-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LjllrG3uoOut5lKThEMoCvSXs/8rp79w1jffu7CDcVYxki8VpWgtIh4oo7kwkG56 yOyLdnqKgGvbS/2chN28Rw== 0000950134-94-000219.txt : 19940322 0000950134-94-000219.hdr.sgml : 19940322 ACCESSION NUMBER: 0000950134-94-000219 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19940101 FILED AS OF DATE: 19940321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLE INLAND INC CENTRAL INDEX KEY: 0000731939 STANDARD INDUSTRIAL CLASSIFICATION: 2631 IRS NUMBER: 751903917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 002-87570 FILM NUMBER: 94516919 BUSINESS ADDRESS: STREET 1: 303 S TEMPLE DR STREET 2: PO DRAWER N CITY: DIBOLL STATE: TX ZIP: 75941 BUSINESS PHONE: 4098292211 MAIL ADDRESS: STREET 1: 303 SOUTH TEMPLE DIRVE CITY: DIBOLL STATE: TX ZIP: 75941 10-K 1 FORM 10-K (FOR YEAR ENDED JANUARY 1, 1994) 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 {FEE REQUIRED} FOR THE FISCAL YEAR ENDED JANUARY 1, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 {NO FEE REQUIRED} 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 No.)
303 SOUTH TEMPLE DRIVE DIBOLL, TEXAS 75941 (Address of principal executive offices, including Zip code) Registrant's telephone number, including area code: (409) 829-2211 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ---------------------------------------- --------------------------------- COMMON STOCK, $1.00 PAR VALUE PER SHARE, NEW YORK STOCK EXCHANGE NON-CUMULATIVE PACIFIC STOCK EXCHANGE NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None ------------------------ 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 X No 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 registrant's 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. /X/ 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 March 8, 1994, was $2,147,214,101. For purposes of this computation, all officers, directors, and 5% beneficial owners of the registrant (as indicated in Item 12) are deemed to be affiliates. Such determination should not be deemed an admission that such directors, officers, or 5% beneficial owners are, in fact, affiliates of the registrant. As of March 8, 1994, 55,590,588 shares of Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the indicated part or parts of this report: (a) Pages 21, 23-29, 30, 35, 42, and 44-53 of the Annual Report to Shareholders for the fiscal year ended January 1, 1994 -- Parts I and II. (b) The Company's definitive proxy statement, dated March 21, 1994, in connection with the Annual Meeting of Shareholders to be held May 6, 1994 -- Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS INTRODUCTION: Temple-Inland Inc. (the "Company") is a holding company and functions through subsidiaries. It has interests in container and containerboard, bleached paperboard, building products, timber and timberlands, and financial services. The Company's container and containerboard operations are vertically integrated and consist of four linerboard mills, three corrugating medium mills, and 39 box plants. In addition, subsidiaries of the Company manufacture bleached paperboard and a wide range of building products including lumber, plywood, particleboard, gypsum wallboard, and fiberboard. Forest resources include approximately 1.9 million acres of timberland in Texas, Louisiana, Georgia, and Alabama. The Company's financial services operations consist of consumer savings bank activities, mortgage banking, real estate development, and insurance brokerage. The Company is a Delaware corporation that was organized in 1983. Its principal subsidiaries include Inland Container Corporation ("Inland"), Temple-Inland Financial Services Inc. ("Financial Services"), Temple-Inland Forest Products Corporation ("Temple-Inland FPC"), Guaranty Federal Bank, F.S.B. ("Guaranty"), and Temple-Inland Mortgage Corporation ("Temple-Inland Mortgage"). The Company's principal executive offices are located at 303 South Temple Drive, Diboll, Texas 75941. Its telephone number is (409) 829-2211. 1 3 FINANCIAL INFORMATION: The results of operations including information regarding the principal business segments are shown in the following table: TEMPLE-INLAND INC. BUSINESS SEGMENTS
FOR THE YEAR ---------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- (IN MILLIONS) Revenues Container and containerboard.............. $1,248.5 $1,254.4 $1,148.6 $1,144.2 $1,138.4 Bleached paperboard....................... 318.5 352.6 370.6 373.0 368.3 Building products......................... 475.3 391.3 311.1 305.3 320.3 Other activities.......................... 58.4 77.1 67.9 70.0 67.2 -------- -------- -------- -------- -------- Manufacturing net sales................ 2,100.7 2,075.4 1,898.2 1,892.5 1,894.2 Financial services(a)..................... 635.1 637.8 608.9 508.6 49.4 -------- -------- -------- -------- -------- Total revenues.................... $2,735.8 $2,713.2 $2,507.1 $2,401.1 $1,943.6 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income before taxes and accounting changes Container and containerboard.............. $ 21.0 $ 112.3 $ 75.4 $ 150.9 $ 208.4 Bleached paperboard....................... (12.1) 23.3 79.9 98.8 114.9 Building products......................... 99.1 39.5 5.2 9.4 23.7 Other activities.......................... (1.9) (2.0) 1.1 (1.7) (.7) -------- -------- -------- -------- -------- Operating profit....................... 106.1 173.1 161.6 257.4 346.3 Financial services(a)..................... 67.5 64.4 54.2 51.4 (2.1) -------- -------- -------- -------- -------- 173.6 237.5 215.8 308.8 344.2 Corporate expense......................... (11.2) (15.3) (16.0) (20.7) (12.9) Parent company interest -- net............ (69.0) (47.4) (31.8) (24.0) (24.4) Other income(b)........................... 2.8 2.2 (1.2) 4.7 5.0 -------- -------- -------- -------- -------- Income before taxes and accounting changes.............................. $ 96.2 $ 177.0 $ 166.8 $ 268.8 $ 311.9 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- --------------- (a) Operating results for 1993, 1992, 1991, and 1990 reflect the consolidation of Guaranty beginning January 1, 1990. (b) The 1991 amount includes losses of $7.4 million from the write-off of an investment in a gypsum-fiberboard venture. For more information with respect to identifiable assets, capital expenditures, and depreciation, depletion, and amortization on a business segment basis, see pages 29 and 51 of the Company's 1993 Annual Report to Shareholders, which are incorporated herein by reference. 2 4 The following table shows the revenues of the Company: REVENUES
FOR THE YEAR ---------------------------------------------------- 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- (IN MILLIONS) Container and containerboard................ $1,248.5 $1,254.4 $1,148.6 $1,144.2 $1,138.4 Bleached paperboard Paperboard................................ 246.8 263.6 301.9 314.7 300.6 Market pulp............................... 31.4 43.8 38.6 47.7 58.8 Nodular pulp.............................. 2.2 3.8 6.3 6.8 7.2 Other(a).................................. 38.1 41.4 23.8 3.8 1.7 Building Products Pine lumber(b)............................ 153.8 120.9 87.6 72.7 67.4 Fiber products............................ 62.9 55.8 48.2 48.5 48.0 Particleboard............................. 81.3 70.5 60.7 57.1 64.6 Plywood................................... 54.0 45.2 36.9 33.3 33.1 Gypsum wallboard.......................... 53.3 36.6 33.1 40.7 41.1 Rigid foam insulation(c).................. -- -- -- 4.9 17.0 Retail distribution....................... 60.0 53.5 42.2 41.7 42.1 Other..................................... 10.0 8.8 2.4 6.4 7.0 Other activities............................ 58.4 77.1 67.9 70.0 67.2 -------- -------- -------- -------- -------- Manufacturing net sales................... 2,100.7 2,075.4 1,898.2 1,892.5 1,894.2 Financial services(d)....................... 635.1 637.8 608.9 508.6 49.4 -------- -------- -------- -------- -------- Total revenues.................... $2,735.8 $2,713.2 $2,507.1 $2,401.1 $1,943.6 -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- --------------- (a) Reflects Temple-Inland Food Service Corporation beginning with its formation in March 1991. (b) Excludes the Rome, Georgia, sawmill acquired as a result of the 1987 dissolution of Georgia Kraft. Sales from that facility totaled $20.2 million, $16.9 million, $11.8 million, $13.3 million, and $11.4 million in 1993, 1992, 1991, 1990, and 1989, respectively. (c) A three-year lease with option to purchase was negotiated for the Company's rigid foam insulation operation during the second quarter of 1990. This lease has been extended through 1996. (d) Operating results for 1993, 1992, 1991, and 1990 reflect the consolidation of Guaranty beginning January 1, 1990. 3 5 The following table shows the rated annual capacities of the production facilities for, and unit sales of, the principal manufactured products. ANNUAL CAPACITIES/UNIT SALES
RATED ANNUAL CAPACITY AT JANUARY 1, 1994 1993 1992 1991 1990 1989 ------------ ----- ----- ----- ----- ----- (IN THOUSANDS OF TONS) Container and Containerboard............... (a) 2,394 2,294 2,097 2,061 1,913 Bleached Paperboard Paperboard............................... (b) 426 414 447 462 453 Market Pulp.............................. (b) 100 123 103 107 103 Nodular Pulp............................. (b) 34 32 19 20 21 Building Products (IN MILLIONS OF BOARD FEET) Pine Lumber(c)........................... 475 484 467 395 342 308 (IN MILLIONS OF SQUARE FEET) Fiber products........................... 460 440 464 443 452 446 Particleboard............................ 335 319 326 321 302 333 Plywood.................................. 265 265 250 253 233 213 Gypsum wallboard......................... 780 782 621 601 699 685 Rigid foam insulation(d)................. -- -- -- -- 25 77
- --------------- (a) The annual capacity of the box plants is not given because such annual capacity 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. The rated annual capacity of Inland's corrugating medium mills is 585,000 tons per year. The rated annual capacity of the linerboard mills is 2.0 million tons per year. (b) The annual capacity of the paperboard and pulp mill is approximately 525,000 tons, which excludes the capacity of a fourth paper machine at the mill that was shut down late in 1993 due to market conditions for the paper grade it produces. Such capacity may vary to some degree depending on product mix. The annual capacity of Temple-Inland Food Service Corporation, formed in March 1991, is not given because such annual capacity is a function of the product mix, customer requirements, and the type of converting equipment installed and operating at each plant, all of which vary from time to time. (c) Excludes the Rome, Georgia, sawmill in 1993, 1992, 1991, 1990, and 1989. Sales totaled 68 million board feet, 71 million board feet, 59 million board feet, 67 million board feet, and 57 million board feet in 1993, 1992, 1991, 1990, and 1989, respectively. (d) A three-year lease with option to purchase was negotiated for the Company's rigid foam insulation operation during the second quarter of 1990. This lease has been extended through 1996. NARRATIVE DESCRIPTION OF THE BUSINESS: The business of the Company includes the following: (1) container and containerboard, (2) bleached paperboard, (3) building products, and (4) financial services. In the year ended January 1, 1994, container and containerboard, bleached paperboard, building products, and financial services provided 46%, 12%, 17%, and 23%, respectively, of the total consolidated net revenues of the Company. Container and Containerboard. Inland manufactures containerboard that it converts into a complete line of corrugated boxes and containers. Approximately 85% of the containerboard produced by Inland in 1993 was converted into corrugated containers at its box plants. Inland's nationwide network of box plants 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 box business is characterized by commodity pricing, each order for each customer is a custom order. Inland's corrugated boxes are sold to a variety of customers in the 4 6 food, paper, glass containers, chemical, appliance, and plastics industries, among others. As of January 1, 1994, about 46% of Inland's box shipments were sold directly for use in the food industry, including beverage containers. Inland also manufactures bulk containers that are constructed of multi-wall corrugated board for extra strength. These are used for bulk shipments of various materials. In addition, Inland manufactures paper sealing tape and other tape specialties. Inland services about 4,500 customers with approximately 11,600 shipping destinations. The largest single customer accounted for approximately 4% and the 10 largest customers accounted for approximately 28% of Inland's 1993 revenues. Costs of freight and customer service requirements necessitate the location of box plants relatively close to customers. Each plant tends to service a market within a 150-mile radius of the plant. Sales of corrugated shipping containers closely track changing population patterns and other demographics. Demand for containers and containerboard generally correlates with real growth in the United States gross domestic product. Bleached Paperboard. The Bleached Paperboard Group's products include various grades and weights of coated and uncoated bleached paperboard, bleached linerboard, and bleached bristols. These materials are used by other paper companies and by manufacturers that buy paper in roll lots and convert it into such items as paper cups, plates, file folders, folding cartons, paperback book covers, and various other packaging and convenience products. Bleached paperboard products are sold to a large number of customers. Sales to the largest customer of this segment, with whom the Company has a long-standing contractual relationship, accounted for approximately 17% of this segment's 1993 sales. This level of sales is consistent with sales to this customer over the past several years. Although the loss of this customer could have a material adverse effect on this segment, it would not have a material adverse effect on the Company taken as a whole. The 10 largest customers accounted for approximately 50% of this segment's 1993 sales. During 1993, sales were made to domestic customers in 45 states. Contracts specifying annual tonnage quantities are maintained with several major customers. During 1992, the Board of Directors of the Company approved a modernization program at the bleached paperboard mill in Evadale, Texas. The project is currently on schedule and is estimated to be completed in late 1995 at a cost of approximately $500 million. One aspect of the program is the addition of a new softwood pulpline. The softwood line, which is scheduled to start up in the first half of 1995, will be in addition to a new hardwood fiber line that began operations during the fourth quarter of 1992. These two pulp operations will be used to provide higher quality pulp to meet consumer demands. As a result of this program, pulp production capacity will be increased by 35% and effluent discharge will be decreased. In addition to the pulp mill expansion, the Company will add a new paper machine and make further upgrades to two of the three existing fourdrinier paper machines at the Evadale mill to increase paperboard production. The focus of the paperboard expansion program is to enable the mill to efficiently produce low- density paperboard with high quality characteristics that are increasingly demanded by consumers. The addition of the new fourdrinier machine, which will be designed primarily for low-density coated board, and the upgrades to two of the three existing fourdrinier machines, will also enable the mill to balance its pulp-making capacity with its board-making capacity. The remaining paper machine, a cylinder machine, was shut down late in 1993 due to market conditions for the paper grade it produces. Demand for bleached paperboard products generally correlates with real growth in the United States gross domestic product, but is also affected by inventory levels maintained by paperboard converters as well as a number of other factors, including changes in industry production capacity and the strength of export markets. Temple-Inland Food Service Corporation ("Food Service") is an integrated paper converter formed by the Bleached Paperboard Group to manufacture and market paper containers and products primarily for the food service industry. Food Service consists of converting plants in Carlisle, Ohio, Sacramento and El Cajon, 5 7 California, and Denver, Colorado. Products manufactured include paper plates and bowls, clamshells, carrying trays and boxes, nested food trays, fry cartons, and pails. These products are sold to the fast food industry, retail consumer stores, and restaurants and cafeterias for use in food service. Building Products. The Building Products Group produces a wide variety of building products, such as lumber, plywood, particleboard, gypsum wallboard, hardboard siding, and fiberboard sheathing. Sales of building products are concentrated in the southeastern and southwestern United States. No significant sales are generated under long-term contracts. Sales of most of these products are made by account managers and representatives. Most sales are to distributors, retailers, and O.E.M. (original equipment manufacturer) accounts. Almost 95% of particleboard sales are to commercial fabricators, such as manufacturers of cabinets and furniture. The 10 largest customers accounted for approximately 13% of the Building Products Group's 1993 sales. The building products business is heavily dependent upon the level of residential housing expenditures, including the repair and remodeling market, which is largely dependent upon the availability and cost of mortgage funds. The Company recently announced a new particleboard plant to be located in Hope, Arkansas. Construction of this plant will begin in the third quarter of 1994, with completion expected in the first quarter of 1996. The plant, which will cost approximately $62 million to build, will have an annual production capacity of 170 million square feet of particleboard. Financial Services. Financial Services operates a consumer savings bank and engages in mortgage banking, land development, and insurance activities. (i) Savings Bank. Guaranty is a federally-chartered stock savings bank operated by the Company through its financial services subsidiaries. Guaranty conducts its business through 124 banking centers located primarily in the eastern third of Texas, including Houston, Dallas, San Antonio, and Austin. The primary business of Guaranty is to attract savings deposits from the general public and to invest in loans or mortgage-backed securities secured by mortgages on residential and other real estate. In addition, through services agreements and leases, affiliated entities and third party contractors sell annuities and mutual funds at some of Guaranty's banking centers. Guaranty derives its income primarily from interest it charges on real estate mortgages, commercial loans, consumer loans, interest earned on investment securities, fees received in connection with loans and deposit services, and its services agreements and leases. Its major expense is the interest it pays on consumer deposits and other borrowings. The operations of Guaranty, like those of other savings banks or savings and loan associations, are significantly influenced by general economic conditions, by the monetary, fiscal, and regulatory policies of the federal government, and by the policies of financial institution regulatory authorities. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for mortgage financing and for other types of loans as well as market conditions. Guaranty primarily seeks loans with interest rates that adjust periodically rather than long-term fixed rates. On November 12, 1993, Guaranty acquired American Federal Bank, F.S.B. ("AFB") for a purchase price of approximately $155.7 million. AFB, which was merged into Guaranty, was a federal savings bank headquartered in Dallas, Texas, with 30 banking centers in north and east Texas. Guaranty reopened all 30 banking centers on the first business day following the date of acquisition. Six of these banking centers were closed as of December 31, 1993, and the deposits transferred to existing Guaranty banking centers in order to realize operating economies. As of November 12, 1993, AFB had assets of approximately $1.3 billion, which consisted primarily of guaranteed assets and residential and commercial mortgage loans. In 1988, Guaranty entered into an assistance agreement (the "Guaranty Assistance Agreement") with the Federal Savings and Loan Insurance Corporation (the "FSLIC"). Pursuant to the Guaranty Assistance Agreement, the FSLIC agreed to provide continuing financial assistance to Guaranty consisting of notes from the FSLIC, guaranteed yield on the book value of assets acquired from the FSLIC ("Covered Assets"), and protection against losses on the book value of the Covered Assets. AFB also entered into an Assistance 6 8 Agreement (the "AFB Assistance Agreement") during 1988, which has substantially the same terms and conditions as the Guaranty Assistance Agreement. Guaranty has assumed all of the rights and obligations of AFB pursuant to the AFB Assistance Agreement. All of the notes issued pursuant to these Assistance Agreements have been prepaid and the guarantees are now obligations of the FSLIC Resolution Fund, a government-sponsored entity created in August 1989 and managed by the Federal Deposit Insurance Corporation (the "FDIC"). Both Assistance Agreements expire during 1998. At December 31, 1993, the book value of Covered Assets was approximately $700 million, including $400 million of Covered Assets obtained in the acquisition of AFB, which is less than 7.5% of the total assets of Guaranty. The Company receives various tax benefits from the receipt of assistance payments under the Covered Asset guarantees held by Guaranty. The tax benefits to be received by the Company, however, will be subject to (i) the tax laws then in effect, (ii) the amount of income attributable to certain Covered Assets, and (iii) Guaranty's continued status as a "domestic building and loan association" under the Internal Revenue Code of 1986, as amended. As part of the Omnibus Budget Reconciliation Act of 1993 (the "Act"), Congress changed the treatment of FSLIC assistance payments "with respect to any loss of principal, capital, or similar amount upon the disposition of any asset" so that such assistance is taken into account as compensation for such loss. By enacting this provision, Congress eliminated the tax benefit that was permitted when a thrift deducted the loss on disposition of a Covered Asset while it excluded related assistance payments from income. As a result of the Act, the Company will pay the government $45 million in 1994 for 1991 and 1992 deductions that this legislation eliminated. This payment will have no impact on future net income and the Company will continue to receive other benefits from its ownership of Guaranty that will reduce its 1994 cash tax payments. In addition to other minimum capital standards, regulations of the Office of Thrift Supervision of the Department of the Treasury (the "OTS") currently require savings institutions to maintain a leverage capital ratio of at least 3% of adjusted total assets. In addition, in earlier acquisitions from the FDIC, Guaranty entered into an agreement with the OTS that at the time it makes any future acquisitions, it will maintain a leverage capital ratio of at least 4% of adjusted total assets. At December 31, 1993, Guaranty had a leverage capital ratio of 4.0% of adjusted total assets. The Federal Deposit Insurance Act requires the OTS and other agencies regulating insured depository institutions to prescribe safety and soundness standards for such institutions and their holding companies. The safety and soundness standards adopted to date by the OTS establish five capital categories for thrifts: well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under capitalized. In this hierarchy, Guaranty is categorized as adequately capitalized. Guaranty must meet or exceed certain tests to continue its current activities and to take certain deductions under the Internal Revenue Code. At December 31, 1993, Guaranty met or exceeded these tests and intends to continue meeting or exceeding these tests. (ii) Mortgage Banking. Temple-Inland Mortgage, a wholly-owned subsidiary of Guaranty headquartered in Austin, Texas, originates and services FHA, VA, and conventional mortgage loans primarily on single family residential property. It sells all of the mortgage loans into the secondary market. In addition, it sells some portion of its retained servicing to third parties. At December 31, 1993, Temple-Inland Mortgage was servicing $9.1 billion in mortgage loans. Temple-Inland Mortgage produced $4.8 billion in mortgage loans during 1993 compared with $3.5 billion during 1992. (iii) Land Development and Income Properties. Subsidiaries of Financial Services are involved in residential subdivisions in Texas and several commercial buildings. (iv) Insurance. Subsidiaries of Financial Services are engaged in the brokerage of property, casualty, life, and group health insurance products. One of these subsidiaries is an insurance agency that administers the marketing and distribution of several mortgage-related personal life, accident, and health insurance programs. This agency also acts as the risk management department of the Company. An affiliate of the agency sells annuities through banks and savings banks, including Guaranty. (v) Statistical Disclosures. The following tables present various statistical and financial information for Financial Services. 7 9 The following schedule presents the average balances, interest income/expense, and rates earned or paid by major balance sheet category for the years 1991 through 1993: AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST SPREAD
