-----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, D/zhgGqHLZh4oNM71eVoPjQqY8+dTJyxcb8gZl33O6gKttFgcn8e3w15TtMdjX+2 Nvqg2eor6xaaL8rS4eicXA== 0000731939-97-000020.txt : 19971114 0000731939-97-000020.hdr.sgml : 19971114 ACCESSION NUMBER: 0000731939-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971112 SROS: NYSE SROS: PSE 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: 97712918 BUSINESS ADDRESS: STREET 1: 303 S TEMPLE DR STREET 2: PO DRAWER N CITY: DIBOLL STATE: TX ZIP: 75941 BUSINESS PHONE: 4098297729 MAIL ADDRESS: STREET 1: 303 SOUTH TEMPLE DR CITY: DIBOLL STATE: TX ZIP: 75941 10-Q 1 FORM 10-Q FOR THIRD QUARTER 1997 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 September 27, 1997 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 1-8634 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 September 27, 1997 Common Stock (par value $1.00 per share) 56,561,185 The Exhibit Index appears on page 20 of this report. 2 PART I. FINANCIAL INFORMATION FINANCIAL STATEMENTS Summarized Statements of Income Parent Company (Temple-Inland Inc.) Unaudited Third Quarter First Nine Months 1997 1996 1997 1996 (in millions) Revenues Net sales $ 678.2 $ 658.1 $ 2,014.3 $ 2,006.4 Financial services earnings 37.4 (17.6) 99.3 36.8 715.6 640.5 2,113.6 2,043.2 Costs and Expenses Cost of sales 602.4 560.6 1,771.7 1,647.0 Selling and administrative 66.0 52.3 193.7 190.0 668.4 612.9 1,965.4 1,837.0 Operating Income 47.2 27.6 148.2 206.2 Interest - net (27.3) (27.4) (83.4) (81.6) Other 1.8 1.6 4.5 3.1 Income Before Taxes 21.7 1.8 69.3 127.7 Settlement of FDIC tax- sharing - (31.5) - (31.5) Taxes on income 9.1 .6 27.9 44.7 Net Income $ 12.6 $ 32.7 $ 41.4 $ 114.5 See notes to consolidated financial statements. 3 Summarized Balance Sheets Parent Company (Temple-Inland Inc.) Unaudited September 27, December 28, 1997 1996 (in millions) ASSETS Current Assets Cash $ 13 $ 14 Receivables, less allowances of $12 million in 1997 and $9 million in 1996 324 295 Inventories: Work in process and finished goods 113 107 Raw materials 209 220 322 327 Prepaid expenses 18 13 Total current assets 677 649 Investment in Financial Services 597 592 Property and Equipment Buildings 550 516 Machinery and equipment 3,667 3,576 Less allowances for depreciation and amortization (2,049) (1,882) 2,168 2,210 Construction in progress 124 106 2,292 2,316 Timber and timberlands-- less depletion 521 503 Land 32 31 Total property and equipment 2,845 2,850 Other Assets 183 161 Total Assets $ 4,302 $ 4,252 See notes to consolidated financial statements. 4 Summarized Balance Sheets - Continued Parent Company (Temple-Inland Inc.) Unaudited September 27, December 28, 1997 1996 (in millions) LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 149 $ 143 Accrued expenses 172 140 Employee compensation and benefits 19 28 Current portion of long-term debt 3 8 Total current liabilities 343 319 Long-Term Debt 1,498 1,522 Deferred Income Taxes 239 234 Postretirement Benefits 139 136 Other Liabilities 15 26 Shareholders' Equity 2,068 2,015 Total Liabilities and Shareholders' Equity $ 4,302 $ 4,252 See notes to consolidated financial statements. 5 Summarized Statements of Cash Flows Parent Company (Temple-Inland Inc.) Unaudited First Nine Months 1997 1996 (in millions) Cash Provided by (Used for) Operations Net income $ 41.4 $ 114.5 Adjustments to reconcile net income to net cash: Depreciation and depletion 190.1 183.0 Deferred taxes 5.2 (40.4) Unremitted earnings of affiliates (82.3) (20.1) Receivables (29.1) (30.8) Inventories 4.8 22.2 Prepaid expenses (4.8) 1.3 Accounts payable and accrued expenses 29.4 (19.1) Other (39.1) 16.4 115.6 227.0 Cash Provided by (Used for) Investments Capital expenditures (170.6) (218.5) Investment in joint ventures/acquisitions (8.1) (24.1) Sale of property and equipment 2.1 4.0 Capital contributions to financial services (24.6) - Dividends from financial services 225.0 50.0 Acquisition of California Financial Holding Company, net of cash acquired (22.2) - 1.6 (188.6) Cash Provided by (Used for) Financing Change in debt, net (29.3) 27.4 Purchase of stock for treasury (44.5) (16.3) Cash dividends paid to shareholders (53.6) (51.0) Other 8.7 1.8 (118.7) (38.1) Net increase (decrease)in cash and cash equivalents (1.5) .3 Cash and cash equivalents at beginning of period 14.3 14.7 Cash and cash equivalents at end of period $ 12.8 $ 15.0 See notes to consolidated financial statements. 