-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R1mL0cajyhz3FkyBM/5qu4JN4vHmQ7qnBs0NqHr1c82eNZOr5I7oE9RNGajjEXLV vDl4u1sWXnO+OdYt+AK+CQ== 0000950134-96-000853.txt : 19960325 0000950134-96-000853.hdr.sgml : 19960325 ACCESSION NUMBER: 0000950134-96-000853 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960322 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEMPLE INLAND INC CENTRAL INDEX KEY: 0000731939 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD MILLS [2631] IRS NUMBER: 751903917 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08634 FILM NUMBER: 96537378 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-K405 1 FORM 10-K FOR YEAR ENDING DECEMBER 30, 1995 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 DECEMBER 30, 1995 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 PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE 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, 1996, was $1,900,268,458. 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, 1996, 55,560,184 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 27-36, 48, and 50-59 of the Annual Report to Shareholders for the fiscal year ended December 30, 1995 -- Parts I and II. (b) The Company's definitive proxy statement, dated March 22, 1996, in connection with the Annual Meeting of Shareholders to be held May 3, 1996 -- Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS: INTRODUCTION: Temple-Inland Inc. (the "Company") is a holding company that conducts all of its operations through its subsidiaries. The Company holds interests in corrugated container, bleached paperboard, building products, timber and timberlands, and financial services. The Company's corrugated container operations are vertically integrated and consist of four linerboard mills, three corrugated medium mills, 42 box plants, and six specialty converting plants. The Company also manufactures bleached paperboard at one mill 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 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 Forest Products Corporation ("Temple-Inland FPC"), Temple-Inland Financial Services Inc. ("Financial Services"), 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 --------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (IN MILLIONS) Revenues Corrugated container...................... $1,824.8 $1,438.2 $1,248.5 $1,254.4 $1,148.6 Bleached paperboard....................... 369.0 299.4 318.5 352.6 370.6 Building products......................... 502.4 549.3 475.3 391.3 311.1 Other activities.......................... -- 19.2 58.4 77.1 67.9 -------- -------- -------- ------- ------- Manufacturing net sales............... . 2,696.2 2,306.1 2,100.7 2,075.4 1,898.2 Financial services........................ 764.3 631.4 635.1 637.8 608.9 -------- -------- -------- ------- ------- Total revenues.................... $3,460.5 $2,937.5 $2,735.8 $2,713.2 $2,507.1 ======== ======== ======== ======== ======== Income before taxes Corrugated container...................... $ 344.0 $ 102.0 $ 21.0 $ 112.3 $ 75.4 Bleached paperboard....................... 18.6 (22.1) (12.1) 23.3 79.9 Building products......................... 61.0 132.6 99.1 39.5 5.2 Other activities.......................... -- 1.5 (1.9) (2.0) 1.1 -------- -------- -------- -------- -------- Operating profit....................... 423.6 214.0 106.1 173.1 161.6 Financial services........................ 98.1 56.3 67.5 64.4 54.2 -------- -------- -------- -------- -------- 521.7 270.3 173.6 237.5 215.8 Corporate expense........................... (21.7) (13.7) (11.2) (15.3) (16.0) Parent company interest -- net.............. (72.7) (67.1) (69.4) (48.0) (38.3) Other income................................ 3.7 3.8 3.2 2.8 5.3 -------- -------- -------- -------- -------- Income before taxes............... $ 431.0 $ 193.3 $ 96.2 $ 177.0 $ 166.8 ======== ======== ======== ======== ========
- --------------- For more information with respect to identifiable assets, capital expenditures, depreciation, and depletion on a business segment basis, see pages 35 and 58 of the Company's 1995 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 --------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (IN MILLIONS) Corrugated container........................ $1,824.8 $1,438.2 $1,248.5 $1,254.4 $1,148.6 Bleached paperboard Paperboard................................ 249.0 217.4 228.7 249.4 292.2 Pulp...................................... 36.9 22.1 33.4 47.3 44.8 Food Service and other.................... 83.1 59.9 56.4 55.9 33.6 Building products Pine lumber(a)............................ 159.6 185.7 153.8 120.9 87.6 Fiber products............................ 