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1993 DECEMBER 31, 1992 DECEMBER 31, 1991 ------------------------------ ------------------------------ ------------------------------ AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE ---------- -------- ------ ---------- -------- ------ ---------- -------- ------ (DOLLARS IN THOUSANDS) ASSETS: Interest-earning assets: Interest-earning deposits in other banks............... $ 22,595 $ 628 2.78% $ 35,817 $ 1,355 3.78% $ 52,254 $ 3,351 6.41% Mortgage-backed and investment securities..... 4,981,794 241,936 4.86% 4,962,705 306,437 6.17% 2,426,601 196,698 8.11% Securities purchased under agreements to resell and federal funds sold........ 1,181,405 42,970 3.64% 251,726 10,253 4.07% 409,249 24,036 5.87% Loans receivable and mortgage loans held for sale(1)................... 2,248,947 172,865 7.69% 1,609,475 152,388 9.47% 1,271,357 138,347 10.88% Covered Assets.............. 405,723 25,416 6.26% 479,410 36,078 7.53% 1,103,978 99,892 9.05% FSLIC Resolution Fund notes receivable................ -- -- -- -- -- -- 415,858 38,757 9.32% Other....................... 62,185 5,914 9.51% 88,507 7,340 8.29% 129,945 11,227 8.64% ---------- -------- ---------- -------- ---------- -------- Total interest-earning assets................ 8,902,649 $489,729 5.50% 7,427,640 $513,851 6.92% 5,809,242 $512,308 8.82% -------- -------- -------- -------- -------- -------- Cash.......................... 90,038 75,784 56,055 Other FSLIC receivables....... 5,200 71,940 163,752 Other assets.................. 440,647 303,752 273,586 ---------- ---------- ---------- Total assets............ $9,438,534 $7,879,116 $6,302,635 ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDER'S EQUITY Interest-bearing liabilities: Deposits: Interest-bearing demand... $1,443,378 $ 34,120 2.36% $1,382,780 $ 43,886 3.17% $ 993,739 $ 53,749 5.41% Savings deposits.......... 201,546 5,180 2.57% 182,962 6,111 3.34% 134,198 6,926 5.16% Time deposits............. 3,919,646 197,512 5.04% 4,384,120 259,599 5.92% 4,155,493 295,744 7.12% ---------- -------- ---------- -------- ---------- -------- Total interest-bearing deposits.............. 5,564,570 236,812 4.26% 5,949,862 309,596 5.20% 5,283,430 356,419 6.75% Advances from the Federal Home Loan Bank............ 64,242 5,301 8.25% 57,605 5,555 9.64% 152,962 12,802 8.37% Securities sold under repurchase agreements..... 2,734,216 88,433 3.23% 972,500 35,599 3.66% 91,848 5,105 5.56% Other borrowings............ 82,632 5,570 6.74% 110,822 7,646 6.90% 176,908 12,948 7.32% ---------- -------- ---------- -------- ---------- -------- Total interest-bearing liabilities........... 8,445,660 $336,116 3.98% 7,090,789 $358,396 5.05% 5,705,148 $387,274 6.79% -------- -------- -------- -------- -------- -------- Noninterest-bearing demand.... 92,367 51,159 132,522 Other liabilities............. 388,387 306,796 183,822 Shareholder's equity.......... 512,120 430,372 281,143 ---------- ---------- ---------- Total liabilities and shareholder's equity.... $9,438,534 $7,879,116 $6,302,635 ---------- ---------- ---------- ---------- ---------- ---------- Net interest margin....... $153,613 $155,455 $125,034 -------- -------- -------- -------- -------- -------- Net yield on interest-earning assets.................. 1.73% 2.09% 2.15% ------ ------ ------ ------ ------ ------
- --------------- (1) Nonaccruing loans are included in the average of loans receivable. 8 10 The following table provides an analysis of the changes in net interest income attributable to changes in volume of interest-earning assets or interest-bearing liabilities and to changes in rates earned or paid: VOLUME/RATE VARIANCE ANALYSIS
1993 COMPARED WITH 1992 1992 COMPARED WITH 1991 INCREASE (DECREASE) DUE TO (1) INCREASE (DECREASE) DUE TO (1) --------------------------------- -------------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL -------- --------- -------- -------- -------- -------- (IN THOUSANDS) Interest income: Interest-earning deposits in other banks......... $ (423) $ (304) $ (727) $ (866) $ (1,130) $ (1,996) Mortgage-backed and investment securities........ 1,175 (65,676) (64,501) 165,690 (55,951) 109,739 Securities purchased under agreements to resell and federal funds sold......................... 33,928 (1,211) 32,717 (7,673) (6,110) (13,783) Loans receivable and mortgage loans held for sale........................................... 52,815 (32,338) 20,477 33,582 (19,541) 14,041 Covered Assets................................... (5,101) (5,561) (10,662) (49,183) (14,631) (63,814) FSLIC Resolution Fund notes receivable........... -- -- -- (38,757) -- (38,757) Other............................................ (2,397) 971 (1,426) (3,453) (434) (3,887) -------- --------- -------- -------- -------- -------- TOTAL INTEREST INCOME...................... $ 79,997 $(104,119) $(24,122) $ 99,340 $(97,797) $ 1,543 -------- --------- -------- -------- -------- -------- -------- --------- -------- -------- -------- -------- Interest expense: Deposits: Interest-bearing demand........................ $ 1,851 $ (11,617) $ (9,766) $ 16,812 $(26,675) $ (9,863) Savings deposits............................... 577 (1,508) (931) 2,066 (2,881) (815) Time deposits.................................. (25,800) (36,287) (62,087) 15,597 (51,742) (36,145) -------- --------- -------- -------- -------- -------- TOTAL INTEREST ON DEPOSITS................. (23,372) (49,412) (72,784) 34,475 (81,298) (46,823) Advances from the Federal Home Loan Bank......... 599 (853) (254) (8,958) 1,711 (7,247) Securities sold under repurchase agreements...... 57,433 (4,599) 52,834 32,812 (2,318) 30,494 Other borrowings................................. (1,904) (172) (2,076) (4,597) (705) (5,302) -------- --------- -------- -------- -------- -------- TOTAL INTEREST EXPENSE..................... $ 32,756 $ (55,036) $(22,280) $ 53,732 $(82,610) $(28,878) -------- --------- -------- -------- -------- -------- -------- --------- -------- -------- -------- --------
- --------------- (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The following table sets forth the carrying amount of mortgage-backed and investment securities as of the dates indicated: TYPES OF INVESTMENTS
DECEMBER 31, -------------------------------------------- 1993 1992 1991 ---------- -------------- ---------- (IN THOUSANDS) Mortgage-backed securities........................... $4,336,226 $5,185,335 $4,381,412 Debt securities: U.S. Government securities (including agencies).... 805 1,928 31,186 Corporate bonds.................................... 1,175 11,079 33,136 Other.............................................. 82 9,795 -- ---------- -------------- ---------- 2,062 22,802 64,322 ---------- -------------- ---------- Equity securities: Federal Home Loan Bank stock....................... 68,873 56,392 26,110 Other.............................................. 97 383 96 ---------- -------------- ---------- 68,970 56,775 26,206 ---------- -------------- ---------- $4,407,258 $5,264,912 $4,471,940 ---------- -------------- ---------- ---------- -------------- ----------
9 11 The table below sets forth the maturities of mortgage-backed and investment securities as of December 31, 1993: MATURITY DISTRIBUTION OF INVESTMENTS
MATURING ----------------------------------------------------------------- VARIABLE/NO WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS MATURITY TOTAL -------------- -------------- -------------- -------------- ------------------ CARRYING AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD VALUE ------ ----- ------ ----- ------ ----- ------ ----- ---------- ----- ---------- (DOLLARS IN THOUSANDS) Mortgage-backed securities................ $ -- -- $ -- -- $ -- -- $ -- -- $4,336,226 4.63% $4,336,226 Debt Securities: U.S. Government securities (including agencies).... 805 3.43% -- -- -- -- -- -- -- -- 805 Corporate bonds........... -- -- 8 6.88% 594 9.00% 573 7.50% -- -- 1,175 Other..................... -- -- 82 7.88% -- -- -- -- -- -- 82 ----- ----- ----- ----- ---------- 805 90 594 573 2,062 Equity securities: Federal Home Loan Bank stock................... 68,873 3.60% 68,873 Other..................... -- -- -- -- 97 -- 97 ----- ----- ----- ----- ---------- ---------- 68,970 68,970 ---------- ---------- $ 805 $ 90 $ 594 $ 573 $4,405,196 $4,407,258 ----- ----- ----- ----- ---------- ---------- ----- ----- ----- ----- ---------- ----------
The following table shows the loan distribution for Financial Services: TYPES OF LOANS
AS OF DECEMBER 31, --------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- --------- (IN THOUSANDS) Real estate mortgage............................. $2,302,905 $1,153,279 $ 863,227 $ 782,482 $ 682,830 Construction and development..................... 643,653 274,556 216,609 66,737 26,001 Commercial....................................... 80,665 25,451 58,176 41,555 1,785 Consumer and other............................... 404,151 271,091 294,938 184,692 79,763 ---------- ---------- ---------- ---------- --------- 3,431,374 1,724,377 1,432,950 1,075,466 790,379 Less: Unfunded portion of loans...................... 614,010 320,625 146,091 51,911 15,502 Unearned discounts............................. 3,024 9,319 24,525 3,383 2,108 Unamortized purchase discounts................. 8,884 28,123 39,570 49,455 63,517 Net deferred fees.............................. 2,229 2,280 708 1,088 349 Allowance for loan losses...................... 47,875 20,751 19,432 1,954 1,227 ---------- ---------- ---------- ---------- --------- 676,022 381,098 230,326 107,791 82,703 ---------- ---------- ---------- ---------- --------- $2,755,352 $1,343,279 $1,202,624 $ 967,675 $ 707,676 ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ---------
10 12 The table below presents the maturity distribution of loans (excluding real estate mortgage and consumer loans) outstanding at December 31, 1993, based on scheduled repayments. The amounts due after one year, classified according to the sensitivity to changes in interest rates, are also provided. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
MATURING ------------------------------------------ AFTER WITHIN 1 1 TO 5 5 YEAR YEARS YEARS TOTAL -------- -------- ------ -------- (IN THOUSANDS) Construction and development.......................... $421,542 $221,425 $ 686 $643,653 Commercial............................................ 46,887 30,191 3,587 80,665 -------- -------- ------ -------- $468,429 $251,616 $4,273 $724,318 -------- -------- ------ -------- -------- -------- ------ -------- Loans maturing after 1 year with: Fixed interest rates................................ $182,870 $1,965 Variable interest rates............................. 68,746 2,308 -------- ------ $251,616 $4,273 -------- ------ -------- ------
Nonaccrual, past due, restructured, and other potential problem loans were less than two percent of total loans during 1993, 1992, 1991, 1990, and 1989. The aggregate amounts and the interest income foregone on such loans, therefore, are immaterial and are not disclosed. The following tables summarize activity in the allowance for loan losses and show the allocation of the allowance for loan losses by loan type: ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
YEAR ENDED DECEMBER 31, ------------------------------------------------- 1993 1992 1991 1990 1989 ------- ------- ------- ------ ------ (DOLLARS IN THOUSANDS) Balance at beginning of year.................... $20,751 $19,432 $ 1,954 $1,227 $ 195 Charge-offs: Real estate mortgages......................... (711) (1,818) (368) (162) (370) Commercial.................................... (9) -- -- -- -- Consumer and other............................ (1,819) (1,874) (1,625) (551) (131) ------- ------- ------- ------ ------ (2,539) (3,692) (1,993) (713) (501) Recoveries: Real estate mortgages......................... 205 200 39 -- 20 Consumer and other............................ 635 777 210 66 9 ------- ------- ------- ------ ------ 840 977 249 66 29 ------- ------- ------- ------ ------ Net charge-offs....................... (1,699) (2,715) (1,744) (647) (472) Additions charged to operations................. 4,830 2,615 2,278 1,374 1,504 Additions related to bulk purchases of loans.... 23,993 1,419 16,944 -- -- ------- ------- ------- ------ ------ Balance at end of year.......................... $47,875 $20,751 $19,432 $1,954 $1,227 ------- ------- ------- ------ ------ ------- ------- ------- ------ ------ Ratio of net charge-offs during the year to average loans outstanding during the year..... 0.10% 0.22% 0.15% 0.08% 0.06% ------- ------- ------- ------ ------ ------- ------- ------- ------ ------
11 13 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 --------------------- --------------------- --------------------- --------------------- --------------------- PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS --------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ---------- Real estate.... $24,468 67% $13,447 67% $13,179 60% $ 870 73% $ 467 87% Construction and development... 974 19% 468 16% 331 15% 317 6% 109 3% Commercial..... 14,728 2% 2,808 1% 670 4% 106 4% -- -- % Consumer and other........ 7,705 12% 4,028 16% 5,252 21% 661 17% 651 10% --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- $47,875 100% $20,751 100% $19,432 100% $ 1,954 100% $ 1,227 100% --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- -----
The amount charged to operations and the related balance in the allowance for loan losses are based on periodic evaluations of the loan portfolio by management. These evaluations consider several factors, including without limitation, past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and current economic conditions. Deposits. The average amount of deposits and the average rates paid on noninterest-bearing demand deposits, interest-bearing demand deposits, savings deposits, and time deposits are presented on the schedule of average balance sheets and analysis of net interest spread of Financial Services on page 8 hereof. The amount of time deposits of $100,000 or more and related maturities at December 31, 1993, are disclosed in Note G to Financial Services Financial Statements on page 42 of the Company's 1993 Annual Report. Return on Equity and Assets. The following table shows operating and capital ratios of Financial Services for each of the last three years: OPERATING AND CAPITAL RATIOS
YEAR ENDED DECEMBER 31, ---------------------------- 1993(1) 1992 1991 ------ ------ ------ Return on average assets........................................ 1.07% .68% .71% Return on average equity........................................ 19.73% 12.42% 15.99% Dividend payout ratio........................................... 41.56% 17.40% -- Equity to assets ratio.......................................... 5.43% 5.46% 4.46%
- --------------- (1) The 1993 ratios reflect the effect of an accounting change due to the adoption of Statement of Financial Accounting Standards No. 109 of approximately $52 million. Short-term borrowings. Short-term borrowings outstanding at the end of the reported period are presented on Schedule IX on page 31 hereof. Other Activities. A subsidiary of Temple-Inland FPC was engaged in commercial, industrial, and public works contracting as a prime contractor until its operations were terminated by the Company during 1993. A subsidiary that continues to operate constructs and maintains electrical distribution facilities for local utilities. Contracting operations are subject to wide variations in profitability, primarily because of the sensitivity of construction activity to general economic conditions. 12 14 RAW MATERIALS The Company's main resource is timber, with approximately 1.9 million acres of timberland located in Texas, Louisiana, Alabama, and Georgia. In 1993, these lands supplied wood fiber required for the Company's paper and wood products operations as shown on the following chart: WOOD FIBER REQUIREMENTS
PERCENTAGE SUPPLIED OPERATIONS RAW MATERIALS INTERNALLY ----------------------------------------------- ----------------------- ---------- Texas.......................................... Sawtimber 57% Pine Pulpwood 55% Hardwood Pulpwood 38% Wood Residues 45% Georgia........................................ Sawtimber 33% Pine Pulpwood 24% Hardwood Pulpwood 40% Wood Residues 28%
The balance of the wood fiber required for these operations was purchased from numerous landowners and other lumber companies. Linerboard and corrugating medium are the principal materials used by Inland to make corrugated boxes. The mills at Rome, Georgia, and Orange, Texas, are solely linerboard mills. The Ontario, California, and Maysville, Kentucky, mills are traditionally linerboard mills, but can be used to manufacture corrugating medium. The Newport, Indiana, Newark, California, and New Johnsonville, Tennessee, mills are solely corrugating medium mills. The principal raw material to the Rome, Georgia, and Orange, Texas, mills is virgin fiber; the Ontario, California, Newark, California, Newport, Indiana, and Maysville, Kentucky, mills use only recycled boxes; and the mill at New Johnsonville, Tennessee, uses a combination of virgin and recycled fiber. The Company's historical grade patterns produce more linerboard and less corrugating medium than is converted at the Company's box plants. The deficit of corrugating medium is obtained through open market purchases and/or trades and the excess linerboard is sold in the open-market. Temple-Inland FPC obtains the gypsum for its wallboard operations from its own quarry near Fletcher, Oklahoma, and from one outside source through a long-term purchase contract. In the opinion of management, the sources outlined above will be sufficient to supply the Company's raw material needs for the foreseeable future. ENERGY Energy requirements at the container and containerboard mills and plants are supplied by electricity, steam, and a variety of fuels, including natural gas, fuel oil, coal, and in some instances, waste products resulting from the manufacturing process at the facility concerned. At the mill in New Johnsonville, Tennessee, a boiler that generates all of the steam necessary to operate the mill burns wood refuse as its basic fuel. In 1993, wood refuse also provided 15% of the steam requirements of the Rome, Georgia, mill and the Orange, Texas, mills. Additionally, waste pulping liquor burned in chemical recovery boilers at these two mills provided approximately 51% of the steam requirements. The Ontario, California, mill includes a cogeneration plant that generated approximately 36 megawatts of electricity in 1993, 55% of which was used by the mill with the balance sold to an electric utility. The cogeneration plant also produces the steam requirements for the mill. In most cases where natural gas or fuel oil is used as a fuel, the box plants possess a dual capacity enabling them to use either of the fuels as a source of energy. All of the steam and electrical power for the Newport, Indiana, and Maysville, Kentucky, mills are provided by local power cooperatives located near these mills. 13 15 About 75% of the steam requirements of the bleached paperboard operation in Evadale, Texas, during 1993 was generated by chemical recovery boilers and wood refuse-fired boilers. The remaining steam came from natural gas fueled power boilers, the natural gas for which is acquired pursuant to multiple gas contracts extending through 1995. In 1993, the building products operation generated approximately 46% of its total energy needs through the use of bark and wood waste materials. Natural gas is purchased under multiple contracts that provide for the purchase of gas on an interruptible basis at favorable rates. EMPLOYEES At January 1, 1994, the Company and its subsidiaries had approximately 15,000 employees. Approximately 5,000 of these employees are covered by collective bargaining agreements. These agreements generally run for a term of two to five years and have varying expiration dates. The following table summarizes certain information about the collective bargaining agreements that cover a significant number of employees:
LOCATION BARGAINING UNIT(S) EMPLOYEES COVERED EXPIRATION DATE - --------------------------------- --------------------------------- --------------------------------- ---------------- Bleached Paperboard Mill, Evadale, Texas................... United Paperworkers International 493 Hourly Production Employees, August 1, 1998 Union ("UPIU"), Local 801, UPIU, 227 Hourly Mechanical Mainte- Local 825, and International nance Employees, and 57 Brotherhood of Electrical Workers Electrical Maintenance Employees ("IBEW"), Local 390 Linerboard Mill, Orange, Texas... UPIU, Local 1398, and UPIU, 224 Hourly Production Employees July 31, 1999 Local 391 and 108 Hourly Maintenance Employees Linerboard Mill, Rome, Georgia... UPIU, Local 804, IBEW, Local 613, 348 Hourly Production Employees, August 28, 1994 United Association of Journeymen 43 Electrical Maintenance & Apprentices of the Plumbing & Employees, 39 Hourly Maintenance Pipefitting Industry of the U.S. Employees, and 125 Hourly Mainte- and Canada, Local 766, and Inter- nance Employees national Association of Machinists & Aerospace Workers, Local 414 Evansville, Indiana, Louisville, Kentucky, Middletown, Ohio, and Erie, Pennsylvania, Box Plants ("Northern Multiple")............ UPIU, Local 1046, UPIU, Local 97 Hourly Production Employees, April 30, 1996 1737, UPIU, Local 114, and UPIU, 103 Hourly Production Local 954, respectively Employees, 97 Hourly Production Employees, and 82 Hourly Produc- tion Employees, respectively Rome, Georgia, Macon, Georgia, and Orlando, Florida, Box Plants ("Southern Multiple")............ UPIU Local 838, UPIU, Local 626, 152, 103, and 104 Hourly Produc- December 1, 1997 and UPIU Local 834, respectively tion Employees, respectively
In addition, the Company has collective bargaining agreements with the employees of various of its box plants and building products plants. These agreements each cover a relatively few number of employees and are negotiated on an individual basis at each such facility. The Company considers its relations with its employees to be good. ENVIRONMENTAL PROTECTION The operations conducted by the subsidiaries of the Company 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, primarily the Federal Clean Air Act, Clean Water Act, Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), and Resource Conservation and 14 16 Recovery Act ("RCRA"), has required the Company to invest substantial funds to modify facilities to assure compliance with applicable environmental regulations. Capital expenditures directly related to environmental compliance totaled approximately $5.2 million during 1993. This amount does not include capital expenditures for environmental control facilities made as part of major mill modernizations and expansions or capital expenditures made for another purpose that have an indirect benefit on environmental compliance. The Company is committed to protecting the health and welfare of its employees, the public, and our environment and strives to maintain compliance with all state and federal environmental regulations in a manner that is also cost effective. In recent modernization programs at some of its mills, most notably its mill at Evadale, Texas, the Company has used state of the art technology for its air and water emissions. These forward-looking programs minimize the impact that changing regulations have on capital expenditures for 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. The Company expects the trend toward more stringent environmental regulation to continue for the foreseeable future. The trend in interpretation and application of existing regulations by regulatory authorities also appears to be toward increasing stringency particularly under RCRA with respect to certain solid wastes generated at kraft mills. Given these uncertainties, the Company estimates that capital expenditures for environmental purposes during the period 1994 through 1996 will average $15 million each year. In addition, the Company will spend approximately $15 million in 1994 to further reduce air emissions from its mill in Ontario, California. The estimated expenditures could be significantly higher if more stringent laws and regulations are implemented. On December 17, 1993, the U.S. Environmental Protection Agency (the "EPA") published extensive proposed regulations governing air and water emissions from the pulp and paper industry (the "Cluster Rules"). The Company anticipates that these proposed regulations will change before becoming effective. Due to the uncertainty of the final form of the Cluster Rules, it is impossible to predict the exact capital expenditures necessary for compliance. Therefore, the estimated expenditures disclosed above do not include expenditures that may be mandated by the Cluster Rules. The EPA reportedly estimates that compliance with the Cluster Rules will require paper manufacturers to spend $4 billion for capital investments and $600 million in annual expenditures. The American Forest and Paper Association, an industry trade association (the "AFPA"), estimates the costs to the pulp and paper industry of complying with the Cluster Rules will exceed $10 billion, based on an industry-sponsored study by California-based SRI International. Based upon its interpretation of the Cluster Rules as currently proposed, the Company estimates that compliance with these rules could require modifications at several facilities. Some of these modifications can be included in modernization projects that will provide economic benefits to the Company. The extent of such benefits can increase these investments, but currently these expenditures are expected to range up to $200 million over the next five years. RCRA establishes a regulatory program for the treatment, storage, transportation, and disposal of hazardous wastes. Under RCRA, subsidiaries of the Company have prepared hazardous waste closure plans to address land disposal units containing hazardous wastes formerly managed at the Diboll, Texas, facility. These closure plans were approved by the regulatory authorities in 1986. One of these plans was certified as closed in 1991 and the other was closed during 1991, but is awaiting state certification. During 1991, subsidiaries of the Company submitted closure plans for two other facilities. The closure plan for one of these facilities, the linerboard mill at Orange, Texas, was approved by the Texas Water Commission, which is now part of the Texas Natural Resources Conservation Commission, in November 1992, and implementation is nearly complete. The Company is still awaiting state approval to proceed on the other site. The Company believes that the costs associated with these plans will not have a material impact on the earnings or competitive position of the Company. In addition to these capital expenditures, the Company incurs significant ongoing maintenance costs to maintain compliance with environmental regulation. The Company, however, does not believe that these capital expenditures or maintenance costs will have a material adverse effect on the earnings of the Company. 15 17 In addition, expenditures for environmental compliance should not have a material impact on the competitive position of the Company, because other companies are also subject to these regulations. COMPETITION All of the industries in which the Company operates are highly competitive. The level of competition in a given product or market may be affected by the strength of the dollar and other market factors including geographic location, general economic conditions, and the operating efficiencies of competitors. Factors influencing the Company's competitive position vary 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 1,500 box plants in the United States. Box plants operated by Inland and its subsidiaries accounted for 8.4% of total industry shipments during 1993. Although corrugated packaging is dominant in the national distribution process, Inland's products also compete with various other packaging materials, including products made of paper, plastics, wood, and metals. Paperboard produced by the Bleached Paperboard Group has a variety of ultimate uses and, therefore, serves diversified markets. The Company competes with larger paper producers with greater resources. In the building materials markets, the Building Products operations compete with many companies that are substantially larger and have greater resources in the manufacturing of commodity building materials. The Company's Financial Services operations compete with commercial banks, savings and loan associations, mortgage bankers, and other lenders in its mortgage banking and consumer savings bank activities, and with real estate investment and management companies in its development activities. Mortgage banking, real estate development, and consumer savings banks are highly competitive businesses, and a number of entities with which the Company competes have greater resources. EXECUTIVE OFFICERS Set forth below are the names, ages, and titles of the persons who serve as executive officers of the Company:
NAME AGE OFFICE - ---------------------------------- --- --------------------------------------------- Chairman of the Board and Chief Executive Clifford J. Grum.................. 59 Officer Robert F. Adelizzi................ 59 Group Vice President David L. Ashcraft................. 48 Group Vice President William B. Howes.................. 56 Group Vice President Harold C. Maxwell................. 53 Group Vice President Kenneth M. Jastrow II............. 46 Chief Financial Officer Vice President, General Counsel, and Roger D. Ericson.................. 59 Secretary David H. Dolben................... 58 Vice President and Chief Accounting Officer David W. Turpin................... 43 Treasurer
Clifford J. Grum became Chairman of the Board, Chief Executive Officer, and a Director of the Company in February 1991 after serving as President, Chief Executive Officer, and a Director since October 1983. He also serves as Chairman, President, and Chief Executive Officer of Temple-Inland FPC and as a Director of Inland and of Financial Services. Robert F. Adelizzi became Group Vice President of the Company in November 1991. Effective January 1, 1992, Mr. Adelizzi became the Chairman and Chief Executive Officer of Guaranty. Since 1990, he had served as the President and Chief Executive Officer of HomeFed Bank, a California thrift based in San Diego. From 1981 to 1990, Mr. Adelizzi served as the President and Chief Operating Officer of Home Federal Savings, the name of which was changed to HomeFed Bank in 1990. In July 1992, HomeFed Bank was declared insolvent by the Office of Thrift Supervision and the Resolution Trust Corporation was appointed as sole receiver. Prior to submitting his resignation in May 1991, Mr. Adelizzi also served as a director and 16 18 executive officer of HomeFed Corp., the holding company of HomeFed Bank, which filed for protection from creditors in federal bankruptcy court in October 1992. David L. Ashcraft became Group Vice President of the Company in May 1989. He has also served as Group Vice President -- Bleached Paperboard of Temple-Inland FPC since November 1982. William B. Howes became a Group Vice President of the Company and the Chairman of the Board and Chief Executive Officer of Inland in July 1993 after serving as the President and Chief Operating Officer of Inland since April 1992. From August 1990 until April 1992, Mr. Howes was the Executive Vice President of Inland. Before joining Inland in 1990, Mr. Howes was an employee of Union Camp Corporation for 28 years, serving most recently as Senior Vice President. Harold C. Maxwell became Group Vice President of the Company in May 1989. He has also served as Group Vice President -- Building Products of Temple-Inland FPC since November 1982. Kenneth M. Jastrow II became the Chief Financial Officer of the Company in November 1991. He also serves as Chairman of Temple-Inland Mortgage. In 1984, Mr. Jastrow formed Capitol Mortgage Bankers, which became a subsidiary of the Company through an acquisition in June 1991 and changed its name to Temple-Inland Mortgage Corporation during 1992. In March 1990, Security Financial Corporation, of which Mr. Jastrow was an executive officer, filed a voluntary petition under Chapter 11 of the Bankruptcy Code. Roger D. Ericson became General Counsel and Secretary of the Company in October 1983 and Vice President in May 1989. He also serves as Vice President, Secretary, and a Director of Inland and as a Director and Assistant Secretary of Temple-Inland FPC. David H. Dolben became Vice President of the Company in May 1987. Mr. Dolben also serves as Vice President and Treasurer of Temple-Inland FPC. David W. Turpin became Treasurer of the Company in June 1991. Since March 1993, Mr. Turpin has also served as Executive Vice President and Treasurer of Lumbermen's Investment Corporation, a real estate subsidiary of the Company, for which he served as Senior Vice President and Treasurer from January 1991 to March 1993. From June 1987 to December 1991, Mr. Turpin was Vice President and Senior Manager of Corporate Banking with The Sanwa Bank, Limited in Dallas, Texas. Officers are elected at the Company's Annual Meeting of Directors to serve until their successors have been elected and have qualified or as otherwise provided in the Company's Bylaws. ITEM 2. PROPERTIES The Company owns and operates plants, mills, and manufacturing facilities throughout the United States. The locations of the Company's properties are depicted on the maps included on page 21 of the Company's 1993 Annual Report to Shareholders, which are incorporated herein by reference. Additional descriptions as of year-end of selected properties are set forth in the following charts: CONTAINERBOARD MILLS
RATED NO. OF ANNUAL 1993 LOCATION PRODUCT MACHINES CAPACITY PRODUCTION - ----------------------------------------------- ----------- -------- -------- ---------- (IN TONS) Ontario, California............................ Linerboard 1 290,000 285,000 Rome, Georgia.................................. Linerboard 2 825,000 778,000 Orange, Texas.................................. Linerboard/ 2 600,000 584,000 Kraft Paper Maysville, Kentucky............................ Linerboard 1 260,000 247,000 Newark, California............................. Medium 2 70,000 69,000 Newport, Indiana............................... Medium 1 270,000 268,000 New Johnsonville, Tennessee.................... Medium 1 245,000 242,000
17 19 BLEACHED PAPERBOARD MILL
RATED NO. OF ANNUAL 1993 LOCATION PRODUCT MIX MACHINES CAPACITY PRODUCTION - -------------------------------- ------------------------ -------- -------- ---------- (IN TONS) Evadale, Texas.................. Bleached Pulp 15% 3 525,000* 85,600 Food Service 33% 184,600 Packaging 19% 107,600 Office Supplies 23% 131,600 Specialties 4% 20,800 Nodular Pulp 6% 33,800 ---- ------- 100% 564,000 =======
- --------------- * Such capacity may vary to some degree depending on product mix. A fourth machine at the mill is no longer operating due to market conditions for the paper grade it was designed to produce. The 1993 Product Mix and Production shown above include production from this machine since it was not shut-down until late in 1993. FOOD SERVICE CONVERTING PLANTS*
DATE LOCATION PLANT SIZE ACQUIRED - ------------------------------------------------------------------- ---------------- -------- (IN SQUARE FEET) Sacramento, California............................................. 88,000 1991 Carlisle, Ohio(1).................................................. 83,000 1991 El Cajon, California............................................... 120,000 1991 Denver, Colorado................................................... 50,000 1991
- --------------- * The annual capacity of the converting plants of Food Service is not given because such annual capacity is a function of the product mix, customer requirements, and the type of converting equipment installed and operating at each plant, all of which vary from time to time. (1) This facility is owned by the Company. The other converting plants are leased. Additionally, Food Service rents, from time to time, warehouse space near its converting plants primarily to store finished products awaiting shipment. 18 20 CORRUGATED CONTAINER PLANTS*
DATE CORRUGATOR ACQUIRED OR LOCATION SIZE CONSTRUCTED - ------------------------------------------------------------------ ---------- ----------- Fort Smith, Arkansas.............................................. 87" 1978 Bell, California.................................................. 97" 1972 Buena Park, California(1)......................................... 85" 1990 El Centro, California(1).......................................... 87" 1990 Newark, California................................................ 87" 1974 Ontario, California............................................... 87" 1985 Santa Fe Springs, California...................................... 87" 1972 Santa Fe Springs, California(1)**................................. 87" 1990 Santa Fe Springs, California***................................... None 1990 Tracy, California**............................................... 87" 1986 Wheat Ridge, Colorado............................................. 87" 1977 Orlando, Florida.................................................. 98" 1955 Macon, Georgia.................................................... 100" 1947 Rome, Georgia**................................................... 87" & 98" 1955 Chicago, Illinois................................................. 87" 1957 Crawfordsville, Indiana........................................... 98" 1971 Evansville, Indiana............................................... 98" 1958 Indianapolis, Indiana............................................. 87" 1990 Garden City, Kansas............................................... 96" 1981 Kansas City, Kansas............................................... 87" 1981 Louisville, Kentucky.............................................. 87" 1958 Minden, Louisiana................................................. 98" 1986 Minneapolis, Minnesota............................................ 87" 1986 Hattiesburg, Mississippi.......................................... 87" 1965 St. Louis, Missouri............................................... 87" 1963 Edison, New Jersey(1)............................................. 97" 1985 Spotswood, New Jersey............................................. 87" 1963 Middletown, Ohio.................................................. 98" 1930 Biglerville, Pennsylvania......................................... 98" 1955 Erie, Pennsylvania................................................ 85" 1952 Hazleton, Pennsylvania............................................ 98" 1976 Vega Alta, Puerto Rico............................................ 87" 1977 Lexington, South Carolina......................................... 80" 1980 Rock Hill, South Carolina......................................... 87" 1972 Elizabethton, Tennessee........................................... 98" 1982 Elizabethton, Tennessee(1)***..................................... None 1990 Dallas, Texas..................................................... 87" 1962 Edinburg, Texas................................................... 87" 1989 Petersburg, Virginia.............................................. 87" 1991
- --------------- * The annual capacity of Inland's box plants is not given because such annual capacity 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. ** The Santa Fe Springs, California (Crockett), Tracy, California and Rome, Georgia plants each contain two corrugators. *** Sheet plants. (1) Leased facilities. 19 21 The Company is currently constructing a box plant in Mexico. In January 1994, the Company announced that it intends to close the box plant in Edison, New Jersey. The closing of this plant is expected to be completed by June 30, 1994. BUILDING PRODUCTS
RATED ANNUAL DESCRIPTION LOCATION CAPACITY - ------------------------------------------------------ ------------------------ --------------- (IN MILLIONS OF BOARD FEET) Lumber................................................ Diboll, Texas 125 Lumber................................................ Pineland, Texas 80 Lumber................................................ Buna, Texas 145 Lumber................................................ Rome, Georgia 73 Lumber................................................ DeQuincy, Louisiana 125
RATED ANNUAL DESCRIPTION LOCATION CAPACITY - ------------------------------------------------------ ------------------------ --------------- (IN MILLIONS OF SQUARE FEET) Fiberboard............................................ Diboll, Texas 460 Particleboard......................................... Monroeville, Alabama 115 Particleboard......................................... Thomson, Georgia 110 Particleboard......................................... Diboll, Texas 110 Plywood............................................... Pineland, Texas 265 Gypsum Wallboard...................................... West Memphis, Arkansas 380 Gypsum Wallboard...................................... Fletcher, Oklahoma 400
The Company recently announced a new particleboard plant to be located in Hope, Arkansas. The plant is expected to be completed in the first quarter of 1996 and will produce 170 million square feet of particleboard annually. TIMBER AND TIMBERLANDS
TEXAS ALABAMA AND AND LOUISIANA GEORGIA* TOTAL --------- ---------- ---------- (IN ACRES) Pine Plantations....................................... 888,279 364,191 1,252,470 Natural Pine........................................... 286,980 57,978 344,958 Hardwood............................................... 130,112 83,990 214,102 Special Use............................................ 58,839 3,900 62,739 --------- ---------- ---------- TOTAL........................................ 1,364,210 510,059 1,874,269 -------- ---------- ---------- -------- ---------- ----------
- --------------- * Includes approximately 95,000 acres of leased land. Additionally, Inland owns a graphics resource center that has a 100" preprint press in Indianapolis, Indiana, and a tape manufacturing facility in Milwaukee, Wisconsin, and also leases 18 warehouses located throughout much of the United States. In the opinion of management, the Company's plants, mills, and manufacturing facilities are suitable for their purpose and adequate for the Company's business. 20 22 The Company owns certain of the office buildings in which various of its corporate offices are headquartered. This includes approximately 76,000 square feet of space in Diboll, Texas, and approximately 100,000 square feet in Indianapolis, Indiana. The Company also owns 336,000 mineral acres in Texas and Louisiana. Revenue from lease and production activities on these acres totaled $4.24 million in 1993. Additionally, the Company owns 395,830 mineral acres in Alabama and Georgia. There was no significant income from these minerals in 1993. Reference is made to the "Long-Term Debt" Note to the Financial Statements of the Company on page 35 of the Company's 1993 Annual Report to Shareholders for information concerning various mortgages and other encumbrances on the properties, which information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS: GENERAL: The Company's subsidiaries are involved in various legal proceedings that have arisen from time to time in the ordinary course of business. In the opinion of the Company's management, such proceedings will not be material in relation to the consolidated financial position of the Company and its subsidiaries. ENVIRONMENTAL: The facilities of the Company are periodically inspected by environmental authorities and must file periodic reports on the discharge of pollutants with these authorities. Occasionally, one or more of these facilities have operated in violation of applicable pollution control standards, which could subject the facilities to fines or penalties in the future. Management believes that any fines or penalties that may be imposed as a result of these violations will not have a material adverse effect on the Company's earnings or competitive position. The Company, however, has noticed an increase in the number and dollar amount of fines and penalties imposed by environmental authorities. No assurance can be given, therefore, that any fines levied against the Company in the future for any such violations will not be material. A cooperative study of the paper industry and the United States Environmental Protection Agency ("EPA") conducted in 1988 found trace amounts, in the parts per trillion level, of the chemical compound dioxin in some samples of paper mill sludge and bleach pulp. The Company and other participants in this study are cooperating with the EPA to determine the amounts and ways to reduce the levels of dioxin. During 1992, the Company completed modifications to its bleaching process that, based upon initial testing, have successfully reduced the dioxin in its wastewater emissions. The Company is a defendant in a lawsuit filed in Orange County, Texas, by approximately 250 plaintiffs in which unspecified actual and punitive damages are sought for alleged diminished property values and increased risk of cancer resulting from the discharge of dioxin into the river near the Company's plant at Evadale, Texas. The Company had been named as one of several defendants in two additional dioxin lawsuits filed in Harris County, Texas, and Brazoria County, Texas, involving numerous plaintiffs seeking unspecified damages. Both of these cases were settled during the fourth quarter of 1993 at only a nominal cost to the Company. The possible effects of human exposure to dioxin in such trace amounts is currently the subject of much debate. The Company believes, and scientific studies indicate, that human exposure to dioxin in the trace concentration found in the Company's treated wastewater does not represent a health risk to its employees or customers or to the public. For these and other reasons, the Company believes these suits are without merit and expects to prevail upon final resolution. If a judgment should be rendered against the Company in any of these lawsuits, depending on the dates of the alleged dioxin discharges and other matters, the Company's insurance carrier may contest coverage based on pollution exclusions contained in many of the Company's insurance policies. A subsidiary of the Company is involved in a regulatory enforcement action concerning the management of solid wastes at its facility in Orange, Texas. This proceeding is representative of a trend the Company has observed toward more stringent application of RCRA regulations to solid wastes generated at kraft mills. Also, a subsidiary's facility in Rome, Georgia, experienced a significant upset in its wastewater treatment process in July 1993. This upset caused the Georgia environmental agency to order a temporary cessation of production. 21 23 The Company's subsidiary has resolved its potential liability to the State of Georgia by paying a $100,000 monetary penalty and agreeing to perform certain work, but remains exposed to potential claims of the U.S. EPA and private citizens. Management believes, however, that these matters will not result in liability to an extent that would have a material adverse effect on the Company's financial position. 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. Subsidiaries of the Company are parties to numerous proceedings relating to the cleanup of hazardous waste sites under CERCLA and similar state laws. The subsidiaries have conducted investigations of the sites and in certain instances believe that there is no basis for liability and have so informed the governmental entities. The internal investigations of the remaining sites reveal that the portion of the remediation costs for these sites to be allocated to the Company should be relatively small and will have no material impact on the Company. There can be no assurance that subsidiaries of the Company will not be named as potentially responsible parties at additional Superfund sites in the future or that the costs associated with the remediation of those sites would not be material. In addition, while the Company has an FSLIC indemnification covering pre-existing environmental matters in connection with the Covered Assets acquired by Guaranty from the FSLIC and in the acquisition of AFB, the normal activities of a consumer savings bank or a mortgage banker can result in environmental liability claims. All litigation has an element of uncertainty and the final outcome of any legal proceeding cannot be predicted with any degree of certainty. With these limitations in mind, the Company presently believes that any ultimate liability from the legal proceedings discussed herein would not have a material adverse effect on the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: The Company did not submit any matter to a vote of its shareholders during the fourth quarter of its last fiscal year. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS: MARKET INFORMATION: The information concerning market prices of the Company's Common Stock required by this item is incorporated by reference from page 30 of the Company's 1993 Annual Report to Shareholders furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). SHAREHOLDERS: The Company's stock transfer records indicated that as of March 8, 1994, there were approximately 8,545 holders of record of the Common Stock. DIVIDEND POLICY: On February 4, 1994, the Board of Directors declared a quarterly dividend on the Common Stock of $.25 per share payable on March 15, 1994, to shareholders of record on March 1, 1994. During fiscal 1992, the Company paid a quarterly dividend of $.24 per share. The quarterly dividend was increased to $.25 per share during fiscal 1993. The Board will review its dividend policy periodically, and the declaration of dividends will necessarily depend upon earnings and financial requirements of the Company and other factors within the discretion of its Board of Directors. 22 24 ITEM 6. SELECTED FINANCIAL DATA: The information required by this item is incorporated by reference from page 30 of the Company's 1993 Annual Report to Shareholders furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: The information required by this item is incorporated by reference from pages 23 through 29 of the Company's 1993 Annual Report to Shareholders furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: The financial statements of the Company and its subsidiaries required to be included in this Item 8 are set forth in Item 14 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: The Company has had no changes in or disagreements with its independent auditors to report under this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: The information required by this item is incorporated herein by reference from pages 5 through 8 of the Company's definitive proxy statement, involving the election of directors, to be filed pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K (the "Definitive Proxy Statement"). Information required by this item concerning executive officers is included in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION: The information required by this item is incorporated by reference from pages 10 through 17 of the Company's Definitive Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: The information required by this item is incorporated by reference from pages 2 through 4 of the Company's Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The information required by this item is incorporated by reference from page 8 of the Company's Definitive Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) Documents Filed as Part of Report. 23 25 1. FINANCIAL STATEMENTS:
PAGE ITEM NUMBER ---------------------------------------------------------------------------- ------ Temple-Inland and Subsidiaries Report of Independent Auditors*........................................... 53 Consolidated Statements of Income -- three years ended January 1, 1994*... 44 Consolidated Balance Sheets -- January 1, 1994, and January 2, 1993*...... 46-47 Consolidated Statements of Shareholder's Equity -- three years ended January 1, 1994*....................................................... 48 Consolidated Statements of Cash Flows -- three years ended January 1, 1994*.................................................................. 45 Notes to Consolidated Financial Statements*............................... 49-52
- --------------- * Incorporated herein by reference from the Company's Annual Report to Shareholders for the fiscal year ended January 1, 1994, and filed for purposes of those portions so incorporated as Exhibit 13. Page numbers refer to page numbers in the Company's 1993 Annual Report to Shareholders. 2. FINANCIAL STATEMENT SCHEDULES: The following Financial Statement Schedules of the Company required by Regulation S-X and excluded from the Annual Report to Shareholders for the year ended January 1, 1994, are filed herewith at the page indicated.
