EX-99.1 5 d94819ex99-1.txt UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS EXHIBIT 99.1 UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS The pro forma financial statements give effect to Temple-Inland's acquisition of Gaylord Container Corporation using the purchase method of accounting. The pro forma balance sheet was prepared as if the acquisition had occurred as of December 2001. The pro forma income statement was prepared as if the acquisition had occurred as of the beginning of the year 2001. The pro forma financial statements are presented for informational purposes. They are not necessarily indicative of actual or future financial position or results of operations that would have or will occur. The pro forma balance sheet was prepared based upon the historical balance sheets of Temple-Inland and Gaylord as of December 2001. The pro forma income statement was prepared based upon the historical income statements of Temple-Inland for the year ended December 2001 and of Gaylord for the 12 months ended December 2001. The Gaylord income statement was derived from Gaylord's historical income statements for its year ended September 2001 and its three months ended December 2001 and 2000. The accounting policies of Temple-Inland and Gaylord are comparable. The pro forma adjustments are estimates based on currently available information and assumptions that Temple-Inland believes are reasonable. The pro forma adjustments are directly attributable to the acquisition and are expected to have a continuing impact on the financial position and results of operations of Temple-Inland. The pro forma adjustments reflect a preliminary allocation of the purchase price. The actual allocation will be based upon independent appraisals and other valuations and will reflect finalized management intentions. The actual allocation will probably differ from that assumed. The supplemental pro forma financial statements are identical to the pro forma financial statements except that Temple-Inland financial statements have been reclassified to reflect the assets and operations of its Financial Services Group using the equity method of accounting. These pro forma and supplemental pro forma financial statements should be read in conjunction with the historical consolidated financial statements of Temple-Inland and Gaylord. 1 UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 2001
Acquisition Temple- Adjustments Pro Forma (in millions) Inland Gaylord (a) Acquisition ------------- ------ ------- ----------- ----------- ASSETS Cash and cash equivalents $ 590 $ 6 $ -- $ 596 Mortgage Loans held for sale 958 -- -- 958 Loans and leases receivable, net 9,847 -- -- 9,847 Other securities available-for-sale 2,599 -- -- 2,599 Other securities held-to-maturity 775 -- -- 775 Trade receivables 288 118 (16) 386 (4)(c) Inventories 258 100 (5) 353 Property and equipment 2,251 530 (15) 2,766 Deferred income taxes -- 171 (171) -- Goodwill and other intangibles 186 -- 230 416 Financing fees -- -- 16 (b) 16 Assets held for sale -- -- 32 32 Other assets 935 63 (14) 984 -------- -------- -------- -------- TOTAL ASSETS $ 18,687 $ 988 $ 53 $ 19,728 ======== ======== ======== ======== LIABILITIES Deposits $ 9,030 $ -- $ -- $ 9,030 Federal Home Loan Bank advances 3,435 -- -- 3,435 Securities sold under repurchase agreements 1,107 -- -- 1,107 Other liabilities 914 248 (155) 1,003 (4)(c) Bridge financing facility -- -- 884 (b) 884 Long-term debt 1,553 862 (794) 1,621 Deferred income taxes 304 -- -- 304 Postretirement benefits 142 -- -- 142 Stock issued by subsidiaries 306 -- -- 306 -------- -------- -------- -------- TOTAL LIABILITIES $ 16,791 $ 1,110 $ (69) $ 17,832 ======== ======== ======== ======== SHAREHOLDERS' EQUITY Preferred stock -- -- -- -- Common stock 61 -- -- 61 Additional paid-in capital 367 180 (180) 367 Accumulated other comprehensive (loss) (1) (2) 2 (1) Retained earnings 2,014 (292) 292 2,014 -------- -------- -------- -------- 2,441 (114) 114 2,441 Cost of shares held in the treasury (545) (8) 8 (545) -------- -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY 1,896 (122) 122 1,896 -------- -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 18,687 $ 988 $ 53 $ 19,728 ======== ======== ======== ========
---------- See the notes to the unaudited pro forma combined financial statements. 2 UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR-ENDED DECEMBER 2001