59.7 66.3 62.9 55.8 48.2 Particleboard............................. 99.1 103.0 81.3 70.5 60.7 Plywood................................... 49.3 56.8 54.0 45.2 36.9 Gypsum wallboard.......................... 83.1 74.3 53.3 36.6 33.1 Retail distribution(b).................... 51.3 58.4 60.0 53.5 42.2 Other..................................... .3 4.8 10.0 8.8 2.4 Other activities(c)......................... -- 19.2 58.4 77.1 67.9 -------- -------- -------- -------- -------- Manufacturing net sales................... 2,696.2 2,306.1 2,100.7 2,075.4 1,898.2 Financial services.......................... 764.3 631.4 635.1 637.8 608.9 -------- -------- -------- -------- -------- Total revenues.................... $3,460.5 $2,937.5 $2,735.8 $2,713.2 $2,507.1 ======== ======== ======== ======== ========
- --------------- (a) Excludes the Rome, Georgia, sawmill, sales from which totaled $28.3 million, $24.7 million, $20.2 million, $16.9 million, and $11.8 million, in 1995, 1994, 1993, 1992, and 1991, respectively, because its activities of fiber procurement and fiber processing are integrated with the operations of the Rome, Georgia, linerboard mill. (b) In October 1995, the Company sold the largest two of its five retail distribution outlets. (c) Includes the revenues from subsidiaries engaged in commercial, industrial, and public works contracting until its operations were terminated in 1993 and the revenues from subsidiaries engaged in the construction and maintenance of electrical distribution facilities until its operations were terminated in 1994. 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 UNIT SALES DECEMBER 30, ----------------------------------------- 1995 1995 1994 1993 1992 1991 ------------ ----- ----- ----- ----- ----- (IN THOUSANDS OF TONS) Corrugated container....................... (a) 2,333 2,492 2,394 2,294 2,097 Bleached paperboard Paperboard............................... (b) 400 430 426 414 447 Market pulp.............................. (b) 68 59 100 123 103 Nodular pulp............................. (b) 31 28 34 32 19 Building products (IN MILLIONS OF BOARD FEET) Pine lumber(c)........................... 545 493 509 484 467 395 (IN MILLIONS OF SQUARE FEET) Fiber products........................... 460 422 441 440 464 443 Particleboard(d)......................... 520 329 347 319 326 321 Plywood.................................. 265 217 260 265 250 253 Gypsum wallboard......................... 820 813 796 782 621 601
- --------------- (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 602,000 tons per year. The rated annual capacity of the linerboard mills is approximately 2.1 million tons per year. (b) The annual capacity of the four paper machines in operation at the paperboard and pulp mill is approximately 725,000 tons, which excludes the capacity of a fifth paper machine at the mill that was shut down late in 1993 due to market conditions for the paperboard grade it produced. The annual capacity shown above includes the rated annual capacity of the new No. 5 machine, which did not go on-line until late in the fourth quarter of 1995. 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, sales from which totaled 89 million board feet, 74 million board feet, 68 million board feet, 71 million board feet, and 59 million board feet in 1995, 1994, 1993, 1992, and 1991, respectively, because its activities of fiber procurement and fiber processing are integrated with the operations of the Rome, Georgia, linerboard mill. (d) The annual capacity for the particleboard plants includes the rated annual capacity of the Hope, Arkansas, plant, which did not begin operations until late in the fourth quarter of 1995. NARRATIVE DESCRIPTION OF THE BUSINESS: The business of the Company is divided among four groups: (1) the Corrugated Container Group operated by Inland and its subsidiaries, (2) the Bleached Paperboard Group operated by Temple-Inland FPC and its subsidiaries, (3) the Building Products Group operated by Temple-Inland FPC and its subsidiaries, and (4) the Financial Services Group operated by Financial Services and its subsidiaries. In the year ended December 30, 1995, corrugated container, bleached paperboard, building products, and financial services provided 53%, 11%, 14%, and 22%, respectively, of the total consolidated net revenues of the Company. On February 19, 1996, the Company announced that the management of its paper operations will be consolidated under the leadership of William B. Howes, Chairman and CEO of Inland. David L. Ashcraft will 4 6 continue to function as Group Vice President -- Bleached Paperboard, and will report to Mr. Howes. The Company will examine the operations and structure of the two paper groups to assess additional