PAGE ITEM NUMBER - ------------------ ------ Temple-Inland Inc. and Subsidiaries Schedule I -- Marketable Securities -- Other Investments............. 29 Schedule VIII -- Valuation and Qualifying Accounts...................... 30 Schedule IX -- Short-Term Borrowings.................................. 31 Schedule X -- Supplementary Income Statement Information............. 32
With respect to Schedule II, the Company extends housing loans to employees who are transferred at the Company's request. These loans are not reported, as the Company considers the loans to be in the ordinary course of business. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are inapplicable and, therefore, have been omitted. 3. EXHIBITS:
EXHIBIT NUMBER EXHIBIT - --------------------------------------------------------------------------------------------- 3.01 -- Certificate of Incorporation of the Company(1), as amended effective May 4, 1987(2), as amended effective May 4, 1990(3) 3.02 -- By-laws of the Company as amended and restated May 3, 1991(19) 4.01 -- Form of Specimen Common Stock Certificate of the Company(4) 4.02 -- Indenture dated as of September 1, 1986, between the Registrant and Chemical Bank, as Trustee(5), as amended by First Supplemental Indenture dated as of April 15, 1988, as amended by Second Supplemental Indenture dated as of December 27, 1990(13), and as amended by Third Supplemental Indenture dated as of May 9, 1991(14) 4.03 -- Form of Specimen Medium-Term Note of the Company(5) 4.04 -- Form of Fixed-rate Medium Term Note, Series B, of the Company(13) 4.05 -- Form of Floating-rate Medium Term Note, Series B, of the Company(13) 4.06 -- Form of 9% Note due May 1, 2001, of the Company(16) 4.07 -- Form of Fixed-rate Medium Term Note, Series D, of the Company(15)
24 26
EXHIBIT NUMBER EXHIBIT - --------------------------------------------------------------------------------------------- 4.08 -- Form of Floating-rate Medium Term Note, Series D, of the Company(15) 4.09 -- Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, dated February 16, 1989(6) 4.10 -- Rights Agreement, dated February 3, 1989, between the Company and NCNB Texas National Bank, Dallas, Texas, as Rights Agent(7) 4.11 -- Form of 7.25% Note due September 15, 2004, of the Company(17) 4.12 -- Form of 8.25% Debenture due September 15, 2022, of the Company(17) 10.01* -- 1983 Stock Option Plan for Key Employees of Temple Inland Inc. and its Subsidiaries(1), as amended(2) 10.02* -- Form of Incentive Option Agreement under the 1983 Stock Option Plan(8) 10.03* -- Form of Nonqualified Option Agreement under the 1983 Stock Option Plan(8) 10.04* -- 1988 Stock Option Plan for Key Employees and Directors of Temple-Inland Inc. and its Subsidiaries(9) 10.05* -- Form of Incentive Option Agreement under the 1988 Stock Option Plan(9) 10.06* -- Form of Nonqualified Option Agreement under the 1988 Stock Option Plan(9) 10.07* -- Temple-Inland Inc. Incentive Stock Plan(1), as amended May 6, 1988(10), as amended February 7, 1992(19) 10.08* -- Form of Incentive Shares Agreement(11) 10.09* -- 1988 Performance Unit Plan for Key Employees of Temple-Inland Inc. and its Subsidiaries(10), as amended February 4, 1994(21) 10.10* -- Form of Performance Unit Rights Agreement under the Performance Unit Plan(6) 10.11 -- Assistance Agreement dated September 30, 1988, among the Federal Savings and Loan Insurance Corporation; Guaranty Federal Savings Bank, Dallas, Texas; Guaranty Holdings Inc. I; Guaranty Holdings Inc. II; Temple-Inland Inc.; Mason Best Company; and Trammell Crow Ventures 3, Ltd.(12) 10.12* -- Temple-Inland Inc. 1993 Stock Option Plan(18) 10.13* -- Temple-Inland Inc. 1993 Restricted Stock Plan(18) 10.14* -- Temple-Inland Inc. 1993 Performance Unit Plan(18), as amended February 4, 1994(21) 10.15 -- Stock Purchase Agreement and Agreement and Plan of Reorganization by and among Guaranty, Guaranty Holdings Inc. I ("GHI"), Lone Star Technologies, Inc. ("LST"), and LSST Financial Services Corporation ("LSST Financial"), dated as of February 16, 1993(20) 10.16 -- First Amendment to Stock Purchase agreement and Agreement and Plan of Reorganization by and among Guaranty, GHI, LST and LSST Financial, dated as of April 2, 1993(20) 10.17 -- Second Amendment to Stock Purchase Agreement and Agreement and Plan of Reorganization by and among Guaranty, GHI, LST and LSST Financial, dated as of August 31, 1993(20) 10.18 -- Third Amendment to Stock Purchase Agreement and Agreement and Plan of Reorganization by and among Guaranty, GHI, LST and LSST Financial, dated as of September 30, 1993(20) 10.19 -- Holdback Escrow Agreement by and among LST, Guaranty, and Bank One, Texas, N.A. dated as of November 12, 1993(20)
25 27
EXHIBIT NUMBER EXHIBIT - --------------------------------------------------------------------------------------------- 11 -- Statement re: Computation of Per Share Earnings for the three years ended January 1, 1994(21) 13 -- Annual Report to Shareholders for the year ended January 1, 1994. Such Report is not deemed to be filed with the Commission as part of this Annual Report on Form 10-K, except for the portions thereof expressly incorporated by reference. 21 -- Subsidiaries of the Company(21) 23 -- Consent of Ernst & Young(21)
- --------------- * Management contract or compensatory plan or arrangement. (1) Incorporated by reference to Registration Statement No. 2-87570 on Form S-1 filed by the Company with the Commission. (2) Incorporated by reference to Post-effective Amendment No. 2 to Registration Statement No. 2-88202 on Form S-1 filed by the Company with the Commission. (3) Incorporated by reference to Post-Effective Amendment No. 1 to Registration Statement No. 33-25650 on Form S-8 filed by the Company with the Commission. (4) Incorporated by reference to Registration Statement No. 33-27286 on Form S-8 filed by the Company with the Commission. (5) Incorporated by reference to Registration Statement No. 33-8362 on Form S-1 filed by the Company with the Commission. (6) Incorporated by reference to the Company's Form 10-K for the year ended December 31, 1988. (7) Incorporated by reference to the Company's Form 8-K filed with the Commission on February 16, 1989. (8) Incorporated by reference to the Company's Form 10-K for the year ended December 31, 1984. (9) Incorporated by reference to Registration Statement No. 33-23132 on Form S-8 filed by the Company with the Commission. (10) Incorporated by reference to the Company's Definitive Proxy Statement filed with the Commission on March 18, 1988. (11) Incorporated by reference to the Company's Form 10-K for the year ended December 31, 1983. (12) Incorporated by reference to the Company's Form 8-K filed with the Commission on October 14, 1988. (13) Incorporated by reference to the Company's Form 8-K filed with the Commission on December 27, 1990. (14) Incorporated by reference to Registration Statement No. 33-40003 on Form S-3 filed by the Company with the Commission. (15) Incorporated by reference to Registration Statement No. 33-43978 on Form S-3 filed by the Company with the Commission. (16) Incorporated by reference to the Company's Form 8-K filed with the Commission on May 2, 1991. (17) Incorporated by reference to Registration Statement No. 33-50880 on Form S-3 filed by the Company with the Commission. (18) Incorporated by reference to the Company's Definitive Proxy Statement in connection with the Annual Meeting of Shareholders to be held May 6, 1994, and filed with the Commission on March 21, 1994. (19) Incorporated by reference to the Company's Form 10-K for the year ended January 2, 1993. 26 28 (20) Incorporated by reference to the Company's Form 8-K filed with the Commission on November 24, 1993. (21) Filed herewith. (b) Reports on Form 8-K. On November 24, 1993, the Company filed a report on Form 8-K reporting its acquisition of AFB. On January 28, 1994, the Company filed a Form 8-K/A amending this Form 8-K to include the required financial statements and pro forma financial information. 27 29 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 authorized, on March 18, 1994. TEMPLE-INLAND INC. (Registrant) By: /s/ CLIFFORD J. GRUM Clifford J. Grum, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE - ----------------------------------------------- ----------------------------- --------------- /s/ CLIFFORD J. GRUM Director, Chairman of the March 18, 1994 Clifford J. Grum Board, and Chief Executive Officer /s/ KENNETH M. JASTROW II Chief Financial Officer March 18, 1994 Kenneth M. Jastrow II /s/ DAVID H. DOLBEN Vice President and Chief March 18, 1994 David H. Dolben Accounting Officer /s/ ROBERT CIZIK Director March 18, 1994 Robert Cizik /s/ ANTHONY M. FRANK Director March 18, 1994 Anthony M. Frank /s/ BOBBY R. INMAN Director March 18, 1994 Bobby R. Inman /s/ HERBERT A. SKLENAR Director March 18, 1994 Herbert A Sklenar /s/ WALTER P. STERN Director March 18, 1994 Walter P. Stern /s/ ARTHUR TEMPLE III Director March 18, 1994 Arthur Temple III /s/ LARRY E. TEMPLE Director March 18, 1994 Larry E. Temple /s/ PAUL M. ANDERSON Director March 18, 1994 Paul M. Anderson /s/ CHARLOTTE TEMPLE Director March 18, 1994 Charlotte Temple
28 30 SCHEDULE I TEMPLE-INLAND INC. AND SUBSIDIARIES MARKETABLE SECURITIES -- OTHER INVESTMENTS DECEMBER 31, 1993 (IN THOUSANDS)
AMOUNT AT WHICH EACH NUMBER OF SHARES MARKET PORTFOLIO OF EQUITY OR UNITS -- VALUE SECURITY ISSUES AND PRINCIPAL AMOUNTS OF EACH ISSUE EACH OTHER SECURITY NAME OF ISSUER AND OF BONDS AND COST OF AT BALANCE ISSUE CARRIED IN TITLE OF EACH ISSUE NOTES EACH ISSUE SHEET DATE THE BALANCE SHEET - --------------------------------- ----------------- ----------------- ----------------- -------------------- MORTGAGE BACKED SECURITIES: FNMA certificates.............. $2,293,297 $ 2,346,959 $ 2,331,181 $2,346,959 FHLMC certificates............. 388,513 397,814 394,593 397,814 GNMA certificates.............. 6,232 6,076 6,420 6,076 Collateralized mortgage obligations................. 531,066 539,255 533,643 539,255 Private issuer pass- through securities.......... 1,035,374 1,046,122 1,038,643 1,046,122 ----------------- ----------------- -------------------- Total mortgage-backed securities.................. 4,336,226 4,304,480 4,336,226 ----------------- ----------------- -------------------- DEBT SECURITIES: Corporate securities........... 1,208 1,175 1,245 1,175 United States government and government agencies and authorities............. 825 805 805 805 Other.......................... 100 82 82 82 ----------------- ----------------- -------------------- Total debt securities.......... 2,062 2,132 2,062 ----------------- ----------------- -------------------- EQUITY SECURITIES: Federal Home Loan Bank stock....................... 688,730sh 68,873 68,873 68,873 Other.......................... 20,139sh 140 585 97 ----------------- ----------------- -------------------- Total equity securities........ 69,013 69,458 68,970 ----------------- ----------------- -------------------- Total investments...... $ 4,407,301 $ 4,376,070 $4,407,258 ----------------- ----------------- -------------------- ----------------- ----------------- --------------------
29 31 SCHEDULE VIII TEMPLE-INLAND INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTIONS -- AT END PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD ------------ ---------- ----------- ------------- --------- Year ended January 1, 1994: Deducted from accounts receivable: Allowance for doubtful accounts.................. $ 5,795 $ 2,658 $ -- $ 1,024(A) $ 7,429 Reserve for discounts and allowances................ 656 2,457 4,695(B) 6,851(C) 957 Allowance for loan losses and unrealized losses on mortgage loans held for sale...................... 22,874 4,990 23,993(D) 2,350 49,507 ------------ ---------- ----------- ------------- --------- Totals................. $ 29,325 $ 10,105 $28,688 $10,225 $ 57,893 ------------ ---------- ----------- ------------- --------- ------------ ---------- ----------- ------------- --------- Year ended January 2, 1993: Deducted from accounts receivable: Allowance for doubtful accounts.................. $ 5,545 $ 679 $ 788 $ 1,217(A) $ 5,795 Reserve for discounts and allowances................ 644 -- 6,890(B) 6,878(C) 656 Allowance for loan losses and unrealized losses on mortgage loans held for sale...................... 24,773 3,615 1,419 6,933 22,874 ------------ ---------- ----------- ------------- --------- Totals................. $ 30,962 $ 4,294 $ 9,097 $15,028 $ 29,325 ------------ ---------- ----------- ------------- --------- ------------ ---------- ----------- ------------- --------- Year ended December 28, 1991: Deduction from accounts receivable: Allowance for doubtful accounts.................. $ 5,354 $ 3,810 $ 275 $ 3,894(A) $ 5,545 Reserve for discounts and allowances................ 594 -- 7,110(B) 7,060(C) 644 Allowance for loan losses and unrealized losses on mortgage loans held for sale...................... 5,137 6,364 17,909 4,637 24,773 ------------ ---------- ----------- ------------- --------- Totals................. $ 11,085 $ 10,174 $25,294 $15,591 $ 30,962 ------------ ---------- ----------- ------------- --------- ------------ ---------- ----------- ------------- ---------
- --------------- (A) Uncollectible accounts written off, net of recoveries. (B) Reduction of revenues for customer discounts. (C) Customer discounts taken. (D) Additions related to bulk purchases of loans. 30 32 SCHEDULE IX TEMPLE-INLAND INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS (IN THOUSANDS)
WEIGHTED MAXIMUM AMOUNT AVERAGE AMOUNT AVERAGE CATEGORY OF BALANCE AT WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE SHORT-TERM END OF AVERAGE DURING THE DURING THE DURING THE BORROWINGS PERIOD INTEREST RATE PERIOD PERIOD PERIOD - ------------------------------ ---------- ------------- -------------- -------------- ------------- 1993: Federal Home Loan Bank...... $ -- --% $ 300 $ 1,458 3.6% Other Banks................. 24,134 --% 31,144 8,343 --% Securities sold under agreements to repurchase............... 1,570,680 3.3% 2,437,191 2,734,216 3.2% ---------- -------------- -------------- Total............... $1,594,814 3.3% $2,468,635 $2,744,017 3.2% ---------- -------------- -------------- ---------- -------------- -------------- 1992: Federal Home Loan Bank...... $ 300 4.2% $ 300 $ 300 5.4% Other Banks................. 25,810 --% 36,566 10,417 6.3% Securities sold under agreements to repurchase............... 1,459,498 3.5% 1,571,406 972,500 3.7% ---------- -------------- -------------- Total............... $1,485,608 3.4% $1,608,272 $ 983,217 3.7% ---------- -------------- -------------- ---------- -------------- -------------- 1991: Federal Home Loan Bank...... $ 300 6.6% $ 450,000 $ 85,099 7.1% Other Banks................. 50,320 6.5% 89,947 36,811 7.3% Securities sold under agreements to repurchase............... 150,312 5.4% 209,544 91,848 5.6% Other....................... 1,259 7.7% 1,587 36,624 7.3% ---------- -------------- -------------- Total............... $ 202,191 5.7% $ 751,078 $ 250,382 6.6% ---------- -------------- -------------- ---------- -------------- --------------
NOTE: Federal Home Loan Bank advances generally mature within 90 days. Securities sold under agreements to repurchase generally mature within one to thirty days of the transaction date. Average borrowings during the year were calculated based on daily average for Temple-Inland Financial Services, and on amounts outstanding at month-end for other subsidiaries. The weighted average interest rate during the year was computed by dividing actual interest expense in each year by average short-term borrowings in such year. 31 33 SCHEDULE X TEMPLE-INLAND INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION YEARS ENDED JANUARY 1, 1994, JANUARY 2, 1993, AND DECEMBER 28, 1991
CHARGED TO COSTS AND EXPENSES ---------------------------------- 1993 1992 1991 -------- -------- -------- (IN THOUSANDS) Maintenance and repairs.................................... $170,746 $168,296 $140,933 Taxes, other than payroll and income taxes................. 42,622 39,348 35,406
- --------------- NOTE: Amounts for royalties, advertising, depreciation and amortization of intangibles are not presented as such amounts are less than 1% of revenues. 32 EX-10.09 2 1988 PERFORMANCE UNIT PLAN AS AMENDED 2/4/94 1 EXHIBIT 10.09 FIRST AMENDMENT TO THE 1988 PERFORMANCE UNIT PLAN FOR KEY EMPLOYEES OF TEMPLE-INLAND INC. AND ITS SUBSIDIARIES WHEREAS, Temple-Inland Inc. (the "Company") maintains the 1988 Performance Unit Plan for Key Employees of Temple-Inland Inc. and Its Subsidiaries (the "Plan"); and WHEREAS, paragraph 12 of the Plan authorizes the Board of Directors (the "Board") of the Company to amend the Plan at any time in such respects as it deems advisable; and WHEREAS, the Board has determined that it is desirable to amend the Plan in response to certain recent tax law changes; NOW, THEREFORE, the Plan is hereby amended to add the following sentence to the end of paragraph 6(b) and to the end of paragraph 6(c)(ii): In no event shall any such modification or amendment increase the amount otherwise payable to a Participant. Adopted February 4, 1994 EX-10.14 3 1993 PERFORMANCE UNIT PLAN AS AMENDED 2/4/94 1 EXHIBIT 10.14 FIRST AMENDMENT TO THE TEMPLE-INLAND INC. 1993 PERFORMANCE UNIT PLAN WHEREAS, Temple-Inland Inc. (the "Company") maintains the Temple-Inland Inc. 1993 Performance Unit Plan (the "Plan"); and WHEREAS, paragraph 11 of the Plan authorizes the Board of Directors (the "Board") of the Company to amend the Plan at any time in such respects as it deems advisable; and WHEREAS, the Board has determined that it is desirable to amend the Plan in response to certain recent tax law changes; NOW, THEREFORE, the Plan is hereby amended to add the following sentence to the end of paragraph 6(b) and after the fifth sentence contained in paragraph 6(c)(ii): In no event shall any such modification or amendment increase the amount otherwise payable to a Participant. Adopted February 4, 1994 EX-11 4 COMPUTATION OF PER SHARE EARNINGS... 1 EXHIBIT (11) TEMPLE-INLAND INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
YEAR ENDED ----------------------------------------- JANUARY 1, JANUARY 2, DECEMBER 28, 1994 1993 1991 ---------- ---------- ------------ Primary Average common shares outstanding......................... 55,337 55,136 54,811 Net effect of dilutive stock options based on treasury stock method using average market price................. 191 399 437 ---------- ---------- ------------ Weighted average shares outstanding............. 55,528 55,535 55,248 ---------- ---------- ------------ ---------- ---------- ------------ Net income: Income before accounting changes........................ $ 67,350 $ 146,910 $138,418 Cumulative effect of accounting changes................. 50,000 -- -- ---------- ---------- ------------ Net income.............................................. $ 117,350 $ 146,910 $138,418 ---------- ---------- ------------ ---------- ---------- ------------ Earnings per share: Before accounting changes............................... $ 1.21 $ 2.65 $ 2.51 Effect of accounting changes............................ .90 -- -- ---------- ---------- ------------ Earnings per share...................................... $ 2.11 $ 2.65 $ 2.51 ---------- ---------- ------------ ---------- ---------- ------------ Fully Diluted Average common shares outstanding......................... 55,337 55,136 54,811 Net effect of dilutive stock options based on treasury stock method using the closing market price, if higher than average market price............................... 239 407 546 ---------- ---------- ------------ Weighted average shares outstanding............. 55,576 55,543 55,357 ---------- ---------- ------------ ---------- ---------- ------------ Net income: Income before accounting changes........................ $ 67,350 $ 146,910 $138,418 Cumulative effect of accounting changes................. 50,000 -- -- ---------- ---------- ------------ Net income.............................................. $ 117,350 $ 146,910 $138,418 ---------- ---------- ------------ ---------- ---------- ------------ Earnings per share: Before accounting changes............................... $ 1.21 $ 2.64 $ 2.50 Effect of accounting changes............................ .90 -- -- ---------- ---------- ------------ Earnings per share...................................... $ 2.11 $ 2.64 $ 2.50 ---------- ---------- ------------ ---------- ---------- ------------
