ----- Total interest expense 124.8 114.1 246.2 224.2 Net Interest Income 58.0 50.6 117.4 101.0 Provision for loan losses (.6) 1.4 1.3 .7 ------ ----- ----- ----- Net Interest Income After Provision For Loan Losses 58.6 49.2 116.1 100.3 Noninterest Income Loan servicing fees 19.4 17.6 41.9 32.1 Loan origination and marketing 27.9 9.6 49.9 16.4 Other 39.4 28.9 76.5 49.0 ----- ----- ----- ----- 86.7 56.1 168.3 97.5 Noninterest Expense Compensation and benefits 41.9 29.5 83.2 56.8 Other 59.2 42.4 117.6 78.1 ----- ----- ----- ----- Total noninterest expense 101.1 71.9 200.8 134.9 Income before taxes and minority interest 44.2 33.4 83.6 62.9 Minority interest in income of consolidated subsidiary (3.2) (1.0) (5.9) (1.0) ------ ------ ----- ----- Income before taxes 41.0 32.4 77.7 61.9 Taxes on income 9.1 (.1) 18.7 11.5 ----- ----- ----- ----- Net Income $ 31.9 $ 32.5 $ 59.0 $ 50.4 ====== ====== ====== ====== See notes to consolidated financial statements. 7 Summarized Balance Sheets Temple-Inland Financial Services Unaudited July 4, January 3, 1998 1998 (in millions) ASSETS Cash and cash equivalents $ 257 $ 175 Mortgage loans held for sale 502 439 Loans receivable 6,896 6,451 Mortgage-backed and investment securities 2,555 2,806 Other assets 915 914 ------ ------ TOTAL ASSETS $ 11,125 $ 10,785 ======= ====== LIABILITIES Deposits $ 7,384 $ 7,375 Securities sold under repurchase agreements 66 270 Federal Home Loan Bank advances 2,000 1,685 Other borrowings 222 167 Other liabilities 572 562 Preferred stock issued by subsidiary 225 150 ------ ------ TOTAL LIABILITIES 10,469 10,209 SHAREHOLDER'S EQUITY 656 576 ------ ------ TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 11,125 $ 10,785 ======= ====== See notes to consolidated financial statements. 8 Summarized Statements of Cash Flows Temple-Inland Financial Services Unaudited First Six Months 1998 1997 (in millions) Cash Provided by (Used for) Operations Net income $ 59.0 $ 50.4 Adjustments to reconcile net income to net cash: Amortization, accretion and depreciation 39.8 16.5 Provision for loan losses 1.3 .7 Mortgage loans held for sale (63.5) (4.6) Collections and remittances on loans serviced for others, net (41.1) 68.7 Other (48.1) (12.5) ----- ----- (52.6) 119.2 Cash Provided by (Used for) Investments Purchases of securities available-for-sale (33.0) - Maturities of securities available-for-sale 154.7 28.0 Purchases of securities held-to-maturity - (19.2) Maturities of securities held-to-maturity 156.9 163.0 Proceeds from sale of securities available- for-sale 52.3 172.4 Loans originated or acquired - net of principal collected on loans (532.1) (784.0) Other 37.5 (2.9) ------ ----- (163.7) (442.7) Cash Provided by (Used for) Financing Net increase in deposits 9.8 33.8 Securities sold under repurchase agreements and short-term borrowings - net 110.8 (48.3) Change in debt, net 53.9 195.3 Capital contributions from parent 40.0 24.6 Proceeds from sale of subsidiary preferred stock 75.0 150.1 Dividends paid to parent (25.0) (125.0) Net increase in advances from borrowers for taxes and insurance 33.4 52.4 ----- ----- 297.9 282.9 Net increase (decrease) in cash and cash equivalents 81.6 (40.6) Cash and cash equivalents at beginning of period 175.1 214.4 ----- ----- Cash and cash equivalents at end of period $ 256.7 $ 173.8 ====== ====== See notes to consolidated financial statements. 9 Consolidated Statements of Income Temple-Inland Inc. and Subsidiaries Unaudited Second Quarter First Six Months 1998 1997 1998 1997 (In millions, except for per share data) Revenues Manufacturing net sales $ 671.2 $ 687.1 $ 1,353.4 $ 1,336.1 Financial services revenues 269.5 220.8 531.9 422.7 ----- ----- ------- ------- 940.7 907.9 1,885.3 1,758.8 Costs and Expenses Manufacturing costs and expenses 628.3 667.2 1,277.6 1,297.0 Financial services expenses 228.5 188.4 454.2 360.8 ----- ----- ------- ------- 856.8 855.6 1,731.8 1,657.8 Operating Income 83.9 52.3 153.5 101.0 Parent Company Interest - net (27.0) (28.3) (53.3) (56.1) Other 1.7 1.9 3.2 2.7 ----- ----- ------- ------- Income Before Taxes 58.6 25.9 103.4 47.6 Taxes on Income 24.0 10.3 42.4 18.8 ----- ----- ------- ------- Net Income $ 34.6 $ 15.6 $ 61.0 $ 28.8 ====== ====== ======== ======== Weighted Average Shares Outstanding: Basic 55.8 55.4 55.9 55.4 ====== ====== ===== ===== Diluted 56.0 55.6 56.1 55.6 ====== ====== ===== ===== Earnings per share: Basic $ .62 $ .28 $1.09 $ .52 ==== ==== ==== ==== Diluted $ .62 $ .28 $1.09 $ .52 ==== ==== ==== ==== Dividends Paid Per Share of Common Stock $ .32 $ .32 $ .64 $ .64 ==== ==== ==== ==== See notes to consolidated financial statements. 