strategic opportunities and efficiencies that may be realized in this consolidation. Corrugated Container. Inland manufactures containerboard that it converts into a complete line of corrugated boxes and containers. Approximately 86 percent of the containerboard produced by Inland in 1995 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 food, paper, glass containers, chemical, appliance, and plastics industries, among others. As of December 30, 1995, about 46 percent of Inland's box shipments were sold directly for use in the food industry, including beverage containers. Following an acquisition in 1994, Inland also manufactures litho-laminate corrugated packaging and high graphics folding cartons. Other products manufactured by Inland include bulk containers constructed of multi-wall corrugated board for extra strength, which are used for bulk shipments of various materials, paper sealing tape, and other tape specialties. Inland services about 6,800 customers with approximately 10,600 shipping destinations. The largest single customer accounted for approximately 4 percent and the 10 largest customers accounted for approximately 26 percent of Inland's 1995 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. Historically, there has been a correlation between the demand for containers and containerboard and 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 14 percent of this segment's 1995 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 percent of this segment's 1995 sales. During 1995, sales were made to customers in 43 states, Mexico, and Puerto Rico, as well as to independent distributors through which this segment's products were exported to Asia, Japan, Central America, and South America. 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 was completed in late 1995 at a cost of approximately $500 million. The production benefits from this project should be achieved during 1996 as the mill continues to integrate components of its operations with the new facilities. The focus of the paperboard expansion program is to enable the efficient production of low-density paperboard with high quality characteristics that are increasingly demanded by end users. The project will also enable the mill to balance more effectively its pulp-making capacity with its board-making capacity. A cylinder machine located at the mill was shut down late in 1993 due to weak market conditions for the paperboard grade it produced. 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 5 7 a number of other factors, including changes in industry production capacity and the strength of international 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. 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 75 percent of particleboard sales are to commercial fabricators, such as manufacturers of cabinets and furniture. The 10 largest customers accounted for approximately 22 percent of the Building Products Group's 1995 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. During the year, the Company completed construction of a new particleboard plant located in Hope, Arkansas. The facility, which cost approximately $65 million to build, has an annual production capacity of 170 million square feet of particleboard. The Company also announced that it intends to upgrade the production facilities at its other particleboard mills and that it has entered into a joint venture that will produce medium density fiberboard. The Building Products Group also operates retail distribution outlets. In October 1995, the Company sold all of the assets of the largest two of these outlets, leaving it with three small outlets currently in operation. Financial Services. Financial Services operates a savings bank and engages in mortgage banking, real estate 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 113 banking centers located primarily in the eastern third of Texas, including Houston, Dallas, San Antonio, and Austin. The primary activities of Guaranty include attracting savings deposits from the general public, investing in loans secured by mortgages on residential real estate, being a major construction lender to the commercial and residential real estate industry, and providing a variety of loan products to consumers. Guaranty derives its income primarily from interest earned on real estate mortgages, commercial loans, consumer loans, and investment securities, as well as fees received in connection with loans and deposit services. Its major expense is the interest it pays on consumer deposits and other borrowings. The operations of Guaranty, like those of other savings institutions, 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 assets with interest