(in millions, Discontinued except earnings Temple- Gaylord Operations Acquisition Pro Forma per share) Inland (e) (f) Adjustments Acquisition ------------- ------- ------- ------------ ----------- ----------- REVENUES Manufacturing $ 2,808 $ 1,052 $ (172) $ (37)(c) $ 3,651 Financial Services 1,364 -- -- -- 1,364 ------- ------- ------- ------- ------- 4,172 1,052 (172) (37) 5,015 ------- ------- ------- ------- ------- COSTS AND EXPENSES Manufacturing 2,717 1,022 (201) (37)(c) 3,501 Financial Services 1,180 -- -- -- 1,180 ------- ------- ------- ------- ------- 3,897 1,022 (201) (37) 4,681 ------- ------- ------- ------- ------- OPERATING INCOME 275 30 29 -- 334 Parent company interest (98) (90) -- 34 (b) (154) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE TAXES 177 (60) 29 34 180 Income taxes (66) 23 (11) (13)(d) (67) ------- ------- ------- -------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ 111 $ (37) $ 18 $ 21 $ 113 ======= ======= ======= ======= ======= EARNINGS PER SHARE Basic $ 2.26 $ 2.29 Diluted $ 2.26 $ 2.29 AVERAGE SHARES OUTSTANDING Basic 49.3 49.3 Diluted 49.3 49.3
See the notes to the unaudited pro forma combined financial statements. 3 NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS On March 4, 2002, Temple-Inland completed tender offers in which it acquired 86.3% of Gaylord's outstanding common stock for $56 million cash and 99.3% of Gaylord's 9 3/8% Senior Notes, 98.5% of Gaylord's 9 3/4 Senior Notes and 83.6% of Gaylord's 9 7/8% Senior Subordinated Notes for $462 million cash. Temple-Inland is now proceeding to effect a merger with Gaylord whereby Temple-Inland will acquire for $1.17 per share cash, the remaining 13.7% of Gaylord's common stock it does not already own. The estimated cash purchase price to acquire Gaylord consists of (in millions): Tender Offer Common stock ($1.17 x 48.3 million shares) $ 56 Senior Notes and Subordinated Notes 462 Accrued interest 10 ------ 528 Merger Common stock ($1.17 x 7.6 million shares) 9 ------ Cash paid to Gaylord security holders 537 Costs and expenses directly attributable to the acquisition Termination and change in control agreements $ 41 Advisory and professional fees 20 61 ----- ------ Estimated cash purchase price $ 598 ======
a. The purchase price will be allocated to the assets acquired and the liabilities assumed based on their fair values. The preliminary allocation of the purchase prices follows (in millions): Assets acquired --------------- Current assets $ 222 Property and equipment 515 Assets held for sale 32 Other assets 26 Goodwill and other intangible assets 230 ------- Total 1,025 Liabilities assumed ------------------- Current liabilities $ 73 Bank debt 270 Senior and Subordinated Notes and other secured debt 68 Other long-term liabilities 16 (427) ----- ------- Net assets acquired $ 598 =======
The acquisition is accounted for in accordance with the new accounting rules for goodwill and other intangible assets. Under these new rules, goodwill is no longer amortized but is periodically measured for impairment. Therefore, these pro forma financial statements do not include any amortization of the goodwill created by the Gaylord acquisition. Goodwill arising from the acquisition will be allocated to Temple-Inland's Paper Group. It is anticipated that all of the goodwill will be deductible for income tax purposes. 4 b. Proceeds from a $900 million Credit Agreement (the Bridge Financing Facility) will be used to fund the estimated cash purchase price of $598 million and to pay off the assumed bank debt of $270 million. Temple-Inland will pay $16 million in fees to the lending institutions for this facility, which will be funded from the Bridge Financing Facility. The Bridge Financing Facility is due 364 days from the date funded and bears interest at a variable rate. The all in financing rate on the Bridge Financing Facility is assumed to approximate 5.6% and will result in an annual interest expense of $50 million. As a result of the lower interest rate on the Bridge Financing Facility compared with the interest rate on Gaylord's debt, interest expense in the pro forma income statement is $34 million lower than Gaylord's reported interest expense for the 12 months ended December 2001. A 1/8% change in the interest rate on the Bridge Financing Facility would affect annual interest expense by $1 million. c. Elimination of significant intercompany balances and transactions. d. Tax effect of pro forma adjustments. e. Gaylord's historical financial information for the 12 months ended December 2001 was derived as follows:
Net Operating (Loss) Revenues Income Before Taxes -------- --------- ------------ For the fiscal year-ended September 2001 $ 1,104 $ 48 $ (44) Less three months-ended December 2000 (295) (25) (2) Add three months-ended December 2001 243 7 (14) ------- --- ----- Total $ 1,052 $ 30 $ (60) ======= ====== ======
f. Temple-Inland intends to divest non-strategic Gaylord assets beginning with the retail bag business, which Temple-Inland anticipates selling during April 2002. As a result, the operations of the retail bag business, including an $11 million asset impairment, are eliminated in the pro forma income statement, as they will be treated for accounting purposes as a discontinued operation. The assets of the retail bag business have been adjusted to their estimated realizable values and are included in the pro forma balance sheet under the caption "Assets held for sale." The difference between their book value and estimated realizable value of approximately $12 million has been reflected as an increase in goodwill. Other assets to be divested are being identified by Temple-Inland, and it is currently anticipated that such sales will occur during 2002 and 2003. These pro forma financial statements do not reflect any other asset dispositions or any capacity rationalization, cost savings or other synergies that may be affected or realized through reductions in duplicative selling, general and administrative expenses and improvements in the mill and packaging systems and logistics. 5 SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED BALANCE SHEET DECEMBER 2001
Acquisition Temple- Adjustments Pro Forma (in millions) Inland Gaylord (a) Acquisition ------------- ------ ------- ----------- ----------- ASSETS Current assets Cash $ 3 $ 6 $ -- $ 9 Receivables, net 288 118 (16) 386 (4)(c) Inventories 258 100 (5) 353 Prepaid expenses 73 23 -- 96 ------- ------- ------- ------- Total current assets 622 247 (25) 844 Investment in Temple-Inland Financial Services 1,142 -- -- 1,142 Property and equipment 2,085 530 (15) 2,600 Deferred income taxes -- 171 (171) -- Goodwill and other intangibles 62 -- 230 292 Financing fees -- -- 16(b) 16 Assets held for sale -- -- 32 32 Other assets 210 40 (14) 236 ------- ------- ------- ------- TOTAL ASSETS $ 4,121 $ 988 $ 53 $ 5,162 ======= ======= ======= ======= LIABILITIES Current liabilities Accounts payable $ 149 $ 41 $ (4) $ 182 (4)(c) Accrued expenses 197 52 (12) 237 Current portion of long-term debt 1 105 (105) 1 Bridge financing facility -- -- 884(b) 884 ------- ------- ------- ------- Total current liabilities 347 198 759 1,304 Long-term debt 1,339 862 (794) 1,407 Deferred income taxes 310 -- -- 310 Postretirement benefits 142 -- -- 142 Other liabilities 87 50 (34) 103 ------- ------- ------- ------- TOTAL LIABILITIES 2,225 1,110 (69) 3,266 SHAREHOLDERS' EQUITY Preferred stock -- -- -- -- Common stock 61 -- -- 61 Additional paid-in capital 367 180 (180) 367 Accumulated other comprehensive income (loss) (1) (2) 2 (1) Retained earnings 2,014 (292) 292 2,014 ------- ------- ------- ------- 2,441 (114) 114 2,441 Cost of treasury stock (545) (8) 8 (545) ------- ------- ------- ------- TOTAL SHAREHOLDERS' EQUITY 1,896 (122) 122 1,896 ------- ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,121 $ 988 $ 53 $ 5,162 ======= ======= ======= =======
See the notes to the unaudited pro forma combined financial statements. 6 SUPPLEMENTAL UNAUDITED PRO FORMA COMBINED INCOME STATEMENT FOR THE YEAR-ENDED DECEMBER 2001
Discontinued (in millions, except earnings Temple- Gaylord Operations Acquisition Pro Forma per share) Inland (e) (f) Adjustments Acquisition ------------------------------ ------ ------- ------------ ----------- ----------- NET REVENUES $ 2,808 $ 1,052 $ (172) $ (37)(c) $ 3,651 COSTS AND EXPENSES Cost of sales 2,457 916 (180) (37)(c) 3,156 Selling and administrative 261 100 (10) -- 351 Other (income) expense (1) 6 (11) -- (6) ------- ------- ------- ------- ------- 2,717 1,022 (201) (37) 3,501 ------- ------- ------- ------- ------- 91 30 29 -- 150 FINANCIAL SERVICES EARNINGS 184 -- -- -- 184 ------- ------- ------- ------- ------- OPERATING INCOME 275 30 29 -- 334 Interest (98) (90) -- 34 (b) (154) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE TAXES 177 (60) 29 34 180 Income taxes (66) 23 (11) (13)(d) (67) ------- ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS $ 111 $ (37) $ 18 $ 21 $ 113 ======= ======= ======= ======= ======= EARNINGS PER SHARE Basic $ 2.26 $ 2.29 Diluted $ 2.26 $ 2.29 AVERAGE SHARES OUTSTANDING Basic 49.3 49.3 Diluted 49.3 49.3
See the notes to the unaudited pro forma combined financial statements. 7