6 Summarized Statements of Income Temple-Inland Financial Services Unaudited Third Quarter First Nine Months 1997 1996 1997 1996 (in millions) Interest Income Mortgage-backed and investment securities $ 42.9 $ 44.4 $ 117.1 $ 140.8 Loans receivable and mortgage loans held for sale 143.9 108.3 384.7 315.8 Other earning assets 5.9 5.2 16.1 16.1 Total interest income 192.7 157.9 517.9 472.7 Interest Expense Deposits 89.3 76.5 240.4 232.2 Borrowed funds 42.2 32.8 115.3 93.3 Total interest expense 131.5 109.3 355.7 325.5 Net Interest Income 61.2 48.6 162.2 147.2 Provision for loan losses .5 3.4 1.2 12.5 Net Interest Income After Provision For Loan Losses 60.7 45.2 161.0 134.7 Noninterest Income Loan servicing fees 22.3 14.3 54.4 41.8 Loan origination and marketing 15.7 7.8 32.1 22.0 Other 29.5 24.4 78.5 71.7 67.5 46.5 165.0 135.5 Noninterest Expense Compensation and benefits 37.7 26.3 94.5 76.9 Other 50.4 83.0 128.5 156.5 Total noninterest expense 88.1 109.3 223.0 233.4 Income before taxes 40.1 (17.6) 103.0 36.8 Minority interest in income of consolidated subsidiary (2.7) - (3.7) - Pretax Income After Minority Interest 37.4 (17.6) 99.3 36.8 Taxes on income 5.5 (4.7) 17.0 16.7 Net Income $ 31.9 $ (12.9) $ 82.3 $ 20.1 See notes to consolidated financial statements. 7 Summarized Balance Sheets Temple-Inland Financial Services Unaudited September 30, December 31, 1997 1996 (in millions) ASSETS Cash and cash equivalents $ 207 $ 214 Mortgage loans held for sale 574 244 Loans receivable 6,856 5,414 Mortgage-backed and investment securities 2,793 2,783 Other assets 897 680 TOTAL ASSETS $ 11,327 $ 9,335 LIABILITIES Deposits $ 7,302 $ 6,263 Securities sold under repurchase agreements 1,914 1,937 Federal Home Loan Bank advances 598 55 Other borrowings 155 133 Other liabilities 611 355 TOTAL LIABILITIES 10,580 8,743 PREFERRED STOCK ISSUED BY SUBSIDIARY 150 - SHAREHOLDER'S EQUITY 597 592 TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 11,327 $ 9,335 See notes to consolidated financial statements. 8 Summarized Statements of Cash Flows Temple-Inland Financial Services Unaudited First Nine Months 1997 1996 (in millions) Cash Provided by (Used for) Operations Net income $ 82.3 $ 20.1 Adjustments to reconcile net income to net cash: Amortization, accretion and depreciation 31.1 24.3 Provision for loan losses 1.2 12.5 Receivable from FDIC - 7.4 Mortgage loans held for sale (155.4) 3.8 Collections and remittances on loans serviced for others, net 138.5 (5.7) Other (19.3) (35.0) 78.4 27.4 Cash Provided by (Used for) Investments Purchases of securities held-to-maturity - (.1) Purchases of securities available-for-sale (96.8) (2.7) Maturities of securities held-to-maturity 328.7 245.3 Maturities of securities available-for-sale 61.4 69.9 Proceeds from sale of securities available- for-sale 441.4 4.3 Loans originated or acquired - net of principal collected on loans (1,045.5) (492.3) Other (2.1) (23.2) (312.9) (198.8) Cash Provided by (Used for) Financing Net increase (decrease) in deposits 55.1 (157.2) Securities sold under repurchase agreements and short-term borrowings - net (53.9) 466.9 Change in debt, net 199.9 (80.9) Capital contributions from parent 24.6 - Proceeds from sale of subsidiary preferred stock 150.1 - Dividends paid to parent (225.0) (50.0) Net increase in advances from borrowers for taxes and insurance 76.2 71.0 227.0 249.8 Net increase (decrease) in cash and cash equivalents (7.5) 78.4 Cash and cash equivalents at beginning of period 214.4 343.1 Cash and cash equivalents at end of period $ 206.9 $ 421.5 See notes to consolidated financial statements. 