rates that adjust periodically rather than assets with long-term fixed rates. In connection with the acquisition of Guaranty in 1988, the Company 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"), protection against losses on the book value of the Covered Assets and indemnification from certain claims and litigation. Pursuant to an acquisition in 1993, 6 8 Guaranty assumed all of the rights and obligations of American Federal Bank, F.S.B. ("AFB") pursuant to its assistance agreement (the "AFB Assistance Agreement" and, together with the GFB Assistance Agreement, the "Assistance Agreements") entered into during 1988 by AFB. Pursuant to the Guaranty Assistance Agreement, the Company also receives various tax benefits from the receipt of assistance payments under the Covered Asset guarantees held by Guaranty. The Company is required to share a portion of these tax benefits with the FSLIC Resolution Fund, a government-sponsored entity created in August 1989 and managed by the Federal Deposit Insurance Corporation (the "FDIC"). All of the notes issued pursuant to the Assistance Agreements have been prepaid. On October 31, 1995, the Company and Guaranty entered into a series of agreements (the "Termination Agreements") with the FDIC, as manager of the FSLIC Resolution Fund, terminating the Assistance Agreements. Pursuant to the Termination Agreements, Guaranty received a net payment from the FSLIC Resolution Fund of approximately $208 million in payment for the difference between (i) the transfer value of certain of the Covered Assets and (ii) the amount owed by Guaranty to the FSLIC Resolution Fund for the present value of its share of the tax benefits the Company received from the Assistance Agreements. Guaranty will also receive an additional payment totaling $9 million representing its portion of the gain sharing on asset dispositions as provided in the Assistance Agreements. The Company had recorded on its balance sheet an estimate of the tax sharing amounts to be paid to the FDIC in the future when the related tax benefits would be realized. The actual payment, however, was a negotiated amount that reduced the expected future payments to their present value. Although certain amounts are subject to finalization in 1996, the Company could potentially recognize a credit to its tax provision of approximately $30 million. The remainder of the Covered Assets have been retained by Guaranty, but will not be the subject of any on-going assistance. Guaranty used the proceeds received in connection with the Termination Agreements to pay down outstanding short-term borrowings. In addition, Guaranty expects to realize benefits from operating efficiencies derived from the elimination of the assets transferred to the FDIC. Both the House Banking Committee and the Senate Banking Committee have approved legislation that would recapitalize the Savings Association Insurance Fund ("SAIF") and merge the SAIF with the Bank Insurance Fund ("BIF"). This proposed legislation would have imposed a one-time assessment estimated to be $58 million on the deposits of Guaranty and would have ultimately reduced future deposit insurance premiums by approximately $15 million per year. Due to the recent budget impasse in Congress, the Company is unable to predict when or if such legislation will be adopted or, if adopted, the content of any such legislation. The House and Senate are also discussing additional legislative proposals, including changes to tax laws, related to the thrift industry. At this time, the Company is not able to predict if any of these proposals will be adopted or, if adopted, the ultimate impact they might have on the Company. 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 percent of adjusted total assets. Guaranty, however, has agreed with the OTS that at the time it makes any future acquisitions, it will maintain a leverage capital ratio of at least 4 percent of adjusted total assets, and in order to maintain its FDIC insurance premiums at the lowest level, Guaranty intends to maintain a leverage capital ratio of at least 5 percent of adjusted total assets. At December 31, 1995, Guaranty had a leverage capital ratio of 5.44 percent of adjusted total assets. 