EX-13 5 ANNUAL REPORT TO SHAREHOLDERS... 1 EXHIBIT 13 CORPORATE SUBSIDIARIES' {MAP} HEADQUARTERS HEADQUARTERS TEMPLE-INLAND FOREST Diboll, Texas INLAND CONTAINER PRODUCTS CORPORATION CORPORATION Diboll, Texas Indianapolis, Indiana TEMPLE-INLAND FINANCIAL SERVICES INC. Dallas, Texas BUILDING PRODUCTS {MAP} FIBERBOARD OPERATION GYPSUM OPERATIONS PLYWOOD OPERATION Diboll, Texas West Memphis, Arkansas Pineland, Texas Fletcher, Oklahoma PARTICLEBOARD OPERATIONS RETAIL DISTRIBUTION Diboll, Texas LUMBER OPERATIONS OPERATIONS Monroeville, Alabama Rome, Georgia Diboll, Texas Thomson, Georgia DeQuincy, Louisiana Pineland, Texas Diboll, Texas Conroe, Texas Pineland, Texas Houston, Texas Buna, Texas Alexandria, Louisiana BLEACHED CONTAINERBOARD MILLS PAPERBOARD MILL LINERBOARD CORRUGATING MEDIUM {MAP} Evadale, Texas Ontario, California Newark, California Rome, Georgia Newport, Indiana Maysville, Kentucky New Johnsonville, Tennessee Orange, Texas PACKAGING Vega Alta, Puerto Rico CORRUGATED CONTAINER Evansville, Indiana Lexington, South Carolina {MAP} PLANTS Indianapolis, Indiana Rock Hill, South Carolina Fort Smith, Arkansas Garden City, Kansas Elizabethton, Tennessee (2) Buena Park, California Kansas City, Kansas Dallas, Texas El Centro, California Louisville, Kentucky Edinburg, Texas Los Angeles, California Minden, Louisiana Petersburg, Virginia Newark, California Minneapolis, Minnesota TAPE MANUFACTURING Ontario, California Hattiesburg, Mississippi OPERATION Sante Fe Springs, California (3) St. Louis, Missouri Milwaukee, Wisconsin Tracy, California Edison, New Jersey FOOD SERVICE CONVERTING Denver, Colorado Spotswood, New Jersey OPERATIONS Orlando, Florida Middletown, Ohio Yuma, Arizona Macon, Georgia Biglerville, Pennsylvania El Cajon, California Rome, Georgia Erie, Pennsylvania Sacramento, California Chicago, Illinois Hazleton, Pennsylvania Denver, Colorado Crawfordsville, Indiana Carlisle, Ohio FINANCIAL SERVICES {MAP} CONSUMER BANKING REGIONS MORTGAGE BANKING OPERATIONS Dallas and Adjacent Cities Arizona New York Austin and Adjacent Cities California North Carolina Houston and Adjacent Cities Colorado Oklahoma East Texas Florida Pennsylvania Georgia South Carolina Illinois Tennessee Indiana Texas Maryland Virginia Michigan Washington Minnesota Wisconson New Jersey
T E M P L E - I N L A N D 21 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
Business Segments For the year 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 - ------------ -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (in millions) REVENUES Container and containerboard $1,248.5 $1,254.4 $1,148.6 $1,144.2 $1,138.4 $1,093.1 $ 962.2 $ 721.7 $ 684.2 $ 665.3 Bleached 2 paperboard 318.5 352.6 370.6 373.0 368.3 336.0 292.5 264.9 256.7 284.5 Building products 475.3 391.3 311.1 305.3 320.3 312.2 322.8 281.5 268.0 295.3 Other activities 58.4 77.1 67.9 70.0 67.2 32.2 23.2 27.7 34.2 17.8 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Manufacturing net sales 2,100.7 2,075.4 1,898.2 1,892.5 1,894.2 1,773.5 1,602.7 1,295.8 1,243.1 1,262.9 Financial services(1) 635.1 637.8 608.9 508.6 49.4 40.9 39.4 47.2 39.2 36.3 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total Revenues $2,735.8 $2,713.2 $2,507.1 $2,401.1 $1,943.6 $1,814.4 $1,642.1 $1,343.0 $1,282.3 $1,299.2 ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== INCOME BEFORE TAXES Container and containerboard $ 21.0 $ 112.3 $ 75.4 $ 150.9 $ 208.4 $ 221.3 $ 150.8 $ 38.8 $ 49.7 $ 74.8 Bleached paperboard (12.1) 23.3 79.9 98.8 114.9 82.7 53.4 29.4 19.8 46.8 Building products 99.1 39.5 5.2 9.4 23.7 24.6 36.5 35.9 22.5 40.9 Other activities (1.9) (2.0) 1.1 (1.7) (.7) 1.2 - (5.8) 2.5 (3.2) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Operating profit 106.1 173.1 161.6 257.4 346.3 329.8 240.7 98.3 94.5 159.3 Financial services(1) 67.5 64.4 54.2 51.4 (2.1) .4 5.3 12.9 18.3 13.4 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- 173.6 237.5 215.8 308.8 344.2 330.2 246.0 111.2 112.8 172.7 Corporate expense (11.2) (15.3) (16.0) (20.7) (12.9) (19.9) (11.7) (13.1) (8.1) (11.9) Parent company interest--net (69.0) (47.4) (31.8) (24.0) (24.4) (23.1) (20.3) (13.0) 1.2 (4.6) Other income(2)(3) 2.8 2.2 (1.2) 4.7 5.0 16.3 5.5 23.4 20.3 8.7 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Income before taxes and accounting changes $ 96.2 $ 177.0 $ 166.8 $ 268.8 $ 311.9 $ 303.5 $ 219.5 $ 108.5 $ 126.2 $ 164.9 ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
PERFORMANCE GRAPH Comparison of five-year cumulative total return* During the five preceding fiscal yars, the Company's cummulative total share- holder return compared to the Standard & Poor's {GRAPH} 500 Stock Index and to the Standard & Poor's Paper Industry Index was as shown in the following table. Assumes $100 invested on December 31, 1988. *Total return reinvestment of dividends.
(1) Includes operating results from the consolidation of Guaranty Federal Bank, F.S.B., beginning January 1, 1990. (2) Income net of federal income taxes from life insurance operations discontinued in 1990, included in other income, was $15.3 million in 1986 and amounts were immaterial in other years. (3) The 1991 amount includes losses of $7.4 million from the write-off of an investment interest in a gypsum-fiberboard venture. The 1988 amount includes gains of $12.4 million on the disposition of lands and $5.0 million on the sale of the AFCO Industries subsidiary. The 1985 amount includes an $11.3 million gain on the sale of the Eastex Packaging subsidiary. 23 3 CONTAINER AND CONTAINERBOARD The Container and Containerboard group manufactures linerboard and corrugating medium at seven paper mills and converts these grades of containerboard into corrugated shipping containers at 39 box plants. The group earned $21.0 million in 1993, down 81 percent from the $112.3 million in 1992. This decline resulted from depressed box and board prices and increased box plant costs. Earnings had improved $36.9 million in 1992 because of moderate box price improvement, increased volume and lower costs at several of the group's recently modernized mills. Mill production totaled 2.5 million tons in 1993, an increase of 8 percent from the previous year. This production increase came primarily from the Maysville, Kentucky mill which had a fourth quarter 1992 startup. During the last half of 1993, the Company took unscheduled downtime at all of its mills in order to bring inventories to targeted levels. A total of 57,000 tons was taken out of production. Production of containerboard exceeded internal box plant usage by 376,000 tons in 1993, 243,000 tons in 1992 and 218,000 tons in 1991. Most of the excess production was sold in the domestic and export markets. Construction of the $176 million recycle linerboard mill in Maysville was completed during the fourth quarter of 1992. This new mill has the capacity to annually produce 260,000 tons of linerboard and corrugating medium using old corrugated containers as a raw material. Similar to the Newport, Indiana mill, it is located adjacent to a utility power plant. A long-term contract with the utility assures the mill a source of reasonably priced steam. The $40 million expansion of the Ontario, California recycle linerboard mill was completed in the second quarter of 1992. This expansion increased production by about one-third -- to 290,000 tons annually. Also in 1992, the $38 million project to produce mottled white and white top linerboard at the Orange, Texas mill was completed. As a result of this project, the Orange mill has the capability of replacing 200,000 tons per year of ordinary brown linerboard production with higher value white top linerboard, and in the process utilizing 70,000 tons of the Evadale, Texas mill's excess bleached pulp.
1993 1992 1991 ---- ---- ---- TONS MILL PRODUCTION 2,473,000 2,287,000 2,103,000
The Company's 39 box plants are located throughout the United States and in Puerto Rico. They manufacture a wide range of boxes from the simplest brown box to intricate die cut containers which can be printed with many colors and attractive graphics. Average prices of boxes can be significantly impacted by variations in production mix at the box plants. Tons of boxes sold increased by 2 percent in 1993 after having increased by 8 percent in 1992. The table below shows the container and containerboard sales in tons and dollars. The totals presented include not only boxes sold but also open market, domestic and export sales of linerboard and related products. Changes in product mix from period to period may make historical comparisons difficult.
CONTAINER & CONTAINERBOARD 1993 1992 1991 - -------------- ---- ---- ---- (in thousands of tons) UNIT SALES 1st Qtr 598 539 523 2nd Qtr 606 573 536 3rd Qtr 593 579 532 4th Qtr 597 603 506 -------- -------- -------- For the year 2,394 2,294 2,097 ======== ======== ======== NET SALES (in millions) 1st Qtr $ 318.5 $ 296.1 $ 289.7 2nd Qtr 319.6 319.0 290.1 3rd Qtr 307.8 315.6 285.3 4th Qtr 302.6 323.7 283.5 -------- -------- -------- For the year $1,248.5 $1,254.4 $1,148.6 ======== ======== ========
BLEACHED PAPERBOARD The Bleached Paperboard group produces bleached paperboard at its mill located in Evadale, Texas. This production is sold to manufacturers who convert the product into paper cups, plates, file folders, folding cartons, paperback book covers and a variety of other paperboard products. This group recorded a loss of $12.1 million in 1993, down 152 percent compared to 1992. This is the first loss since operations began in 1954 and is attributed to weak global markets for bleached paperboard and an oversupplied domestic market caused by increased industry capacity. Price decreases for market pulp led to the decision during the fourth quarter to eliminate market pulp from the product mix. An extended outage taken in October 1993 on a coated fourdrinier machine to rebuild the table stock furnish system and install a new size press further decreased earnings. Earnings had decreased 71 percent in 1992, resulting primarily from price decreases for market pulp and other board grades, an unfavorable product mix and an extended maintenance outage in June 1992. During 1993, hardwood fiber production improved with the new pulping and bleaching line placed in production in late 1992. By the third quarter, the new fiberline was producing a brighter, stronger, more consistent hardwood fiber with lower chemical, energy and wood consumption. Temple-Inland Food Service Corporation ("Food Service") is an integrated paper converter that manufactures and markets paper containers and products for the food service industry. This operation has converting plants in Carlisle, Ohio, Sacramento and El Cajon, California, and Denver, Colorado. During the fourth quarter, the Yuma, Arizona plant was closed and some of the manufacturing equipment was relocated to the El Cajon and Denver plants. Products manufactured include paper plates and bowls, clamshells, carrying trays and boxes, nested food trays, fry cartons, dispensers and pails, and are sold to the fast food industry, retail consumer stores and to restaurants and cafeterias. Food Service enhances the Bleached Paperboard group's ability to manufacture and market paper products for the food service industry. 24 4 Mill production in 1993 was 564,000 tons compared to 569,000 tons in 1992 and 586,000 tons in 1991. The decline in production was due primarily to the exit from the pulp market and the planned maintenance outage. The table below lists the quarterly sales by product in tonnage and dollars. Changes in product mix from period to period may make historical comparisons difficult.
BLEACHED PAPERBOARD 1993 1992 1991 - ------------------- ---- ---- ---- (in thousands of tons) UNIT SALES Paperboard 1st Qtr 116 109 120 2nd Qtr 109 97 116 3rd Qtr 103 101 107 4th Qtr 98 107 104 ------ ------ ------ For the year 426 414 447 ====== ====== ====== Pulp 1st Qtr 38 40 33 2nd Qtr 41 35 33 3rd Qtr 33 40 23 4th Qtr 22 40 33 ------ ------ ------ For the year 134 155 122 ====== ====== ====== NET SALES (in millions) Paperboard 1st Qtr $ 68.9 $ 66.5 $ 81.3 2nd Qtr 64.9 65.2 78.5 3rd Qtr 58.5 65.0 73.3 4th Qtr 54.5 66.9 68.8 ------ ------ ------ For the year $246.8 $263.6 $301.9 ====== ====== ====== Pulp 1st Qtr $ 10.3 $ 12.9 $ 13.4 2nd Qtr 10.3 10.2 12.0 3rd Qtr 7.9 12.7 8.5 4th Qtr 5.1 11.8 11.0 ------ ------ ------ For the year $ 33.6 $ 47.6 $ 44.9 ====== ====== ====== Other (including Food Service beginning in 1991) 1st Qtr $ 9.6 $ 12.1 $ 1.5 2nd Qtr 11.7 10.4 4.8 3rd Qtr 9.2 8.9 9.7 4th Qtr 7.6 10.0 7.8 ------ ------ ------ For the year $ 38.1 $ 41.4 $ 23.8 ====== ====== ======
BUILDING PRODUCTS The Building Products group manufactures a diversified line of construction and commercial grade building materials including lumber, plywood, fiber products, particleboard and gypsum wallboard. These products are produced at ten locations in Texas, Louisiana, Oklahoma, Arkansas, Alabama and Georgia. Four retail locations, which account for 13 percent of group net sales in 1993, market building materials to contractors and retail customers with approximately 16 percent of their revenues derived from sales of Company manufactured products. Record earnings of $99.1 million were achieved by the group in 1993, an increase of $59.6 million, or two and one-half times the $39.5 million reported in 1992. Much of the gain was experienced within the group's wood-based operations as markets responded to increasing demand exacerbated by the continued decline in West Coast timber supplies. As the year progressed, job markets improved and relatively low mortgage interest rates prompted an increasing number of buyers to make loan commitments. Housing starts for the year of approximately 1.28 million units were up almost 6 percent over 1992 and 25 percent over 1991, and by mid-fourth quarter stood at a pace of 17 percent above the year- earlier fourth period. The following table provides information on sales volume and unit sales for each business unit.
BUILDING PRODUCTS 1993 1992 1991 - ----------------- ---- ---- ---- (in millions of board feet) UNIT SALES Pine lumber 484 467 395 (in millions of square feet) Fiber products 400 464 443 Particleboard 319 326 321 Plywood 265 250 253 Gypsum wallboard 782 621 601 NET SALES (in millions) Pine lumber $153.8 $120.9 $ 87.6 Fiber products 62.9 55.8 48.2 Particleboard 81.3 70.5 60.7 Plywood 54.0 45.2 36.9 Gypsum wallboard 53.3 36.6 33.1 Retail distribution 60.0 53.5 42.2 Other 10.0 8.8 2.4 ------ ------ ------ For the year $475.3 $391.3 $311.1 ====== ====== ======
The group's sawmills continued to benefit from earlier investments in new technology and equipment with unit sales gaining 4 percent and 18 percent in 1993 and 1992, respectively. With increasing domestic demand, prices moved to much higher levels for the year-over-year comparisons, and by year-end several products had surpassed peak first-quarter levels. With the declining western resource, market share continues to shift to southern producers. Early in 1993 a new "finger-jointing" operation began production, providing the recovery of premium- grade lumber from trim waste and lower-grade products. Also during the third quarter, new equipment was added at one operation which improves lumber yields from small, crooked logs. Plywood unit sales increased 6 percent over 1992, and demand for specialty products, a significant portion of production, remained firm. As with lumber, demand for commodity structural grade panels also advanced year-over-year but not at the same pace due to the growing market share of competitive oriented-strand board produced in the southeast. Exports of plywood have steadily increased and represented 37 percent of all shipments in 1993. An additional press and a state-of-the-art lay-up line were completed in early 1992. The mill had 265 million square feet of production in 1993, which was the design capacity. By-product wood chips produced by the lumber and plywood operations are shipped to the Company's two east Texas paper mills, representing about 25 percent of their pine fiber requirements. Chips supplied to the fiber products operation from lumber manufacturing represent over half of its fiber needs. The strong demand for hardboard siding products continued well into the fourth quarter of 1993 when the market began to correct for the growing availability of competitive products. Insulation products, representing about 42 percent of fiber 25 5 products shipments, were also active as housing starts increased and commercial roofing markets gained strength. These positive market forces resulted in record earnings for this business unit. A $3.5 million capital project was completed which will significantly increase the capacity of TrimCraft, a line of engineered lumber substitute products, which has gained market acceptance as prices of traditional solid wood continue to rise. Particleboard is produced primarily from dry by-products of lumber manufacturing and is shipped principally to fabricators of kitchen cabinets and ready-to-assemble furniture. During 1993, prices continued a quarter-to-quarter gain as demand levels outpaced supply, resulting in record earnings for the particleboard operations. Shipments in 1993 reflect a slight downturn in comparison to 1992 as one operation increased its 1993 product mix to include higher-margin items which have a slower production rate. Because of the continued growth projected for southern particleboard, the Board of Directors approved the construction of a $62 million particleboard facility to be located in Hope, Arkansas. Scheduled for completion in early 1996, the plant will be the Company's largest unit, adding 170 million square feet to capacity. Gypsum wallboard markets strengthened through 1993, and both plants operated at capacity after the first quarter. Shipments increased 26 percent over 1992, and earnings were at the highest levels since 1987. Margins were further enhanced by an increasing complement of specialty items in the product mix. TEMPLE-INLAND FINANCIAL SERVICES The Company's Financial Services operations include a savings bank, mortgage banking, real estate development and insurance. The following selected financial information is provided to offer a detailed description of these operations.