9 Consolidated Statements of Income Temple-Inland Inc. and Subsidiaries Unaudited Third Quarter First Nine Months 1997 1996 1997 1996 (In millions, except for per share data) Revenues Manufacturing net sales $ 678.2 $ 658.1 $ 2,014.3 $ 2,006.4 Financial services revenues 260.2 204.4 682.9 608.2 938.4 862.5 2,697.2 2,614.6 Costs and Expenses Manufacturing costs and expenses 668.4 612.9 1,965.4 1,837.0 Financial services expenses 222.8 222.0 583.6 571.4 891.2 834.9 2,549.0 2,408.4 Operating Income 47.2 27.6 148.2 206.2 Parent Company Interest - net (27.3) (27.4) (83.4) (81.6) Other 1.8 1.6 4.5 3.1 Income Before Taxes 21.7 1.8 69.3 127.7 Settlement of FDIC tax-sharing - (31.5) - (31.5) Taxes on Income 9.1 .6 27.9 44.7 Net Income $ 12.6 $ 32.7 $ 41.4 $ 114.5 Earnings per share $ .22 $ .59 $ .74 $2.06 Dividends Paid Per Share of Common Stock $ .32 $ .32 $ .96 $ .92 Weighted Average Shares Outstanding 56.9 55.5 56.0 55.6 See notes to consolidated financial statements. 10 Consolidated Balance Sheets Temple-Inland Inc. and Subsidiaries September 27, 1997 Unaudited Parent Financial Company Services Consolidated (in millions) ASSETS Cash and cash equivalents $ 13 $ 207 $ 220 Mortgage loans held for sale - 574 574 Loans receivable - 6,856 6,856 Mortgage-backed and investment securities - 2,793 2,793 Trade and other receivables 324 - 319 Inventories 322 - 322 Property & equipment 2,845 99 2,944 Other assets 201 798 948 Investment in financial services 597 - - TOTAL ASSETS $ 4,302 $ 11,327 $14,976 LIABILITIES Deposits $ - $ 7,302 $ 7,302 Securities sold under repurchase agreements and Federal Home Loan Bank advances - 2,512 2,512 Other liabilities 358 611 939 Long-term debt 1,498 155 1,653 Deferred income taxes 239 - 213 Postretirement benefits 139 - 139 TOTAL LIABILITIES $ 2,234 $ 10,580 12,758 PREFERRED STOCK ISSUED BY SUBSIDIARY - 150 150 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 355 Translation and other adjustments (20) Retained earnings 1,826 2,222 Cost of shares held in the treasury: 4,828,367 shares (154) TOTAL SHAREHOLDERS' EQUITY 2,068 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,976 See notes to consolidated financial statements. 11 Consolidated Balance Sheets Temple-Inland Inc. and Subsidiaries December 28, 1996 Unaudited Parent Financial Company Services Consolidated (in millions) ASSETS Cash and cash equivalents $ 14 $ 214 $ 228 Mortgage loans held for sale - 244 244 Loans receivable - 5,414 5,414 Mortgage-backed and investment securities - 2,783 2,783 Trade and other receivables 295 - 292 Inventories 327 - 327 Property & equipment 2,850 81 2,931 Other assets 174 599 728 Investment in financial services 592 - - TOTAL ASSETS $ 4,252 $ 9,335 $12,947 LIABILITIES Deposits $ - $ 6,263 $ 6,263 Securities sold under repurchase agreements and Federal Home Loan Bank advances - 1,992 1,992 Other liabilities 345 355 685 Long-term debt 1,522 133 1,655 Deferred income taxes 234 - 201 Postretirement benefits 136 - 136 TOTAL LIABILITIES $ 2,237 $ 8,743 10,932 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 305 Translation and other adjustments (24) Retained earnings 1,837 2,179 Cost of shares held in the treasury: 5,940,802 shares (164) TOTAL SHAREHOLDERS' EQUITY 2,015 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,947 See notes to consolidated financial statements. 12 Consolidated Statements of Cash Flows Temple-Inland Inc. and Subsidiaries Unaudited First Nine Months 1997 1996 (in millions) Cash Provided by (Used for) Operations Net income $ 41.4 $ 114.5 Adjustments to reconcile net income to net cash: Depreciation and depletion 199.8 189.8 Amortization and accretion 21.3 17.5 Deferred taxes 7.1 (29.1) Receivable from FDIC - 7.4 Trade and other receivables (29.1) (30.8) Accounts payable and accrued expenses 29.4 (22.6) Inventories 4.8 22.2 Mortgage loans held for sale (155.4) 3.8 Increase (decrease) in collections and remittances on loans serviced for others, net 138.5 (5.7) Other (63.8) (12.6) 194.0 254.4 Cash Provided by (Used for) Investments