10 Consolidated Balance Sheets Temple-Inland Inc. and Subsidiaries July 4, 1998 Unaudited Parent Financial Company Services Consolidated (in millions) ASSETS Cash and cash equivalents $ 15 $ 257 $ 272 Mortgage loans held for sale - 502 502 Loans receivable - 6,896 6,896 Mortgage-backed and investment securities - 2,555 2,555 Trade and other receivables 318 - 312 Inventories 339 - 339 Property & equipment 2,757 112 2,869 Other assets 198 803 950 Investment in financial services 656 - - ----- ------ ------ TOTAL ASSETS $ 4,283 $ 11,125 $14,695 ====== ======= ======= LIABILITIES Deposits $ - $ 7,384 $ 7,384 Securities sold under repurchase agreements and Federal Home Loan Bank advances - 2,066 2,066 Other liabilities 301 572 839 Long-term debt 1,541 222 1,763 Deferred income taxes 268 - 245 Postretirement benefits 143 - 143 Preferred stock issued by subsidiary - 225 225 ----- ------ ------ TOTAL LIABILITIES $ 2,253 $ 10,469 12,665 ----- ------ SHAREHOLDERS' EQUITY Preferred stock - par value $1 per share: authorized 25,000,000 shares; none issued - Common stock - par value $1 per share: authorized 200,000,000 shares; issued 61,389,552 shares including shares held in the treasury 61 Additional paid-in capital 356 Accumulated other comprehensive income (loss) (15) Retained earnings 1,842 ------ 2,244 Cost of shares held in the treasury: 5,792,444 shares (214) ------ TOTAL SHAREHOLDERS' EQUITY 2,030 ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,695 ======= See notes to the consolidated financial statements. 11 Consolidated Balance Sheets Temple-Inland Inc. and Subsidiaries January 3, 1998 Unaudited Parent Financial Company Services Consolidated (in millions) ASSETS Cash and cash equivalents $ 13 $ 175 $ 188 Mortgage loans held for sale - 439 439 Loans receivable - 6,451 6,451 Mortgage-backed and investment securities - 2,806 2,806 Trade and other receivables 281 - 277 Inventories 339 - 339 Property & equipment 2,813 103 2,916 Other assets 178 811 948 Investment in financial services 576 - - ----- ------ ------ TOTAL ASSETS $ 4,200 $10,785 $14,364 ====== ====== ======= LIABILITIES Deposits $ - $ 7,375 $ 7,375 Securities sold under repurchase agreements and Federal Home Loan Bank advances - 1,955 1,955 Other liabilities 325 562 871 Long-term debt 1,438 167 1,605 Deferred income taxes 252 - 223 Postretirement benefits 140 - 140 Preferred stock issued by subsidiary - 150 150 ----- ------ ------ TOTAL LIABILITIES $ 2,155 $10,209 12,319 ----- ------ SHAREHOLDERS' EQUITY Preferred stock - par value $1 per share: authorized 25,000,000 shares; none issued - Common stock - par value $1 per share: authorized 200,000,000 shares; issued 61,389,552 shares including shares held in the treasury 61 Additional paid-in capital 356 Accumulated other comprehensive income (loss) (20) Retained earnings 1,817 ------ 2,214 Cost of shares held in the treasury: 5,069,011 shares (169) ------ TOTAL SHAREHOLDERS' EQUITY 2,045 ------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,364 ======= See notes to the consolidated financial statements. 12 Consolidated Statements of Cash Flows Temple-Inland Inc. and Subsidiaries Unaudited First Six Months 1998 1997 (in millions) Cash Provided by (Used for) Operations Net income $ 61.0 $ 28.8 Adjustments to reconcile net income to net cash: Depreciation and depletion 136.5 132.4 Amortization and accretion 32.8 10.5 Deferred taxes 19.0 5.0 Trade and other receivables (37.5) (26.8) Accounts payable and accrued expenses (23.5) 10.0 Inventories .6 (4.9) Mortgage loans held for sale (63.5) (4.6) Collections and remittances on loans serviced for others - net (41.1) 68.7 Other (64.7) (46.1) -------- ------- 19.6 173.0 Cash Provided by (Used for) Investments Capital expenditures (91.8) (122.4) Purchases of securities available-for-sale (33.0) - Maturities of securities available-for-sale 154.7 28.0 Purchases of securities held-to-maturity - (19.2) Maturities of securities held-to-maturity 156.9 163.0 Proceeds from sale of securities available- for-sale 52.3 172.4 Loans originated or acquired - net of principal collected on loans (532.1) (784.0) Acquisition of California Financial Holding Company, net of cash acquired - (22.7) Other 52.7 (1.6) ------- ------- (240.3) (586.5) Cash Provided by (Used for) Financing Additions to debt 353.8 436.8 Payments of debt (197.8) (195.7) Securities sold under repurchase agreements and short-term borrowings - net 110.8 (48.3) Cash dividends paid to shareholders (35.8) (35.5) Net increase (decrease) in deposits 9.8 33.3 Net increase in advances from borrowers for taxes and insurance 33.4 52.4 Purchase of treasury stock (48.1) (25.5) Proceeds from sale of subsidiary preferred stock 75.0 150.1 Other 2.6 5.3 ------- ------- 303.7 372.9 Net increase (decrease) in cash and cash equivalents 83.0 (40.6) Cash and cash equivalents at beginning of period 188.5 228.7 ------- ------- Cash and cash equivalents at end of period $ 271.5 $ 188.1 ======== ======== See notes to consolidated financial statements. 