TEMPLE-INLAND FINANCIAL SERVICES SELECTED SEGMENT INFORMATION Years ended December 31 1993 1992 1991 - ----------------------- ---- ---- ---- (in thousands) INCOME Savings bank $ 45,158 $ 44,857 $ 41,283 Mortgage banking 19,962 20,915 11,880 Real estate (1,537) (7,630) (2,362) Insurance 3,967 6,244 3,375 ---------- ---------- ---------- Income before taxes and accounting change 67,550 64,386 54,176 Taxes on income 18,838 10,946 9,210 ---------- ---------- ---------- Income before accounting change 48,712 53,440 44,966 Cumulative effect of accounting change 52,344 -- -- ---------- ---------- ---------- Net income $ 101,056 $ 53,440 $ 44,966 ========== ========== ========== ASSETS Savings bank $8,799,557 $7,629,699 $7,253,562 Mortgage banking 131,827 113,670 212,094 Real estate 224,689 245,799 232,115 Insurance 30,994 19,182 16,620 Other activities 13,941 13,944 476 Eliminations (67,755) (44,289) (190,331) ---------- ---------- ---------- Total assets $9,133,253 $7,978,005 $7,524,536 ========== ========== ========== LIABILITIES Savings bank $8,415,256 $7,315,850 $6,948,191 Mortgage banking 97,232 82,480 194,121 Real estate 125,771 149,400 140,736 Insurance 27,070 17,499 14,057 Other activities 24,003 4,445 9,282 Eliminations (67,755) (44,289) (190,331) ---------- ---------- ---------- Total liabilities $8,621,577 $7,525,385 $7,116,056 ========== ========== ========== EQUITY Savings bank $ 384,301 $ 313,849 $ 305,371 Mortgage banking 34,595 31,190 17,973 Real estate 98,918 96,399 91,379 Insurance 3,924 1,683 2,563 Other activities (10,062) 9,499 (8,806) ---------- ---------- ---------- Total equity $ 511,676 $ 452,620 $ 408,480 ========== ========== ==========
SAVINGS BANK The Company's Savings Bank, Guaranty Federal Bank, F.S.B., conducts its business through 124 banking centers located primarily in the eastern third of Texas, including Houston, Dallas, San Antonio and Austin. The primary business of the Savings Bank is to attract savings deposits from the public to invest in loans secured by mortgages on residential and other real estate or mortgage-backed securities. 26 6 Presented below is selected financial information for the Savings Bank:
SAVINGS BANK SUMMARIZED FINANCIAL STATEMENT INFORMATION Years ended December 31 1993 1992 1991 - ----------------------- ---- ---- ---- (in thousands) INCOME AND EXPENSES Net interest income $ 135,393 $ 136,548 $ 120,392 Noninterest income 19,461 22,339 17,243 Noninterest expense 104,866 111,415 94,332 Income before taxes and accounting change 45,158 44,857 41,283 AVERAGE BALANCE SHEET Total earning assets 8,720,719 7,238,708 5,662,526 Mortgage-backed and investment securities 4,978,017 4,958,737 2,422,641 Loans receivable and mortgage loans held for sale 2,116,420 1,467,545 1,205,118 Securities purchased under resell agreements 1,175,959 251,726 409,249 Covered assets 405,723 479,410 1,103,978 Receivables from FSLIC 5,200 71,940 579,610 Deposits 5,838,342 6,128,005 5,419,496 FHLB advances and other borrowings 2,726,943 997,881 248,496 KEY RATIOS Yield on earning assets 5.32% 6.72% 8.75% Cost of funds 3.83% 4.91% 6.62% Net spread 1.49% 1.81% 2.13%
Net interest income for 1993 decreased $1.2 million from 1992. Although average earning assets increased $1.5 billion during 1993, the Savings Bank's net interest spread decreased 32 basis points, attributable to two factors: (1) a shortening of the maturities of the investment portfolio in anticipation of the acquisition of American Federal Bank, F.S.B. ("AFB") and (2) spread compression of mortgage-backed securities indexed to the Federal Home Loan Bank 11th District cost of funds ("COFI"). During 1993, COFI decreased 72 basis points while the Savings Bank's cost of funds decreased only 51 basis points. Net interest income for 1992 increased $16.2 million from 1991 which was attributable to a rise in the average balance of interest earning assets. In general, however, the declining interest rate environment during 1992 reduced asset yields and liability costs. Because the Savings Bank's net asset yields declined faster than its cost of funds, the Savings Bank's interest rate spread decreased 32 basis points in 1992. Lower yields in 1992 resulted from the effect of declining market rates on repricing of adjustable rate assets and from paydown of higher-yielding assets. The Savings Bank's noninterest income is composed primarily of service charges on deposits. Noninterest income in 1992 includes a $5.1 million gain recognized from the sale of substantially all its fixed-rate mortgage-backed securities. This sale was undertaken to allow the Savings Bank to reduce its interest rate risk exposure and more effectively match the maturities of its assets and liabilities. With the decline in interest rates, the Savings Bank has experienced decreases in deposits as customers transfer funds to other investment vehicles in search of higher returns. The Savings Bank has maintained funding sources by assuming deposits through acquisitions and by utilizing other borrowings, principally securities sold under agreements to repurchase. When the Company acquired Guaranty in 1988, $2.8 billion (almost 70 percent) of Guaranty's assets were composed of assets subject to yield assistance and loss coverage and certain notes and other receivables. Including assisted assets acquired from AFB, Covered Assets at December 31, 1993 total $664 million, or 7.5 percent of the Savings Bank's total assets. Note F on page 41 contains additional information regarding assistance activity. ACQUISITIONS In November 1993, the Savings Bank purchased all of the outstanding stock of AFB for $155.7 million. AFB was a federal savings bank headquartered in Dallas, Texas with 30 banking centers in north and east Texas. To achieve operating economies, six of these banking centers were closed December 31, 1993, and the deposits were transferred to existing banking centers. Assets of AFB at acquisition totaled approximately $1.3 billion, principally $750 million in loans and $400 million in covered assets. In connection with the acquisition, a $20 million escrow was established as recourse available to the Savings Bank for certain post-closing claims it may have against the seller. See Note B on page 39 for additional information. On August 20, 1993, the Savings Bank signed a definitive agreement to acquire certain assets and assume certain liabilities of First Federal Savings Bank of San Antonio ("First Federal") for approximately $42 million, subject to final adjustment. First Federal is a federal savings bank with ten banking centers in central Texas. Assets to be acquired are estimated to total $400 million and will consist primarily of loans and short-term investments. The transaction, subject to the approval of regulatory authorities, is expected to close in the second quarter of 1994. LIQUIDITY AND CAPITAL The Savings Bank is required by the Office of Thrift Supervision ("OTS") to maintain average daily balances of liquid assets and short-term liquid assets in amounts equal to 5 percent and 1 percent, respectively, of net withdrawable deposits and short-term borrowings. The Savings Bank's average daily liquidity ratio for December 1993 was 7.5 percent. The primary sources of funds for the Savings Bank are customer deposits, Federal Home Loan Bank advances, securities sold under repurchase agreements and principal repayments of mortgage-backed securities and loans. The Savings Bank uses its funding sources to support current loan demand, to fund deposit withdrawals, to repay borrowings and to maintain its liquidity. OTS regulations require savings institutions to maintain certain minimum levels of capital. The Savings Bank's regulatory capital exceeded all applicable capital requirements at December 31,1993. Note M on page 43 contains additional information concerning capital requirements, including capital ratios of the Savings Bank. 27 7 MORTGAGE BANKING Mortgage banking activity is conducted through Temple-Inland Mortgage Corporation, a full-service mortgage banker. The Company arranges financing of single-family mortgage loans, sells the loans into the secondary market (primarily FNMA, FHLMC and GNMA securities) and services the loans after the sale. Mortgage loan originations for 1993 were $4.8 billion compared with $3.5 billion and $1.4 billion in 1992 and 1991, respectively. Mortgage loan originations are generated through a national network of 61 offices in 21 states. In 1993, production operations were expanded to new markets in the midwest and southeast and the mortgage loan servicing portfolio grew by 17 percent to a record high of $9.1 billion. A summary of selected financial information for the years 1993, 1992 and 1991 is provided below.
MORTGAGE BANKING OPERATIONS SUMMARY Years ended December 31 1993 1992 1991 - ----------------------- ---- ---- ---- (dollars in millions) Revenues $ 104 $ 82 $ 51 Income before taxes 20 21 12 Portfolio roll-forward: Beginning servicing $ 7,746 $ 6,477 $ 3,270 Acquisition of CMB, Inc. -- -- 2,047 New loans added, net of servicing released 3,302 2,516 1,677 Runoff (1,981) (1,247) (517) ------- -------- -------- Ending servicing $ 9,067 $ 7,746 $ 6,477 Portfolio growth rate 17.0% 19.6% 35.5% Runoff factor 25.6% 19.3% 10.6% Ending number of loans serviced 144,700 138,400 130,000
REAL ESTATE GROUP Real estate operations conducted by Lumbermen's Investment Corporation include development of residential subdivisions as well as management and sale of income properties. Land development projects include nine residential subdivisions in Austin, San Antonio and Dallas, Texas. At year end, land development inventory included 765 residential lots (680 under contract) and 4,561 acres of land. Lot sales for 1993 were 526 as compared to 487 in 1992 and 356 in 1991. Real estate activity has increased in the Company's primary markets. The Company owns 20 commercial properties including two hotels, eight office buildings, three retail centers and seven parcels of commercial land. Selected financial information related to these activities is shown below.
REAL ESTATE GROUP OPERATIONS SUMMARY Years ended December 31 1993 1992 1991 - ----------------------- ---- ---- ---- (in thousands) REVENUES: Residential $ 8,056 $ 5,555 $ 4,197 Commercial 18,279 15,890 15,220 Interest and other 7,868 10,274 10,376 ------- ------- ------- Subtotal 34,203 31,719 29,793 Sale of office building -- -- 4,741 ------- ------- ------- $34,203 $31,719 $34,534 ======= ======= ======= INCOME (LOSS) BEFORE TAXES: Residential $(3,553) $(8,927) $(8,885) Commercial 1,120 (722) 128 Interest and other 896 2,019 1,654 ------- ------- ------- Subtotal (1,537) (7,630) (7,103) Sale of office building -- -- 4,741 ------- ------- ------- $(1,537) $(7,630) $(2,362) ======= ======= =======
Shown below is the real estate group's pro rata share of the assets, liabilities and equity of joint ventures in which it is a partner.
REAL ESTATE GROUP INVESTMENT IN JOINT VENTURES Years ended December 31 1993 1992 1991 - ----------------------- ---- ---- ---- (in thousands) Assets $18,565 $31,737 $56,327 Liabilities (a) 17,512 32,808 53,127 Equity 1,053 (1,071) 3,200
(a) Although the Company's pro rata share of joint venture notes payable totals $15.0 million, the joint venture partners are in most instances jointly and severally liable for notes payable. The gross balance of these notes was $33.6 million at December 31, 1993. Where a venture partner is jointly and severally liable for notes payable, the partner also has rights against the other partners' interest in joint venture assets if payments above the normal partnership percentage are required. 28 8 INSURANCE Timberline Insurance Agency, one of the largest insurance agencies in Texas, operates as a general agency providing a full range of insurance products including automobile, homeowners, business insurance, annuities, and life and health products. Timberline currently has offices in Austin, Baytown, Beaumont, El Paso and San Antonio, Texas. A summary of revenues and income before taxes for the years 1993, 1992 and 1991 is shown below.
INSURANCE OPERATIONS SUMMARY ears ended December 31 1993 1992 1991 - ---------------------- ---- ---- ---- (in thousands) Revenues $21,052 $21,826 $14,499 Income before taxes $ 3,967 $ 6,244 $ 3,375
ENVIRONMENTAL MATTERS The Company is committed to protecting the health and welfare of its employees, the public, and our environment and strives to maintain compliance with all state and federal environmental regulations in a cost effective manner. In recent modernization programs at some of its mills, most notably its mill at Evadale, Texas, the Company has used state-of-the-art technology for its air and water emissions. These forward-looking programs minimize the impact that changing regulations have on capital expenditures for environmental compliance. Future expenditures for environmental control facilities will depend on changing laws and regulations and technological advances. Given these uncertainties, the Company estimates that capital expenditures for environmental purposes during the period 1994 through 1996 will average $15 million each year. In addition, the Company will spend approximately $15 million in 1994 to further reduce air emissions from its mill in Ontario, California. On December 17, 1993, the U.S. Environmental Protection Agency ("EPA") published extensive proposed regulations governing air and water emissions from the pulp and paper industry ("Cluster Rules"). The Company anticipates that these proposed regulations will change before becoming effective. Due to the uncertainty of the final form of the Cluster Rules, it is impossible to predict the exact capital expenditures necessary for compliance. Therefore, the estimated expenditures disclosed above do not include expenditures that may be mandated by the Cluster Rules. Based upon its interpretation of the Cluster Rules as currently proposed, the Company estimates that compliance could require modifications at several facilities. Some of these modifications can be included in modernization projects that will have economic benefits to the Company. The extent of such benefits can increase these investments, but currently these expenditures are expected to range up to $200 million over the next five years. CAPITAL RESOURCES AND LIQUIDITY 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. A summary of capital expenditures is shown below.
1993 1992 1991 ---- ---- ---- (in millions) CAPITAL EXPENDITURES Container and containerboard $ 87.5 $214.9 $238.2 Bleached paperboard 200.5 87.9 103.4 Building products 26.1 16.1 15.3 Timber and timberlands 22.5 36.5 19.0 Other activities 3.7 3.3 2.4 ------ ------ ------ Total manufacturing group $340.3 $358.7 $378.3 ====== ====== ======
Capital expenditures of approximately $490 million are projected for 1994. Commitments on construction projects totaled $244 million at the end of 1993. Net interest expense incurred by the Parent Company is shown below.