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, 1995, 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, warehouses, and services FHA, VA, and conventional mortgage loans primarily on single family residential property. Temple-Inland Mortgage originates mortgage loans for sale into the secondary market. It typically retains the servicing rights on these loans, but periodically sells some portion of its servicing to third parties. During 1995, Temple-Inland Mortgage entered into an agreement to provide 7 9 servicing on a select portfolio of mortgage loans that do not meet normal secondary market standards. These loans have been securitized pursuant to a pooling and security agreement, and at December 31, 1995, constitute $537 million of the total servicing portfolio. At December 31, 1995, Temple-Inland Mortgage was servicing $13.5 billion in mortgage loans. Temple-Inland Mortgage produced $1.2 billion in mortgage loans during 1995 compared with $2.1 billion during 1994. (iii) Real Estate Development and Income Properties. Subsidiaries of Financial Services are involved in the development of 19 residential subdivisions in Texas, Colorado, and Florida. The real estate group of the Company also owns 10 commercial properties. (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. 8 10 The following schedule presents the average balances, interest income/expense, and rates earned or paid by major balance sheet category for the years 1993 through 1995: AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST SPREAD
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 --------------------------- --------------------------- --------------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE -------- ------ ----- -------- ------ ----- -------- ------ ----- (DOLLARS IN MILLIONS) ASSETS: Interest-earning assets: Interest-earning deposits in other banks.............................. $ 41.4 $ 2.4 5.90% $ 26.0 $ 1.3 4.96% $ 22.6 $ .6 2.78% Mortgage-backed and investment securities......................... 3,650.4 208.6 5.72% 4,154.7 189.8 4.57% 4,981.8 241.9 4.86% Securities purchased under agreements to resell, agency discount notes, federal funds sold, and commercial paper.............................. 324.2 19.1 5.88% 653.5 27.2 4.16% 1,181.4 43.0 3.64% Loans receivable and mortgage loans held for sale(1)................... 4,490.2 368.6 8.21% 3,241.5 244.7 7.55% 2,248.9 172.9 7.69% Covered assets....................... 298.5 18.3 6.14% 536.2 30.3 5.66% 405.7 25.4 6.26% Other................................ 25.6 1.9 7.42% 25.4 2.2 8.52% 62.2 5.9 9.51% -------- ------ -------- ------ -------- ------ Total interest-earning assets....................... 8,830.3 $618.9 7.01% 8,637.3 $495.5 5.74% 8,902.6 $489.7 5.50% ====== ====== ====== Cash................................... 90.2 107.2 90.0 Other FSLIC receivables................ (10.7) 17.4 5.2 Other assets........................... 537.3 469.0 440.7 -------- -------- -------- Total assets................... $9,447.1 $9,230.9 $9,438.5 ======= ======= ======= LIABILITIES AND SHAREHOLDER'S EQUITY Interest-bearing liabilities: Deposits: Interest-bearing demand.......... $1,212.7 $ 29.9 2.47% $1,549.4 $ 34.5 2.23% $1,443.4 $ 34.1 2.36% Savings deposits................. 216.2 4.9 2.25% 248.3 5.6 2.26% 201.5 5.2 2.57% Time deposits.................... 5,037.6 278.1 5.52% 4,615.6 213.7 4.63% 3,919.7 197.5 5.04% -------- ------ -------- ------ -------- ------ Total interest-bearing deposits..................... 6,466.5 312.9 4.84% 6,413.3 253.8 3.96% 5,564.6 236.8 4.26% Advances from the Federal Home Loan Bank............................. 154.7 11.2 7.26% 154.3 9.5 6.13% 64.2 5.3 8.25% Securities sold under repurchase agreements....................... 1,719.2 102.6 5.97% 1,598.0 66.6 4.17% 2,734.2 88.4 3.23% Other borrowings................... 95.9 7.2 7.49% 64.4 4.5 6.90% 82.6 5.6 6.74% -------- ------ -------- ------ -------- ------ Total interest-bearing liabilities.................. 8,436.3 $433.9 5.14% 8,230.0 $334.4 4.06% 8,445.6 $336.1 3.98% ====== ====== ====== Noninterest-bearing demand............. 79.3 85.8 92.4 Other liabilities...................... 331.3 363.0 388.4 Shareholder's equity................... 600.2 552.1 512.1 -------- -------- -------- Total liabilities and shareholder's equity......... $9,447.1 $9,230.9 $9,438.5 ======= ======= ======= Net interest income............ $185.0 $161.1 $153.6 ====== ====== ====== Net yield on interest-earning assets....................... 2.10% 1.87% 1.73% ===== ===== =====
- --------------- (1) Nonaccruing loans are included in the average of loans receivable. 9 11 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