13 TEMPLE-INLAND INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in, or incorporated into, Temple-Inland Inc.'s (the "Company") Annual Report on Form 10-K for the fiscal year ended January 3, 1998. The consolidated financial statements include the accounts of Temple-Inland Inc. and all subsidiaries in which the Company has more than a 50 percent equity ownership. However, because certain assets and liabilities are in separate corporate entities, the consolidated assets are not available to satisfy all consolidated liabilities. All material intercompany amounts and transactions have been eliminated. Certain amounts have been reclassified to conform with current year's classification. Included as an integral part of the consolidated financial statements are separate summarized financial statements for the Company's primary business groups. The Parent Company's (Temple-Inland Inc.) summarized financial statements include the accounts of Temple-Inland Inc. and its manufacturing subsidiaries with the Financial Services subsidiaries and the 20 percent to 50 percent owned companies being reflected in the financial statements on the equity basis. The Temple-Inland Financial Services Group summarized financial statements include savings bank, mortgage banking, real estate development activities and insurance operations. As of January 1, 1998, the Company adopted Financial Accounting Standards Board Statement 130, "Reporting Comprehensive Income". Statement 130 establishes new rules for reporting and the display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. Statement 130 requires unrealized gains or losses on the Company's available-for-sale securities, minimum pension liability adjustments and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. TEMPLE-INLAND INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION--Continued Comprehensive income (unaudited) for the six months ended June 1998 and 1997 is as follows: Comprehensive Income (in thousands) Second Quarter First Six Months 1998 1997 1998 1997 Net income $34,563 $15,552 $61,020 $28,801 Other comprehensive income, net of income taxes: Unrealized gains (losses) on securities 972 1,331 6,356 (557) Minimum pension liability adjustments - - (988) - ------ ------ ------ ------ Comprehensive income $35,535 $16,883 $66,388 $28,244 ====== ====== ====== ====== The American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5 in April 1998. SOP 98-5 requires costs of start-up activities to be expensed as incurred. The SOP is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption will not have a material impact on the Company. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 1999. The Company has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Company. NOTE B - EARNINGS PER SHARE Numerators and denominators used in computing earnings per share are as follows: Earnings Per Share (in thousands, except for per share data) Second Quarter First Six Months 1998 1997 1998 1997 Numerator for basic and diluted earnings per share-net income $34,563 $15,552 $61,020 $28,801 ====== ====== ====== ====== Denominator for basic earnings per share - weighted average common shares outstanding 55,801 55,454 55,919 55,440 Dilutive effect of stock options 183 177 180 178 ------ ------ ------ ------ Denominator for diluted earnings per share 55,984 55,631 56,099 55,618 ====== ====== ====== ====== Net income per share - Basic $ .62 $ .28 $1.09 $ .52 ==== ==== ==== ==== Net income per share - Diluted $ .62 $ .28 $1.09 $ .52 ==== ==== ==== ==== 15 TEMPLE-INLAND INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C - CONTINGENCIES There are pending against the Company and its subsidiaries lawsuits and claims arising in the regular course of business. In the opinion of management, recoveries, if any, by plaintiffs or claimants that may result from the foregoing litigation and claims will not be material in relation to the consolidated financial statements of the Company and its subsidiaries. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Results of operations, including information regarding the Company's principal business segments, are shown below: Second Quarter First Six Months 1998 1997 1998 1997 (in millions) Revenues Paper $ 515.3 $ 527.6 $ 1,043.0 $ 1,030.0 Building products 155.9 159.5 310.4 306.1 ----- ----- ------- ------- Manufacturing net sales 671.2 687.1 1,353.4 1,336.1 Financial services 269.5 220.8 531.9 422.7 ----- ----- ------- ------- Total revenues $ 940.7 $ 907.9 $ 1,885.3 $ 1,758.8 ====== ====== ======== ======== Income Paper $ 17.9 $ (10.1) $ 27.8 $ (17.2) Building products 32.3 36.4 62.2 68.5 ----- ----- ------- ------- Operating profit 50.2 26.3 90.0 51.3 Financial services 41.0 32.4 77.7 61.9 ----- ----- ------- ------- 91.2 58.7 167.7 113.2 Corporate expenses (7.3) (6.4) (14.2) (12.2) Parent company interest - net (27.0) (28.3) (53.3) (56.1) Other - net 1.7 1.9 3.2 2.7 ----- ----- ------- ------- Income before taxes 58.6 25.9 103.4 47.6 Taxes on income 24.0 10.3 42.4 18.8 ----- ----- ------- ------- Net income $ 34.6 $ 15.6 $ 61.0 $ 28.8 ====== ====== ======== ======== 17 Second Quarter 1998 vs. Second Quarter 1997 Second quarter earnings for 1998 totaled $34.6 million, or $0.62 per diluted share, an increase of 121 percent from second quarter 1997 net income of $15.6 million, or $0.28 per diluted share. Revenues for the period were $940.7 million, up four percent from the $907.9 million reported for the same quarter of 1997. The paper group reported operating earnings of $17.9 million compared with a loss of $10.1 million in last year's second quarter. Average box prices for the corrugated packaging operation were up 11 percent compared with the same period last year while volumes were down slightly. Prices for boxes were stable with first quarter levels, but volume weakened seasonally during the quarter. Demand for containerboard in the export markets also declined, especially in Asian markets. As a result, the corrugated packaging operation reduced production to control inventory levels. Prices for bleached paperboard were flat compared with the first quarter, but down from second quarter 1997 prices. Mix improvement and lower costs somewhat offset the lower prices. The building products group reported operating income of $32.3 million, down only $4.1 million from last year's second quarter despite a $55 per mbf decline in average lumber prices that reduced profitability by $7.1 million. Residential construction levels remained higher than anticipated in the quarter, and demand for this group's mix of building products remained favorable, especially for gypsum and particleboard. The financial services group had a record quarter with earnings of $41.0 million, $8.6 million above last year's same period results. The bank's loan portfolio continued to grow, while operating costs declined as additional benefits were achieved from the acquisition of Stockton Savings. The mortgage bank experienced near record levels of new mortgage originations at $1.42 billion, but also experienced an increased level of prepayments largely due to refinancings. Net interest expense decreased to $27.0 million in the second quarter of 1998 compared with $28.3 million in the second quarter of last year. Gross interest decreased from $28.9 million in 1997 to $27.1 million in 1998. Capitalized interest decreased slightly from $.6 million in the second quarter of 1997, to $.1 million in the second quarter of 1998. 18 First Half of 1998 vs. First Half of 1997 Earnings for the first six months of 1998 were $61.0 million, or $1.09 per diluted share compared with $28.8 million, or $.52 per diluted share for the first half of last year. Revenues of $1,885.3 million were up seven percent from the 1997 first half revenues of $1,758.8 million. The paper group earned $27.8 million compared with a loss of $17.2 million in the first six months of 1997. Average box prices for the corrugated packaging operation were up for the first six months of the year compared with the same period last year, while volumes were down slightly. Prices for bleached paperboard were slightly lower for the first half of 1998 compared with the same period last year. The building products group earned $62.2 million in the first half of 1998 compared with $68.5 million in the first half of last year. Although significantly lower market prices for solid wood products and fiber products reduced earnings by a combined total of $10.7 million from the first half of 1997, the strong earnings for the particleboard and gypsum group somewhat offset this decline. Gypsum operations improved earnings from last year due to higher market prices and increased shipment volumes. The particleboard operation experienced significantly higher shipment volumes