1993 1992 1991 ---- ---- ---- (in thousands) PARENT COMPANY INTEREST--NET Interest expense $ 81,912 $ 72,255 $ 55,532 Interest income (446) (575) (6,482) Capitalized interest (12,510) (24,320) (17,223) -------- -------- -------- Interest expense--net $ 68,956 $ 47,360 $ 31,827 ======== ======== ========
Interest expense increased in 1993 and 1992 due to the higher levels of debt outstanding, a decrease in the amount of capitalized interest and the conversion of certain debt to longer-term maturities. Parent Company interest paid during 1993, 1992 and 1991 was $80.9 million, $66.3 million and $51.5 million, respectively. 29 9 SELECTED FINANCIAL DATA
For The Year 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 - ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (in millions, except per share data) Total revenues (1) $ 2,736 $ 2,713 $ 2,507 $2,401 $1,943 $1,814 $1,642 $1,343 $1,282 $1,299 Manufacturing net sales 2,101 2,075 1,898 1,892 1,894 1,774 1,603 1,296 1,243 1,263 Net income (1) (2) 117 147 138 232 207 199 141 81 85 103 Capital expenditures: Manufacturing 340 359 378 324 260 219 139 103 184 130 Financial services 14 11 9 4 9 4 1 1 - - Depreciation and depletion: Manufacturing 191 167 158 140 126 112 94 79 66 63 Financial services 6 5 4 5 2 2 1 1 1 1 Earnings per share (1) (2) 2.11 2.65 2.51 4.20 3.75 3.58 2.34 1.32 1.40 1.69 Dividends per common share 1.00 .96 .88 .80 .58 .42 .35 .29 .26 .20 Average shares outstanding 55.5 55.5 55.2 55.4 55.3 55.7 60.3 61.1 60.8 60.6 Common shares outstanding at year end 55.5 55.2 54.9 54.6 54.9 55.2 55.3 60.7 60.5 60.3 AT YEAR END Total assets (3) $11,959 $10,766 $10,068 $7,834 $6,390 $2,247 $2,020 $1,894 $1,594 $1,510 Long-term debt: Parent company 1,045 964 864 501 399 417 416 366 248 251 Financial services 76 99 76 94 30 25 30 25 14 13 Ratio of total debt to total capitalization--parent company 39% 38% 37% 28% 24% 29% 31% 28% 23% 24% Shareholders' equity 1,700 1,633 1,532 1,439 1,259 1,096 927 929 864 793 ------- ------- ------- ------- ------- ------- ------ ------ ------ ------
COMMON STOCK PRICES AND DIVIDEND INFORMATION
Price Range Price Range --------------- --------------- High Low Dividends High Low Dividends ---- --- --------- ---- --- --------- First Quarter $52 1/2 $45 3/4 $ .25 $57 1/2 $49 1/8 $.24 Second Quarter 47 1/8 41 3/8 .25 55 1/2 45 .24 Third Quarter 45 3/4 40 1/2 .25 50 7/8 45 .24 Fourth Quarter 51 1/4 37 1/4 .25 54 1/4 43 7/8 .24 Year 52 1/2 37 1/4 1.00 57 1/2 43 7/8 .96
(1) Includes operating results from consolidation of Guaranty Federal Bank, F.S.B., beginning January 1, 1990. (2) 1993 includes $50 million or $.90 per share from cumulative effect of accounting changes. (3) Includes Savings Bank assets from consolidation of Guaranty Federal Bank, F.S.B., beginning January 1, 1990. 30 10 NOTES TO THE PARENT COMPANY (TEMPLE-INLAND INC.) SUMMARIZED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Parent Company's (Temple-Inland Inc.) summarized financial statements include the accounts of Temple -Inland Inc. (the "Company") and its manufacturing subsidiaries. The Financial Services group, including a savings bank, mortgage banking and real estate development operations, are reflected in the financial statements on the equity basis. Refer to pages 36 through 43 for the Temple-Inland Financial Services summarized financial statements. All material intercompany amounts and transactions have been eliminated. These financial statements should be read in conjunction with the Temple-Inland Inc. consolidated financial statements. INVENTORIES Inventories are stated at the lower of cost or market. Cost of inventories amounting to $86.2 million in 1993 and $91.2 million in 1992 was determined by the last-in, first-out method (LIFO). The cost of the remaining inventories of $171.9 million in 1993 and $157.0 million in 1992 was determined principally by the first-in, first-out method (FIFO). If the FIFO method of accounting had been applied to those inventories which were costed on the LIFO method, inventories would have been $9.0 and $10.7 million higher than reported at year end 1993 and 1992, respec tively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less allowances for accumulated depreciation and depletion. Depreciation is generally provided on the straight-line method based on estimated useful lives as follows: Classification Estimated Useful Lives - -------------- ---------------------- Buildings 15 to 40 years Machinery and equipment: Manufacturing and production equipment 3 to 20 years Automobiles and aircraft 3 to 10 years Office and other equipment 3 to 10 years Certain properties are being depreciated based on operating hours because they depreciate primarily through use rather than merely through elapsed time. Timberlands, including long-term timber harvesting rights, are stated at cost, less accumulated cost of timber harvested. The portion of the cost of timberlands attributed to standing timber is charged against income as timber is cut at rates determined annually, based on the relationship of unamortized timber costs to the estimated volume of recoverable timber. The costs of seedlings and reforestation of timberlands are capitalized. NOTE B - LONG-TERM DEBT Long-term debt consists of the following:
1993 1992 ---- ---- (in thousands) Bank Loans--Weighted average interest rate was 3.24% in 1993 $ 19,000 $ -- Commercial Paper--Weighted average interest rate was 3.16% and 3.24% during 1993 and 1992, respectively 52,500 6,500 8.375% Notes Payable due 1996 70,000 70,000 8.73% to 9.0% Notes Payable due 1996 to 1998 200,000 200,000 9.0% Notes Payable due 2001 200,000 200,000 8.125% to 8.38% Notes Payable due 2006 100,000 100,000 7.25% Notes Payable due 2004 100,000 100,000 8.25% Debentures due 2022 150,000 150,000 Revenue Bonds due 2014--Average interest rate was 2.19% and 2.73% during 1993 and 1992, respectively 34,500 34,500 8% Revenue Bonds due through 2009 11,665 11,665 Other Revenue Bonds due through 2028, weighted average interest rate of 2.61% and 3.10% as of year end 1993 and 1992, respectively 95,289 76,440 Other indebtedness due through 2000, weighted average interest rate of 10.24% and 9.87% as of year end 1993 and 1992, respectively 11,821 15,216 ---------- -------- $1,044,775 $964,321
At January 1, 1994, $52.5 million in commercial paper and $19.0 million in bank loans were outstanding. These borrowings are supported by multi-year revolving credit agreements with banks and, accordingly, are classified as long-term debt. The credit agreements are for a total of $500 million with final maturities as of January 1996, and are available for general corporate use. At year end 1993, property and equipment of approximately $44.9 million were subject to liens in connection with $61.2 million of debt. Based on the Company's incremental borrowing rate for loans, notes and debentures with similar terms and maturities, the fair value of long-term debt is $1.2 billion on January 1, 1994. Aggregate maturities of the Parent Company's long-term debt during the next five years are as follows (in millions): 1994-$3.3; 1995-$11.4; 1996-$237.2; 1997-$5.7; and 1998-$90.8. For an analysis of net interest expense, see page 29. 35 11 Covered Assets managed under both the Guaranty and AFB assistance agreements are summarized as follows:
At year end 1993 1992 - ----------- ---- ---- (in thousands) Loans $421,660 $267,475 Investments in real estate 221,292 72,761 Advances to and investments in subsidiaries 15,120 48,342 Other assets 6,185 5,299 -------- -------- $664,257 $393,877 ======== ========
NOTE G - DEPOSITS Deposits consist of the following:
At year end 1993 1992 - ----------- ---- ---- Rate Amount Rate Amount ---- ------ ---- ------- (dollars in thousands) Noninterest bearing demand --% $ 224,965 --% $ 169,896 Interest bearing demand 2.42% 1,518,860 2.77% 1,276,336 Savings deposits 2.50% 224,764 3.00% 194,269 Time deposits 4.91% 4,377,691 5.33% 3,999,835 ---- ---------- ---- ---------- 6,346,280 5,640,336 Deposit premium 16,023 4,074 ---------- ---------- $6,362,303 $5,644,410 ========== ==========
Scheduled maturities of time deposits outstanding at December 31, 1993, are as follows:
Time deposits $100,000 Less than in amounts of: or more $100,000 Total - -------------- ------- -------- ----- (in thousands) 3 months or less $ 91,444 $ 757,821 $ 849,265 Over 3 through 6 months 79,723 642,964 722,687 Over 6 through 12 months 96,864 805,136 902,000 Over 12 months 275,393 1,628,346 1,903,739 -------- ---------- ---------- $543,424 $3,834,267 $4,377,691 ======== ========== ==========
The fair value of time deposits of approximately $4.5 billion and $4.1 billion at December 31, 1993 and 1992, respectively, is estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar maturities. The fair values for other deposits, which have no defined maturities, are equal to the amounts payable on demand (i.e., their carrying amounts). A summary of interest paid by the Group is shown below:
For the year 1993 1992 1991 - ------------ ---- ---- ----- (in thousands) Interest on deposits $241,133 $312,699 $360,016 Interest on borrowed funds 99,182 44,358 36,646 -------- -------- -------- Total Interest Paid $340,315 $357,057 $396,662 ======== ======== ========
NOTE H - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Securities sold under repurchase agreements were delivered to brokers/dealers, who retained such securities as collateral for the borrowings and have agreed to resell the same securities back to the Group at the maturities of the agreements. The agreements generally mature within one to thirty days. Information concerning borrowings under repurchase agreements is summarized as follows:
1993 1992 ---- ---- (dollars in thousands) At year-end: Weighted average interest rate 3.25% 3.50% Mortgage-backed securities pledged to secure the agreements: Carrying value $1,641,535 $1,524,505 Estimated market value 1,629,628 1,517,704 During the year: Average balance 2,734,216 972,500 Maximum month-end balance 2,437,191 1,571,406
NOTE I - ADVANCES FROM FEDERAL HOME LOAN BANK Pursuant to collateral agreements with the Federal Home Loan Bank, advances are secured by a blanket floating lien on the Savings Bank's assets. The weighted average interest rate of the advances was 5.02 percent and 8.62 percent at December 31, 1993 and 1992, respectively. At December 31, 1993, the advances have calendar year maturity dates as follows (in millions): 1996-$100.0; 1997-$2.4; 1998-$2.6; 1999 and thereafter-$51.7. The fair value of the advances at December 31, 1993 and 1992 is approximately $163.5 million and $65.2 million, respectively, and is estimated using discounted cash flow analyses, based on current rates for similar types of borrowing arrangements. NOTE J - OTHER BORROWINGS Other borrowings consist of the following:
At year end 1993 1992 1991 - ----------- ---- ---- ---- (in thousands) Short-term borrowings $ -- $ -- $ 34,513 Long-term debt at varying rates which approximate prime, secured primarily by real estate 76,250 99,111 76,502 ------- ------- -------- $76,250 $99,111 $111,015 ======= ======= ========
Aggregate maturities of the Group's long-term debt during the next five years are as follows (in millions): 1994-$8.6; 1995-$11.0; 1996-$35.8; 1997-$4.8; 1998-$.9; 1999 and thereafter-$15.2. 42 12 CONSOLIDATED STATEMENTS OF INCOME Temple-Inland Inc. and Subsidiaries
For the year 1993 1992 1991 - ------------ ---- ---- ---- (in thousands) REVENUES Manufacturing net sales . . . . . . . . . . . . . . . . . . . $2,100,705 $2,075,352 $1,898,233 Financial services revenues . . . . . . . . . . . . . . . . . 635,153 637,831 608,936 ---------- ---------- ---------- 2,735,858 2,713,183 2,507,169 ---------- ---------- ---------- COSTS AND EXPENSES Manufacturing costs and expenses . . . . . . . . . . . . . . 2,005,858 1,917,602 1,752,551 Financial services expenses . . . . . . . . . . . . . . . . . 567,603 573,445 554,760 ---------- ---------- ---------- 2,573,461 2,491,047 2,307,311 ---------- ---------- ---------- OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 162,397 222,136 199,858 Parent company interest--net . . . . . . . . . . . . . . . . (68,956) (47,360) (31,827) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773 2,224 (1,262) ---------- ---------- ---------- INCOME BEFORE TAXES AND ACCOUNTING CHANGES . . . . . . . . . . . 96,214 177,000 166,769 Taxes on income . . . . . . . . . . . . . . . . . . . . . . . 28,864 30,090 28,351 ---------- ---------- ---------- INCOME BEFORE ACCOUNTING CHANGES . . . . . . . . . . . . . . . . 67,350 146,910 138,418 Cumulative effect of accounting changes . . . . . . . . . . . 50,000 -- -- ---------- ---------- ---------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 117,350 $ 146,910 $ 138,418 ========== ========== ========== EARNINGS PER SHARE: Before Accounting Changes . . . . . . . . . . . . . . . . . . $ 1.21 $ 2.65 $ 2.51 Effect of Accounting Changes . . . . . . . . . . . . . . . . .90 -- -- ---------- ---------- ---------- Earnings Per Share . . . . . . . . . . . . . . . . . . . . . $ 2.11 $ 2.65 $ 2.51 ========== ========== ==========
See the notes to the consolidated financial statements. 44 13 CONSOLIDATED STATEMENTS OF CASH FLOWS Temple-Inland Inc. and Subsidiaries
For the year 1993 1992 1991 - ------------ ---- ---- ---- (in thousands) CASH PROVIDED BY (USED FOR) OPERATIONS Net income . . . . . . . . . . . . . . . . . . . . . . . $ 117,350 $ 146,910 $ 138,418 Adjustments to reconcile net income to net cash: Cumulative effect of accounting changes . . . . . . . (50,000) -- -- Depreciation and depletion . . . . . . . . . . . . . . 196,853 172,312 161,584 Deferred taxes and tax credits . . . . . . . . . . . . (2,488) 19,907 5,209 Amortization and accretion . . . . . . . . . . . . . . 12,936 22,863 6,207 Receivable from FSLIC Resolution Fund . . . . . . . . (993) 119,317 27,772 Receivables . . . . . . . . . . . . . . . . . . . . . 15,575 (2,122) 9,681 Inventories . . . . . . . . . . . . . . . . . . . . . (183,849) (215,117) (100,753) Accounts payable and accrued expenses . . . . . . . . 49,175 22,683 36,651 Other . . . . . . . . . . . . . . . . . . . . . . . . 157,345 65,752 (61,573) ----------- ----------- ----------- 311,904 352,505 223,196 ----------- ----------- ----------- CASH PROVIDED BY (USED FOR) INVESTMENTS Capital expenditures . . . . . . . . . . . . . . . . . . (354,351) (369,743) (387,356) Sale of property and equipment, net . . . . . . . . . . . 18,659 11,688 12,051 Purchases of investments . . . . . . . . . . . . . . . . (295,317) (2,239,355) (3,480,172) Maturities of investments . . . . . . . . . . . . . . . . 1,156,378 1,306,135 421,033 Proceeds from sales of investments and loans . . . . . . 24,148 129,386 161,147 Loans originated net of principal collected . . . . . . . (669,741) (135,413) (223,209) Reduction in Covered Assets . . . . . . . . . . . . . . . 126,602 472,843 575,233 Repayment of FSLIC Resolution Fund notes . . . . . . . . -- -- 1,063,648 Savings bank acquisitions . . . . . . . . . . . . . . . . (76,225) -- 2,923,716 Manufacturing acquisitions, net . . . . . . . . . . . . . -- (6,706) (27,972) Mortgage banking acquisition . . . . . . . . . . . . . . -- -- (21,226) Investment in financial services . . . . . . . . . . . . -- -- (15,100) Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,628 (138) 7,787 ----------- ----------- ----------- (65,219) (831,303) 1,009,580 ----------- ----------- ----------- CASH PROVIDED BY (USED FOR) FINANCING Additions to debt . . . . . . . . . . . . . . . . . . . . 132,035 308,686 777,099 Payments of debt . . . . . . . . . . . . . . . . . . . . (87,215) (207,686) (506,454) Net increase (decrease) in short-term borrowings . . . . 110,882 1,273,782 (414,744) Purchase of stock for treasury . . . . . . . . . . . . . (3,319) (2,326) (5,115) Cash dividends paid to shareholders . . . . . . . . . . . (55,341) (52,940) (48,236) Net decrease in deposits . . . . . . . . . . . . . . . . (310,120) (890,591) (1,047,313) Other . . . . . . . . . . . . . . . . . . . . . . . . . . 6,571 3,220 3,522 (206,507) 432,145 (1,241,241) ----------- ----------- ----------- Net increase (decrease) in cash . . . . . . . . . . . . . . . 40,178 (46,653) (8,465) Cash at beginning of year . . . . . . . . . . . . . . . . . . 124,738 171,391 179,856 ----------- ----------- ----------- Cash at end of year . . . . . . . . . . . . . . . . . . . . . $ 164,916 $ 124,738 $ 171,391 =========== =========== ===========
See the notes to the consolidated financial statements. 45 14 CONSOLIDATING BALANCE SHEETS Temple-Inland Inc. and Subsidiaries
Parent Financial At year end 1993 Company Services Consolidated - ---------------- ------- -------- ------------ (in thousands) ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,616 $ 156,300 $ 164,916 Investments . . . . . . . . . . . . . . . . . . . . . . . -- 4,407,258 4,407,258 Covered assets . . . . . . . . . . . . . . . . . . . . . -- 664,257 664,257 Loans receivable . . . . . . . . . . . . . . . . . . . . -- 2,755,352 2,755,352 Trade and other receivables . . . . . . . . . . . . . . . 198,542 -- 198,542 Inventories . . . . . . . . . . . . . . . . . . . . . . . 258,066 630,110 888,176 Property and equipment . . . . . . . . . . . . . . . . . 2,346,135 37,405 2,383,540 Other assets . . . . . . . . . . . . . . . . . . . . . . 104,831 482,571 497,219 Investment in affiliates . . . . . . . . . . . . . . . . 487,578 -- -- ---------- ---------- ----------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,403,768 $9,133,253 $11,959,260 ========== ========== =========== LIABILITIES Deposits . . . . . . . . . . . . . . . . . . . . . . . . $ -- $6,362,303 $ 6,362,303 Securities sold under repurchase agreements and Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . -- 1,724,762 1,724,762 Other liabilities . . . . . . . . . . . . . . . . . . . . 360,966 458,262 812,214 Long-term debt . . . . . . . . . . . . . . . . . . . . . 1,044,775 76,250 1,121,025 Deferred income taxes . . . . . . . . . . . . . . . . . . 175,870 -- 116,799 Postretirement benefits . . . . . . . . . . . . . . . . . 121,977 -- 121,977 ---------- ---------- ----------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . $1,703,588 $8,621,577 $10,259,080 ---------- ---------- ----------- 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 . . . . . . . . 61,390 Additional paid-in capital . . . . . . . . . . . . . . . 296,893 Retained earnings . . . . . . . . . . . . . . . . . . . . 1,482,093 ---------- ---------- ----------- 1,840,376 Cost of shares held in the treasury: 5,908,173 shares . . (140,196) ---------- ---------- ----------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . 1,700,180 ---------- ---------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . $11,959,260 ========== ========== ===========
See the notes to the consolidated financial statements. 46 15 CONSOLIDATING BALANCE SHEETS Temple-Inland Inc. and Subsidiaries
Parent Financial At year end 1992 Company Services Consolidated - ---------------- ------- --------- ------------ (in thousands) ASSETS Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,115 $ 117,623 $ 124,738 Investments . . . . . . . . . . . . . . . . . . . . . . . -- 5,264,912 5,264,912 Covered assets . . . . . . . . . . . . . . . . . . . . . -- 393,877 393,877 Loans receivable . . . . . . . . . . . . . . . . . . . . -- 1,343,279 1,343,279 Trade and other receivables . . . . . . . . . . . . . . . 214,117 -- 214,117 Inventories . . . . . . . . . . . . . . . . . . . . . . . 248,246 461,211 709,457 Property and equipment . . . . . . . . . . . . . . . . . 2,201,675 26,340 2,228,015 Other assets . . . . . . . . . . . . . . . . . . . . . . 115,627 370,763 487,110 Investment in affiliates . . . . . . . . . . . . . . . . 460,366 -- -- ---------- ---------- ----------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,247,146 $7,978,005 $10,765,505 ========== ========== =========== LIABILITIES Deposits . . . . . . . . . . . . . . . . . . . . . . . . $ -- $5,644,410 $ 5,644,410 Securities sold under repurchase agreements and Federal Home Loan Bank advances . . . . . . . . . . . . . . . . . . . . -- 1,517,284 1,517,284 Other liabilities . . . . . . . . . . . . . . . . . . . . 318,825 256,230 568,029 Long-term debt . . . . . . . . . . . . . . . . . . . . . 964,321 99,111 1,063,432 Deferred income taxes . . . . . . . . . . . . . . . . . . 331,361 8,350 339,711 ---------- ---------- ----------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . $1,614,507 $7,525,385 $ 9,132,866 ---------- ---------- ----------- 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 . . . . . . . . 61,390 Additional paid-in capital . . . . . . . . . . . . . . . 295,369 Retained earnings . . . . . . . . . . . . . . . . . . . . 1,420,084 ---------- ---------- ----------- 1,776,843 Cost of shares held in the treasury: 6,138,884 shares . . (144,204) ---------- ---------- ----------- TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . 1,632,639 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . $10,765,505 ========== ========== ===========
See notes to the consolidated financial statements. Certain amounts have been reclassified to conform with current year's classification. 47 16 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Temple-Inland Inc. and Subsidiaries
Additional Common Paid-in Retained Treasury Stock Capital Earnings Stock ------- -------- ---------- --------- (in thousands) BALANCE AT DECEMBER 29, 1990 . . . . . . . . . . . . . . . . $61,390 $298,188 $1,235,932 $(156,194) Net income . . . . . . . . . . . . . . . . . . . . . . . -- -- 138,418 -- Dividends paid on common stock-- $.88 per share . . . . . . . . . . . . . . . . . . . . -- -- (48,236) -- Stock issued for stock plans-- 450,944 shares reissued from treasury at cost . . . . . . . . . . . . . . . . . . . -- (3,283) -- 10,439 Stock reacquired for treasury-- 126,318 shares at cost . . . . . . . . . . . . . . . . -- -- -- (5,115) ------- -------- ---------- --------- BALANCE AT DECEMBER 28, 1991 . . . . . . . . . . . . . . . . $61,390 $294,905 $1,326,114 $(150,870) ------- -------- ---------- --------- Net income . . . . . . . . . . . . . . . . . . . . . . . -- -- 146,910 -- Dividends paid on common stock-- $.96 per share . . . . . . . . . . . . . . . . . . . . -- -- (52,940) -- Stock issued for stock plans-- 384,192 shares reissued from treasury at cost . . . . . . . . . . . . . . . . . . . -- 464 -- 8,992 Stock reacquired for treasury-- 47,431 shares at cost . . . . . . . . . . . . . . . . -- -- -- (2,326) ------- -------- ---------- --------- BALANCE AT JANUARY 2, 1993 . . . . . . . . . . . . . . . . . $61,390 $295,369 $1,420,084 $(144,204) ------- -------- ---------- --------- Net income . . . . . . . . . . . . . . . . . . . . . . . -- -- 117,350 -- Dividends paid on commonstock-- $1.00 per share . . . . . . . . . . . . . . . . . . . -- -- (55,341) -- Stock issued for stock plans-- 310,088 shares reissued from treasury at cost . . . . . . . . . . . . . . . . . . . -- 1,524 -- 7,327 Stock reacquired for treasury-- 79,377 shares at cost . . . . . . . . . . . . . . . . -- -- -- (3,319) ------- -------- ---------- --------- BALANCE AT JANUARY 1, 1994 . . . . . . . . . . . . . . . . . $61,390 $296,893 $1,482,093 $(140,196) ======= ======== ========== ==========