1995 COMPARED WITH 1994 1994 COMPARED WITH 1993 INCREASE (DECREASE) DUE TO(1) INCREASE (DECREASE) DUE TO(1) ------------------------------- -------------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------ ----- ------ ------ ------ ------ (IN MILLIONS) Interest income: Interest-earning deposits in other banks....... $ .9 $ .2 $ 1.1 $ .1 $ .6 $ .7 Mortgage-backed and investment securities...... (24.9 ) 43.7 18.8 (38.4 ) (13.7) (52.1) Securities purchased under agreements to resell, agency discount notes, federal funds sold, and commercial paper................... (16.0 ) 7.9 (8.1) (21.3 ) 5.5 (15.8) Loans receivable and mortgage loans held for sale......................................... 101.0 22.9 123.9 74.9 (3.1) 71.8 Covered assets................................. (14.4 ) 2.4 (12.0) 7.6 (2.7) 4.9 Other.......................................... -- (.3) (.3) (3.2 ) (.5) (3.7) ------ ------ ------ ------ ------ ------ TOTAL INTEREST INCOME................... $46.6 $76.8 $123.4 $19.7 $(13.9) $ 5.8 ====== ====== ====== ====== ====== ====== Interest expense: Deposits: Interest-bearing demand...................... $(8.1 ) $ 3.5 $ (4.6) $ 2.4 $ (2.0) $ .4 Savings deposits............................. (.7 ) -- (.7) 1.1 (.7) .4 Time deposits................................ 20.7 43.7 64.4 33.1 (16.9) 16.2 ------ ------ ------ ------ ------ ------ TOTAL INTEREST ON DEPOSITS.............. 11.9 47.2 59.1 36.6 (19.6) 17.0 Advances from the Federal Home Loan Bank....... -- 1.7 1.7 5.8 (1.6) 4.2 Securities sold under repurchase agreements.... 5.4 30.6 36.0 (43.0 ) 21.2 (21.8) Other borrowings............................... 2.3 .4 2.7 (1.2 ) .1 (1.1) ------ ------ ------ ------ ------ ------ TOTAL INTEREST EXPENSE.................. $19.6 $79.9 $ 99.5 $(1.8 ) $ .1 $ (1.7) ====== ====== ====== ====== ====== ====== Net interest income (expense).................. $27.0 $(3.1) $ 23.9 $21.5 $(14.0) $ 7.5 ====== ====== ====== ====== ====== ======
- --------------- (1) The change in interest income and expense 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, ---------------------------------- 1995 1994 1993 -------- -------- -------- (IN MILLIONS) Held-to-Maturity: Mortgage-backed securities............................................ $2,412.8 $3,760.4 $4,336.2 Debt securities U.S. Government securities (including agencies)..................... .3 .3 .8 Corporate bonds..................................................... -- 1.5 1.2 Other............................................................... .1 .1 .1 -------- -------- -------- .4 1.9 2.1 -------- -------- -------- Equity securities Federal Home Loan Bank Stock........................................ -- -- 68.9 Other............................................................... -- -- .1 -------- -------- -------- -- -- 69.0 -------- -------- -------- Available-for-Sale: Mortgage-backed securities............................................ 949.6 137.7 -- Debt securities Corporate bonds..................................................... 1.4 -- -- Equity securities Federal Home Loan Bank Stock........................................ 57.7 63.2 -- Other............................................................... 1.7 1.0 -- -------- -------- -------- 59.4 64.2 -- -------- -------- -------- $3,423.6 $3,964.2 $4,407.3 ======= ======= =======
10 12 The table below sets forth the maturities of mortgage-backed and investment securities as of December 31, 1995: MATURITY DISTRIBUTION OF MORTGAGE-BACKED AND INVESTMENT SECURITIES
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 MILLIONS) Held-to-Maturity: Mortgage-backed securities..... $ -- -- $ -- -- $ -- -- $ -- -- $2,412.8 5.89 % $2,412.8 Debt securities: U.S. Government securities (including agencies)....... .3 5.60 % -- -- -- -- -- -- -- -- .3 Certificate of deposits...... .1 6.83 % -- -- -- -- -- -- -- -- .1 Available-for-Sale: Mortgage-backed securities..... -- -- -- -- -- -- -- -- 949.6 6.21 % 949.6 Debt securities Corporate bonds.............. -- -- .6 9.00 % -- -- .8 6.83 % -- -- 1.4 Equity securities Federal Home Loan Bank stock...................... -- -- -- -- -- -- -- -- 57.7 6.46 % 57.7 Other........................ -- -- -- -- -- -- -- -- 1.7 N/A 1.7 ------ ------ ------ ------ -------- -------- -- -- -- -- -- -- -- 59.4 59.4 ------ ------ ------ ------ -------- -------- $ .4 $ .6 $ -- $ .8 $3,421.8 $3,423.6 ======= ======= ======= ======= ======= ========
The following table shows the loan distribution for Financial Services: TYPES OF LOANS
AS OF DECEMBER 31, -------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- (IN MILLIONS) Real estate mortgage................................ $3,341.6 $3,137.5 $2,302.9 $1,153.3 $ 863.2 Construction and development........................ 1,879.0 1,022.6 643.7 274.6 216.6 Commercial.......................................... 406.3 229.0 80.7 25.4 58.2 Consumer and other.................................. 416.0 366.0 404.1 271.1 294.9 -------- -------- -------- -------- -------- 6,042.9 4,755.1 3,431.4 1,724.4 1,432.9 Less: Unfunded portion of loans......................... 1,211.8 1,027.7 614.0 320.6 146.1 Unearned discounts................................ -- .6 3.0 9.3 24.5 Unamortized purchase discounts.................... (1.8) (5.1) 8.9 28.1 39.5 Net deferred fees................................. 3.0 3.2 2.2 2.3 .7 Allowance for loan losses......................... 65.5 53.9 47.9 20.8 19.5 -------- -------- -------- -------- -------- 1,278.5 1,080.3 676.0 381.1 230.3 -------- -------- -------- -------- -------- $4,764.4 $3,674.8 $2,755.4 $1,343.3 $1,202.6 ======= ======= ======= ======= =======