in the first half of 1998 compared with the first six months of 1997. Earnings for the financial services group were $77.7 million for the period, an increase of $15.8 million from last year's comparable period. The bank's loan portfolio continued to grow and the credit quality of the loan portfolio remains strong. Capital Resources and Financial Condition The Company's financial condition continues to be strong. Internally generated funds, existing credit facilities and the capacity to issue long-term debt are sufficient to fund projected capital expenditures, to service existing debt, to pay dividends and to meet normal working capital requirements. During the second quarter of 1998, an additional $75 million of preferred stock in the REIT subsidiary of Guaranty Federal Bank, F.S.B., was issued bringing the total to $225 million. Parent Company's debt increased $102.1 million in the first half of 1998 mainly through issuance of commercial paper and bank debt. As part of the Company's share repurchase plan, approximately 850,500 shares were repurchased in the first half of 1998 at a total cost of $48.1 million. Guaranty Federal Bank continues to meet all three regulatory capital requirements. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK: The Company is subject to interest rate risk from the utilization of financial instruments such as term debt and other borrowings, as well as the lending and deposit gathering activities of the Financial Services Group. Historically, the exposure of income to interest rate risk has been maintained at a relatively moderate level due to the high correlation between changes in the rates earned on the group's adjustable-rate assets and changes in the aggregate cost of the group's funding sources. The Company has many options to mitigate the earnings impact of a significant change in interest rates. Potential options include selling assets, executing hedges, and modifying the maturity or repricing characteristics of assets and/or liabilities. The Company routinely utilizes a simulation model to measure the sensitivity of income to movements in interest rates. The model incorporates the maturity and repricing characteristics of interest rate sensitive assets and liabilities, as well as assumptions regarding the impact of changing interest rates on the prepayment rates of certain results. The results of the sensitivity analyses as of July 4, 1998 did not differ materially from the amounts reported as of January 3, 1998. FOREIGN CURRENCY RISK: The Company's exposure to foreign currency fluctuations on its financial instruments is not material because most of these instruments are denominated in U.S. dollars. COMMODITY PRICE RISK: The Company has no financial instruments subject to commodity price risks. 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings. The information set forth in Note B to Notes to Consolidated Financial Statements in Part I of this report is incorporated by reference thereto. Item 2. Changes in Securities. Not Applicable. Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Regulation S-K Exhibit Number (27) Financial Data Schedule (b) Reports on Form 8-K. On June 2, 1998, the Company filed a Current Report on Form 8-K reporting, under Item 5 of the report, that the Company had amended its existing shelf registration (Registration No. 333-52189) and entered into a Selling Agency Agreement with Salomon Brothers Inc. and SBC Warburg Dillon Read Inc., related to the possible issuance and sale of up to $500,000,000 aggregate principal amount of Medium-Term Notes, Series F. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEMPLE-INLAND INC. (Registrant) Date: August 12, 1998 By /s/ David H. Dolben ------------------------- David H. Dolben Vice President and Chief Accounting Officer 22 EXHIBIT INDEX The following is an index of the exhibits filed herewith. The page reference set forth opposite the description of exhibits included in such index refer to the pages under the sequential numbering system prescribed by Rule 0-3(b) under the Securities Exchange Act of 1934. Regulation S-K Exhibit Sequential Number Page Number (27) Financial Data Schedule 23 EX-27 2
5 This schedule contains summary financial information extracted from consolidated balance sheets and consolidated income statements for Temple-Inland Inc. and subsidiaries and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS JAN-02-1999 JUL-04-1998 272 0 312 0 339 0 2,869 0 14,695 0 1,763 0 0 61 1,969 14,695 1,353 1,885 1,278 1,732 0 0 53 103 42 61 0 0 0 61 1.09 1.09
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