See the notes to the consolidated financial statements. 48 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles and with current financial reporting requirements. However, because certain assets and liabilities are in separate corporate entities, the consolidated assets are not available to satisfy all consolidated liabilities. The consolidated financial statements include the accounts of Temple-Inland Inc. (the "Company") and all subsidiaries in which the Company has more than a 50 percent equity ownership. All material intercompany amounts and transactions have been eliminated. Included as an integral part of the consolidated financial statements are separate summarized financial statements and notes for the Company's primary business groups as well as the significant accounting policies unique to each group. EARNINGS PER SHARE Earnings per share are based upon the weighted average number of shares outstanding, including common stock equivalents, during the period. The weighted average shares outstanding was 55,528,000, 55,535,000 and 55,248,000 in 1993, 1992 and 1991, respectively. NOTE B - STOCK OPTION AND PURCHASE PLANS The Company has established stock option plans for key employees and directors. The plans provide for the granting of incentive stock options and/or nonqualified stock options, and permit the grant of stock appreciation rights with all or part of any options so granted. Options for 741,379, 733,501 and 854,689 shares were exercisable at year end 1993, 1992 and 1991, respectively. An additional 1,990,000, 1,262,665 and 1,427,931 shares of common stock were available for grants at year end 1993, 1992 and 1991, respectively. A summary of activity under the option plans is presented below: Common Stock ------------ Number Price Range of Shares Per Share --------- --------- Outstanding at December 29, 1990 1,802,664 $ 8-$33 Granted 283,146 $16-$46 Exercised (525,345) $ 8-$33 Forfeited (32,466) $22-$36 --------- ------- Outstanding at December 28, 1991 1,527,999 $ 8-$46 Granted 204,519 $36-$54 Exercised (359,972) $ 8-$36 Forfeited (41,287) $22-$54 --------- ------- Outstanding at January 2, 1993 1,331,259 $12-$54 Granted 288,312 $37-$51 Exercised (213,043) $15-$36 Forfeited (12,072) $28-$54 --------- ------- Outstanding at January 1, 1994 1,394,456 $12-$54 ========= ======= Additionally, a restricted stock plan provides for a maximum of 300,000 shares of common stock to be reserved for awards at the discretion of the Board of Directors. At year end 1993, awards of 106,463 shares of common stock were outstand ing at an average price of $43.64 per share. The Company has savings and stock purchase plans which permit participating employees to invest in the Company's common stock and other funds. In February 1994, options to purchase 267,696 shares of stock at an average price of $52.15 were granted, and 33,868 were awarded under the restricted stock plan. NOTE C - PENSION PLANS The Company and its subsidiaries have several pension plans covering substantially all employees. Plans covering salaried and nonunion hourly employees provide benefits based on compensation and years of service, while union hourly plans are based on negotiated benefits and years of service. The Company's policy is to fund amounts as are necessary on an actuarial basis to provide assets sufficient to meet the benefits to be paid to plan members in accordance with the requirements of ERISA. A summary of the components of net pension cost in 1993, 1992 and 1991 follows: 1993 1992 1991 ---- ---- ---- CHARGES (CREDITS) (in millions) Service cost--benefits earned during the period $ 9.6 $ 9.5 $ 9.2 Interest cost on projected benefit obligation .7 24.7 23.3 Actual return on plan assets (59.0) (28.4) (76.1) Net amortization and deferral .3 (10.1) 45.6 ------- ------ ------ Net pension (credit) charge $ (4.4) $ (4.3) $ 2.0 ======= ====== ====== 49 18 The following assumptions were used to measure net periodic pension cost for the defined benefit pension plans: For the years 1993 1992 1991 - ------------- ---- ---- ---- Discount rate 7.25% 8.50% 9.00% Expected long-term rate of return 9.00% 9.00% 9.00% Average increase in compensation levels 4.25% 5.50% 6.00% ==== ==== ==== The impact of lowering the discount rate will not have a material effect on future earnings. The status of employee pension benefit plans at year end 1993 and 1992 is summarized below: 1993 1992 ---- ---- (in millions) Actuarial present value of benefit obligations: Vested benefits $ 327.2 $ 235.3 Nonvested benefits 29.5 23.2 ------- ------- Accumulated benefit obligation $ 356.7 $ 258.5 ------- ------- Projected benefit obligation for service rendered to date $(389.6) $(302.0) Plan assets at fair value, primarily stocks and bonds 435.0 393.2 Plan assets in excess of projected benefit obligation 45.4 91.2 Prior service cost not yet recognized in net periodic pension cost (.2) (.9) Unrecognized net (gain) loss from past experience different from that assumed 23.8 (21.9) Unrecognized net asset at beginning of period, less amortization to date (31.4) (35.1) ------- ------- Net pension asset included in the balance sheet $ 37.6 $ 33.3 ======= ======= The assets of the plans at January 1994 include 380,998 shares of common stock of the Company having a market value of $19.2 million at that date. NOTE D - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In 1993 the Company adopted FASB Statement No. 106, "Employer Accounting for Postretirement Benefits Other than Pensions". The Company elected to immediately recognize the cumulative effect of the change in accounting for postretirement benefits of $75 million ($115 million liability net of a deferred tax asset of $40 million), or $1.35 per share, which represents the accumulated postretirement benefit obligation ("APBO") existing at adoption. The Company provides these benefits to eligible salaried and hourly employees who reach retirement age while employed by the Company. Summary information on the Company's plan as of January 1, 1994 is as follows (in millions): Accumulated Postretirement Benefit Obligation - --------------------------------------------- Retirees $ 64.1 Active participants, eligible to retire 7.9 All other participants 31.3 ------ Accrued postretirement benefit cost 103.3 Plus unrecognized net gains 18.6 ------ Postretirement benefit liability $121.9 ====== The components of net postretirement benefit costs for 1993 are as follows: Service costs for benefits $ 1.7 Interest cost 9.2 ------ Net postretirement charge $ 10.9 ====== The discount rate used in determining the APBO as of January 1, 1994 was 7.25 percent. The assumed health care cost trend rate used in measuring the APBO was 12 percent in 1993, grading down to 6.75 percent in years 2007 and later. The assumptions at adoption included an 8 percent discount rate and health care trend rates beginning at 14 percent and declining to 8 percent in 2004 and thereafter. If the health care cost trend rate assumptions were increased by one percent, the APBO as of January 1, 1994 would be increased by 10 percent. The effect of the change on the components of service cost and interest costs of the net periodic postretirement costs for 1993 would be an increase of 11 percent. NOTE E - TAXES ON INCOME Taxes on income from continuing operations consisted of the following: Current Deferred ------- -------- (in thousands) 1993 Federal $ 67,879 $ (45,086) Investment tax credit deferred -- (3,005) State and other 9,076 -- -------- --------- $ 76,955 $ (48,091) ======== ========= 1992 Federal $ 17,517 $ 10,038 Investment tax credit deferred -- (3,482) State and other 6,017 -- ----- -- $ 23,534 $ 6,556 ======== ========= 1991 Federal $ 23,447 $ 7,257 Investment tax credit deferred -- (4,154) State and other 2,323 (522) -------- --------- $ 25,770 $ 2,581 ======== ========= 50 19 Significant components of the Company's consolidated deferred tax assets and liabilities as of January 1, 1994 are as follows: (in thousands) DEFERRED TAX LIABILITIES: Depreciation $ 234,444 Depletion 38,953 Pensions 12,286 --------- Total deferred tax liabilities 285,683 --------- DEFERRED TAX ASSETS: Alternative minimum tax credits 128,619 Assets with excess tax basis 115,500 Net operating loss carryforwards 102,059 OPEB obligations 42,665 Other 11,541 --------- Total deferred tax assets 400,384 Valuation allowance for deferred tax assets (231,500) --------- Net deferred tax assets 168,884 --------- Net deferred tax liabilities $ 116,799 ========= The components of the provision for deferred income taxes were as follows: 1992 1991 ---- ---- (in thousands) Depreciation $15,703 $ 14,882 Investment tax credits (3,482) (4,154) Pension expense 1,238 1,645 Other employee benefit plans (606) 2,060 Other--net (6,297) (11,852) ------- -------- $ 6,556 $ 2,581 ======= ======== The differences between the consolidated effective income tax rate and the federal statutory income tax rates include the following: 1993 1992 1991 ---- ---- ---- (in thousands) Taxes on income at statutory rate $ 33,675 $ 60,180 $ 56,701 Book benefit of FSLIC assistance and other permanent items (10,882) (32,625) (26,519) Investment tax credits (3,005) (3,482) (4,154) State and foreign taxes 9,076 6,017 2,323 -------- -------- -------- $ 28,864 $ 30,090 $ 28,351 ======== ======== ======== Effective January 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes", whereby the Company is required to adopt the liability method for computing deferred income taxes. The cumulative effect of adopting FASB Statement No. 109 as of January 1993 increased net earnings by $125 million, or $2.25 per share. As permitted under the new rules, prior years' financial statements have not been restated. Income tax payments, net of refunds received, were $19 million, $(2) million and $3 million during 1993, 1992 and 1991, respectively. Investment tax credits were deferred and are being amortized as a reduction of income tax expense over the estimated useful lives of the related assets. Temple-Inland and Guaranty have net operating loss carryforwards which if utilized could result in tax savings of $64 million and $38 million, respectively, at December 1993. If unused, these carryforwards expire through the year 2006. The realization of Guaranty's loss carryforwards is limited to the future taxable income of Guaranty. The Company's alternative minimum tax credits may be carried forward indefinitely. As a result of the Omnibus Budget Reconciliation Act of 1993, the Company will pay the government $45 million in 1994 for 1991 and 1992 deductions that this legislation eliminated. This payment will have no impact on future net income and the Company will continue to receive other benefits from its ownership of Guaranty that will reduce its 1994 cash tax payments. NOTE F - BUSINESS SEGMENT INFORMATION Refer to "Business Segments" on page 23 for information relating to Revenues and Income Before Taxes, and page 29 for information relating to Capital Expenditures for the principal segments of business for the three years 1993, 1992 and 1991. Additional business segment information is presented below: For the year 1993 1992 1991 - ------------ ---- ---- ---- (in millions) IDENTIFIABLE ASSETS Container and containerboard $ 1,575.7 $ 1,615.2 $ 1,463.7 Bleached paperboard 523.2 450.7 393.8 Building products 300.0 216.8 203.0 Timber and timberlands 453.7 419.8 382.8 Corporate and other activities 63.6 84.3 109.7 --------- --------- --------- 2,916.2 2,786.8 2,553.0 Financial services 9,133.3 7,978.7 7,515.5 Reclassifications and eliminations (90.2) -- -- --------- --------- --------- TOTAL $11,959.3 $10,765.5 $10,068.5 ========= ========= ========= DEPRECIATION AND DEPLETION Container and containerboard $ 112.5 $ 97.5 $ 87.4 Bleached paperboard 40.1 32.1 29.9 Building products 22.6 22.7 22.4 Timber and timberlands 12.7 12.0 15.1 Other activities 3.2 3.2 2.9 --------- --------- --------- 191.1 167.5 157.7 Financial services 5.8 4.8 3.9 --------- --------- --------- TOTAL $ 196.9 $ 172.3 $ 161.6 ========= ======== ======== 51 20 NOTE G - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Selected quarterly financial results for the years 1993 and 1992 are summarized below:
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- (in millions except per share amounts) 1993 Total revenues $682.8 $702.6 $681.0 $669.4 Manufacturing net sales 536.7 543.7 518.6 501.7 Manufacturing gross profit 87.7 76.6 67.3 62.1 Financial services operating income before taxes and accounting change 17.0 18.5 16.5 15.5 Net income: Net income before accounting changes 28.0 20.9 11.4 7.0 Cumulative effect of accounting changes 50.0 -- -- -- Net income 78.0 20.9 11.4 7.0 Earnings per share: Before accounting changes .50 .38 .21 .12 ------ ------ ------ ------ Effect of accounting changes .90 -- -- -- ------ ------ ------ ------ Earnings per Share 1.40 .38 .21 .12 ====== ====== ====== ====== 1992 Total revenues $658.0 $684.4 $672.2 $698.6 Manufacturing net sales 485.5 523.5 521.7 544.7 Manufacturing gross profit 82.0 97.9 87.9 78.8 Financial services operating income before taxes 19.2 18.0 16.2 11.0 Net income 34.8 47.7 39.2 25.2 Earnings per share .63 .85 .71 .46 ====== ====== ====== ======
NOTE H - SHAREHOLDER RIGHTS PLAN During 1989, the Board of Directors adopted a Shareholder Rights Plan in which one preferred stock purchase right ("the Right") was declared as a dividend for each common share outstanding. Each one-half Right entitles shareholders to purchase, under certain conditions, one-hundredth of a share of newly issued Series A Junior Participating Preferred Stock at an exercise price of $200. The Rights will be exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the common shares or commences a tender or exchange offer, upon consummation of which such person or group would beneficially own 25 percent or more of the common shares. The Company will generally be entitled to redeem the Rights at $.01 per Right at any time until the 10th business day following public announcement that a 20 percent position has been acquired. The Rights will expire on February 20, 1999. NOTE I - COMMITMENTS AND CONTINGENCIES There are pending against the Company and its subsidiaries lawsuits, claims and environmental matters 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 position of the Company and its subsidiaries. See page 29 for a discussion of commitments on construction projects. 52 21 REPORT OF MANAGEMENT MANAGEMENT REPORT ON FINANCIAL STATEMENTS Management has prepared and is responsible for the Company's financial statements, including the notes thereto. They have been prepared in accor dance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates by management. All financial information in this annual report is consistent with that in the financial statements. The Company maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that trans actions are executed in accordance with manage ment's authorization and properly recorded, and that accounting records may be relied upon for the preparation of financial statements and other financial information. The design, monitoring, and revision of internal account ing control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. The Company also maintains an internal auditing function which evaluates and formally reports on the adequacy and effectiveness of internal accounting controls, policies and procedures. The Company's financial statements have been examined by Ernst & Young, independent auditors, who have expressed their opinion with respect to the fairness of the presentation of the statements. The Audit Committee of the Board of Directors, composed solely of outside directors, meets with the independent auditors and internal auditors to evaluate the effectiveness of the work performed by them in discharging their respective responsibilities and to assure their independent and free access to the Committee. Clifford J. Grum Chairman of the Board and Chief Executive Officer David H. Dolben Vice President and Chief Accounting Officer REPORT OF INDEPENDENT AUDITORS TO 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 1, 1994 and January 2, 1993, and the related consol idated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended January 1, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 1, 1994 and January 2, 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 1994, in conformity with generally accepted accounting principles. As discussed in Notes D and E to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretirement benefits other than pensions and income taxes. Houston, Texas February 10, 1994 53 EX-21 6 SUBSIDIARIES OF TEMPLE INLAND 1 EXHIBIT 21 SUBSIDIARIES OF TEMPLE-INLAND INC. (State of Incorporation) (Percentage of Ownership by Immediate Parent) Inland Container Corporation I (Delaware)(100%) Inland Container Corporation (Delaware)(100%) EL Morro Corrugated Box Corporation (Delaware)(100%) EL Morro Corrugated Box Corporation (Puerto Rico)(100%) Georgia Kraft Company (Delaware)(100%) Sabine River & Northern Railroad Company (Texas)(100%) Inland Container FSC, Inc. (U.S. Virgin Islands)(100%) Inland International Holding Company (Delaware)(100%) Inland de Mexico Holding Company, S.A. de C.V. (Mexico)(100%) Inland Corrugados de Mexico, S.A. de C.V. (Mexico)(100%) Inland Paper Company, Inc. (Indiana)(100%) Inland Real Estate Investments, Inc. (Indiana)(100%) Crockett Container Corporation (California)(100%) King Container Company (California)(100%) Pakway Container Corporation (Indiana)(100%) Temple-Inland Forest Products Corporation (Delaware)(100%) The Angelina Free Press, Inc. (Texas)(100%) Big Tin Barn Inc. (Delaware)(100%) Eastex Incorporated (Texas)(100%) Evadale Realty Company (Delaware)(100%) Bestile Manufacturing Company (California)(100%) Home Owners Trust Company (Texas)(100%) Sabine Investment Company of Texas, Inc. (Texas)(100%) Scotch Investment Company (Texas)(100%) Scotch Properties Management Inc. (Delaware)(100%) Security & Guaranty Abstract Co. (Texas)(50%) Southern Pine Lumber Company (Texas)(100%) Southern Pine Plywood Co. (Texas)(100%) Templar Essex Inc. (Delaware)(100%) Temple Associates, Inc. (Texas)(100%) Temple Associates of Louisiana, Inc. (Louisiana)(100%) Universal Electric Construction Company (Texas)(100%) Temple-Eastex Incorporated (Delaware)(100%) Temple Industries, Inc. (Texas)(100%) Temple-Inland Food Service Corporation (Delaware)(100%) Temple-Inland Forest Products International Inc. (Delaware)(100%) Temple-Inland Paperboard Specialty Company (Delaware)(100%) Temple-Inland Recaustisizing Company (Delaware)(100%) Temple-Inland Recovery Company (Delaware)(100%) Temple-Inland Stores Company (Delaware)(100%) Temple Lumber Company (Texas)(100%) Texas Southeastern Railroad Company (Texas)(100%) Topaz Oil Company (Texas)(100%) 2 EXHIBIT 21 PAGE 2 SUBSIDIARIES OF TEMPLE-INLAND INC. (State of Incorporation) (Percentage of Ownership by Immediate Parent) Temple-Inland Financial Services Inc. (Delaware) (50%; 50% By Temple-Inland Forest Products Corporation) Guaranty Holdings Inc. I (Delaware)(100%) Guaranty Federal Bank, F.S.B. (Federal)(100%) AFB Group, Inc. (Texas)(100%) Aleeda Corporation (Texas)(100%) Americity 5 Percent Corporation (Texas)(100%) Big D Cold Storage, Inc.(Texas)(100%) First Service Corporation (Texas)(100%) IMRE, Inc. (Texas)(100%) Kemp Hills Utility Corporation (Texas)(100%) GSC Realty Corporation (Texas)(100%) GSC Housing Corporation (Texas)(100%) Guaranty Group Inc. (Texas)(100%) Guaranty Investment Advisory, Inc. (Texas)(100%) Guaranty Resources, Inc. (Texas)(100%) Guaranty Service Land Corporation (Texas)(100%) MMJ-Stoneybrook Land Corporation (Texas)(100%) Mercury Flight, Inc. (Texas)(100%) A.G. Aircraft Corporation (Texas) J.R. Aircraft Corporation (Texas) L.J. Aircraft Corporation (Texas) T.H. & M.A. Corporation (Oregon) Mercury Investment Corporation (Texas)(100%) Milam Investment Corporation (Texas)(100%) Paris Development Corporation (Texas)(100%) Paris Service Corporation (Texas)(100) Parker Town Square, Inc. (Texas)(100%) Participation Purchase Corporation (Nevada)(100%) Providence Park, Inc. (Texas)(100%) Skyline Financial, Inc. (Texas)(100%) Southern Associated Services, Inc. (Texas)(100%) TCCN Corporation (Texas)(100%) Temple-Inland Mortgage Corporation (Nevada)(100%) Temple-Inland Properties Inc. (Delaware)(100%) Travis County Land Corporation (Texas)(100%) Wichita Realty Investments, Inc. (Texas)(100%) Stanford Realty Advisors, Inc. (Delaware)(100%) LIC Investments Inc. (Delaware)(100%) Lumbermen's Investment Corporation (Delaware)(100%) Austin Crest Hotel, Inc. (Texas)(100%) LIC Financial Corporation (Delaware)(100%) Sunbelt Insurance Company (Texas)(100%) TEEC Inc. (Texas)(100%) Timberline Insurance Managers, Inc. (Texas)(100%) Timberline Securities, Inc. (Texas)(100%) Valley Creek Development Corporation (Texas)(100%) Temple-Inland Life Inc. (Nevada)(100%) Temple-Inland Insurance Corporation (Delaware)(100%) Temple-Inland Realty Inc. (Delaware)(100%) TIFS Financial Corporation (Delaware)(100%) EX-23 7 CONSENT OF INDEPENDENT AUDITORS 1 (LOGO)ERNST & YOUNG -One Houston Center -Phone: 713 750 1500 Suite 2400 Fax: 713 750 1501 1221 McKinney Street Houston, Texas 77010-2007 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Temple-Inland Inc. of our report dated February 10, 1994, included in the 1993 Annual Report to Shareholders of Temple-Inland Inc. Our audit also included the financial statement schedules of Temple-Inland Inc. listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in (i) Post-Effective Amendment Number 3 to Registration Statement Number 2-88202 on Form S-8, (ii) Registration Statement Number 33-20431 on Form S-3, (iii) Registration Statement Number 33-23132 on Form S-8, (iv) Post-Effective Amendment Number 1 to Registration Statement Number 33-25650 on Form S-8, (v) Post-Effective Amendment Number 1 to Registration Statement Number 33-27286 on Form S-8, (vi) Post-Effective Amendment Number 3 to Registration Statement Number 33-31004 on Form S-8, (vii) Post-Effective Amendment Number 2 to Registration Statement Number 33-32124 on Form S-8, (viii) Registration Statement Number 33-36393 on Form S-8, (ix) Registration Statement Number 33-37597 on Form S-8, (x) Registration Statement Number 33-40381 on Form S-8, (xi) Registration Statement Number 33-43801 on Form S-8, (xii) Registration Statement Number 33-43802 on Form S-8, (xiii) Registration Statement Number 33-43978 on Form S-3, (xiv) Registration Statement Number 33-50880 on Form S-3, (xv) Registration Statement Number 33-48034 on Form S-8, (xvi) Registration Statement Number 33-54388 on Form S-8, and (xvii) Registration Statement Number 33-63104 on Form S-8 of our report dated February 10, 1994, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Temple-Inland Inc. ERNST & YOUNG March 17, 1994 -----END PRIVACY-ENHANCED MESSAGE-----