Capital expenditures (181.8) (228.5) Purchases of securities held-to-maturity - (.1) Purchases of securities available-for-sale (96.8) (2.7) Maturities of securities held-to-maturity 328.7 245.3 Maturities of securities available-for-sale 61.4 69.9 Proceeds from sale of securities available- for-sale 441.4 4.3 Loans originated or acquired - net of principal collected on loans (1,045.5) (492.3) Acquisition of California Financial Holding Company, net of cash acquired (22.2) - Other 3.1 (33.3) (511.7) (437.4) Cash Provided by (Used for) Financing Additions to debt 420.3 259.4 Payments of debt (249.7) (312.9) Securities sold under repurchase agreements and short-term borrowings - net (53.9) 466.9 Cash dividends paid to shareholders (53.6) (51.0) Net increase (decrease) in deposits 55.1 (157.2) Net increase in advances from borrowers for taxes and insurance 76.2 71.0 Purchase of stock for treasury (44.5) (16.3) Proceeds from sale of subsidiary preferred stock 150.1 - Other 8.7 1.8 308.7 261.7 Net increase (decrease) in cash and cash equivalents (9.0) 78.7 Cash and cash equivalents at beginning of period 228.7 357.8 Cash and cash equivalents at end of period $ 219.7 $ 436.5 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 December 28, 1996. 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's summarized financial statements include savings bank, mortgage banking, real estate development activities and insurance operations. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share , which is effective for financial statements issued for periods ending after December 15, 1997. The impact of Statement 128 on the calculation of earnings per share is not expected to be material. 14 TEMPLE-INLAND INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B - 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. The Company has previously disclosed that as a result of allegations made by a former employee in a wrongful termination lawsuit and to the Securities and Exchange Commission (the Commission ), the Commission began a non-public investigation into the allegations. The Company has denied the allegations and remains confident that the results of the investigation will determine the allegations to be without merit or grounds whatsoever and will not have an adverse effect on the Company's consolidated financial statements. NOTE C - ACQUISITIONS On June 27, 1997 the Company acquired California Financial Holding Company, the parent company of Stockton Savings Bank, F.S.B., and merged Stockton Savings Bank into Guaranty Federal Bank. The purchase price of $143.4 million included $47.3 million in cash and approximately 1,615,000 shares of Temple- Inland Inc. common stock valued at $96.1 million. The acquisition has been accounted for under the purchase method of accounting. The net assets acquired consisted of $24.6 million in cash, $955.1 million of loans, $297.5 million of mortgage- backed securities and investments, $126.5 million in other assets, $982.2 million of deposits, $320.1 million of FHLB advances and other borrowings, and $13.0 million of other liabilities. The excess of the aggregate purchase price over the fair market value of net assets acquired of approximately $55 million was recognized as goodwill and is being amortized on a straight-line basis over 25 years. The operating results of Stockton Savings Bank have been included in the Company's consolidated financial statements since the date of acquisition. On June 4, 1997, Temple-Inland Mortgage Corporation acquired Knutson Mortgage Company. The net assets acquired consisted primarily of $94.6 million in mortgage loans held for sale, $72.3 million in mortgage loan servicing rights, $15.8 million in other assets, $161.8 million in debt, and $6.3 million in other liabilities. The acquisition has been accounted for under the purchase method of accounting with the net assets acquired approximating the purchase price paid. The operating results of Knutson Mortgage Company have been included in the Company's consolidated financial statements since the date of acquisition. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations Results of operations, including information regarding the Company's principal business segments, are shown below: Third Quarter First Nine Months 1997 1996 1997 1996 (in millions) Revenues Paper $ 518.2 $ 510.5 $ 1,548.2 $ 1,586.8 Building products 160.0 147.6 466.1 419.6 Manufacturing net sales 678.2 658.1 2,014.3 2,006.4 Financial services 260.2 204.4 682.9 608.2 Total revenues $ 938.4 $ 862.5 $ 2,697.2 $ 2,614.6 Income Paper $ (19.0) $ 16.4 $ (36.2) 106.4 Building products 34.7 31.4 103.2 75.4 Operating profit 15.7 47.8 67.0 181.8 Financial services 37.4 (17.6) 99.3 36.8 53.1 30.2 166.3 218.6 Corporate expenses (5.9) (2.6) (18.1) (12.4) Parent company interest - net (27.3) (27.4) (83.4) (81.6) Other - net 1.8 1.6 4.5 3.1 Income before taxes 21.7 1.8 69.3 127.7 Settlement of FDIC tax-sharing - (31.5) - (31.5) Taxes on income 9.1 .6 27.9 44.7 Net income $ 12.6 $ 32.7 $ 41.4 $ 114.5 16 Third Quarter 1997 vs. Third Quarter 1996 Third quarter earnings for 1997 totaled $12.6 million, or $.22 per share, a decrease of 62.7 percent from third quarter 1996 net income of $32.7 million or $.59 per share. Revenues for the period were $938.4 million, up 8.8 percent from the $862.5 million reported for the same quarter of 1996. The paper group recorded an operating loss of $19.0 million for the quarter compared with operating earnings of $16.4 million for the third quarter of 1996. Demand for linerboard and boxes continued to improve in the quarter, and box shipments were at record levels for the quarter. The record level of shipments, coupled with the downtime taken early in the quarter, resulted in containerboard inventories approaching historically low levels. The downward trend in box prices experienced throughout the second quarter continued into July. Although prices began to rebound in August, average box prices for the quarter were down $55 per ton from last year's third quarter and remained slightly below this year's second quarter. Prices for old corrugated containers (OCC), the principal raw material used in our recycle operations, also rose sharply in the quarter, negatively impacting earnings. OCC prices, however, moderated late in the quarter. The average price for bleached paperboard products was up slightly in the quarter as pricing increased for some products and the mix continued to improve. Production in the quarter was hampered by pulp mill operation problems, and shipments were below second quarter levels due to seasonal factors and disruptions associated with rail transportation difficulties. The building products group reported third quarter operating earnings of $34.7 million, an increase of 10.5 percent from the prior year's third quarter. Although lumber prices trended downward in the quarter, the average price for the quarter remained 11.2 percent higher than last year's third quarter. The market for high value fiberboard products remained strong with competitive pricing pressure experienced in most other products in this segment. As a result of weak demand from the ready-to- assemble furniture manufacturers, demand for particleboard slowed in the quarter and pricing declined. Gypsum markets remained strong and prices rose late in the quarter. The financial services group reported record third quarter operating earnings of $37.4 million. This compares with operating earnings of $26.4 million (excluding a $44 million assessment in connection with the recapitalization of the Savings Association Insurance Fund) in the third quarter of 1996. These record operating earnings were primarily a result of improved net interest income, continued excellent levels of non-operating expenses, and initial cost savings related to the acquisition of Stockton Savings Bank. Net interest expense decreased to $27.3 million in the current quarter compared with $27.4 million in the third quarter of last year. 17 The tax provision for the third quarter of 1997 was $9.1 million. The tax provision for the third quarter of 1996 includes a one- time credit of $31.5 million that was recorded as a result of the termination of the Assistance Agreement between the Company and the Federal Savings and Loan Insurance Corporation (the FSLIC ). As a part of this termination agreement, the Company and the Federal Deposit Insurance Corporation as successor to the FSLIC agreed to a one-time payment that was based on the present value of future liabilities. The recognition of this credit to its tax provision in 1996 is a result of the completion of this transaction. First Nine Months of 1997 vs. First Nine Months of 1996 Earnings for the first nine months of 1997 were $41.4 million, or $.74 per share compared with $114.5 million, or $2.06 per share for the first nine months of last year. Revenues of $2,697.2 million were up slightly from the 1996 first nine months of $2,614.6 million. The paper group lost $36.2 million compared with earnings of $106.4 million in the first nine months of 1996. Although box shipments for the corrugated container operation were up compared with the same period last year, the continued downward pressure on box prices more than offset the benefit of the record volumes. The bleached paperboard operation continued to experience improved sales and production volumes. The building products group earned $103.2 million, up from $75.4 million for the first nine months of 1996. This improvement in earnings is primarily due to increased earnings for the solid wood and gypsum operations. The financial services group earned $99.3 million for the first nine months of 1997. This compares with operating earnings of $80.8 million (excluding a $44 million assessment in connection with the recapitalization of the Savings Association Fund) for the last year's comparable period. These record operating earnings were primarily a result of improved net interest income and a decrease in provision for loan losses. 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. As part of the Company's share repurchase plan, approximately 744,930 shares were repurchased year-to-date in 1997 at a cost of $44.5 million. Guaranty Federal Bank continues to exceed all three regulatory capital requirements. 18 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 (11) Statement re computation of per share earnings (27) Financial Data Schedule (b) Reports on Form 8-K. During the nine months ended September 27, 1997, the Company did not file any reports on Form 8-K. 19 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: November 11, 1997 By /s/ David H. Dolben David H. Dolben Vice President and Chief Accounting Officer 20 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 (11) Statement re computation of 21 per share earnings. (27) Financial Data Schedule 22 EX-27 2 FDS FOR THIRD QUARTER 1997
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 9-MOS JAN-03-1998 SEP-27-1997 220 0 319 0 322 0 2,944 0 14,976 0 1,653 0 0 61 2,007 14,976 2,014 2,697 1,965 2,549 0 0 83 69 28 0 0 0 0 41 .74 .74
EX-11 3 EXHIBIT (11) TEMPLE-INLAND INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (in thousands, except for per share data) Third Quarter First Nine Months 1997 1996 1997 1996 Primary Average common shares outstanding 56,664 55,448 55,848 55,506 Net effect of dilutive stock options based on treasury stock method using average market price 203 85 184 49 Weighted average shares outstanding 56,867 55,533 56,032 55,555 Net income $ 12,559 $ 32,648 $ 41,360 $114,480 Earnings per share $ .22 $ .59 $ .74 $ 2.06 Fully Diluted Average common shares outstanding 56,664 55,448 55,848 55,506 Net effect of dilutive stock options based on treasury stock method using the closing market price, if higher than average market price 275 410 218 157 Weighted average shares outstanding 56,939 55,858 56,066 55,663 Net income $ 12,559 $ 32,648 $ 41,360 $114,480 Earnings per share $ .22 $ .58 $ .74 $ 2.06 -----END PRIVACY-ENHANCED MESSAGE-----