11 13 The table below presents the maturity distribution of loans (excluding real estate mortgage and consumer loans) outstanding at December 31, 1995, 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 -------------------------------------------- WITHIN 1 TO 5 AFTER 1 YEAR YEARS 5 YEARS TOTAL -------- ------ ------- -------- (IN MILLIONS) Construction and development......................... $1,228.2 $648.9 $ 1.9 $1,879.0 Commercial........................................... 188.2 206.8 11.3 406.3 -------- ------ ------- -------- $1,416.4 $855.7 $13.2 $2,285.3 ======= ====== ====== ======= Loans maturing after 1 year with: Fixed interest rates............................... $721.6 $10.1 Variable interest rates............................ 134.1 3.1 ------ ------- $855.7 $13.2 ====== ======
Loans accounted for on a nonaccrual basis, accruing loans that are contractually past due 90 days or more, and restructured or other potential problem loans were less than two percent of total loans during 1995, 1994, 1993, 1992, and 1991. 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, ------------------------------------------------------ 1995 1994 1993 1992 1991 ------ ----- ----- ----- ----- (DOLLARS IN MILLIONS) Balance at beginning of year............... $ 53.9 $47.9 $20.8 $19.5 $ 2.0 Charge-offs: Real estate mortgages.................... (3.9) (4.4)(a) (.7) (1.8) (.4) Commercial............................... (.7) (1.1) -- -- -- Consumer and other....................... (5.0) (4.7)(a) (1.8) (1.9) (1.6) ------ ----- ----- ----- ----- (9.6) (10.2) (2.5) (3.7) (2.0) Recoveries: Real estate mortgages.................... 1.1 .6 .2 .2 -- Commercial............................... .5 .1 -- -- -- Consumer and other....................... .8 1.4 .6 .8 .2 ------ ----- ----- ----- ----- 2.4 2.1 .8 1.0 .2 ------ ----- ----- ----- ----- Net charge-offs.................. (7.2) (8.1)(a) (1.7) (2.7) (1.8) Additions charged to operations............ 14.6 6.5 4.8 2.6 2.3 Additions related to bulk purchases of loans, net of adjustment................. 4.2 7.6 24.0(a) 1.4 17.0 ------ ----- ----- ----- ----- Balance at end of year..................... $ 65.5 $53.9 $47.9 $20.8 $19.5 ====== ===== ===== ===== ===== Ratio of net charge-offs during the year to average loans outstanding during the year..................................... .16% .27% .10% .22% .15% ====== ===== ===== ===== =====
- --------------- (a) Principally related to the loan portfolio from the acquisition of AFB. 12 14 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 --------------------- --------------------- --------------------- --------------------- --------------------- 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 mortgage..... $37.3 55% $37.5 66% $24.5 67% $13.5 67% $13.2 60% Construction and development... 3.9 31% 1.3 21% 1.0 19% .5 16% .3 15% Commercial..... 19.4 7% 10.2 5% 14.7 2% 2.8 1% .7 4% Consumer and other........ 4.9 7% 4.9 8% 7.7 12% 4.0 16% 5.3 21% --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- $65.5 100% $53.9 100% $47.9 100% $20.8 100% $19.5 100% ========= ========= ========= ========= ========= ========= ========= ========= ========= =========
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 9 hereof. The amount of time deposits of $100,000 or more and related maturities at December 31, 1995, are disclosed in Note F to Financial Services Group Summarized Financial Statements on page 48 of the Company's 1995 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, ---------------------------- 1995 1994 1993(1) ------ ------ ------ Return on average assets........................................ .75% .44% 1.07% Return on average equity........................................ 11.79% 7.41% 19.73% Dividend payout ratio........................................... 70.66% 73.22% 41.56% Equity to assets ratio.......................................... 6.35% 5.99% 5.43%
- --------------- (1) The 1993 ratios reflect the effect of an accounting change due to the adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, of approximately $52 million. 13 15 Short-term borrowings. The following table shows short-term borrowings outstanding at the end of the reported period: SHORT TERM BORROWINGS (IN MILLIONS)
WEIGHTED MAXIMUM AVERAGE AVERAGE WEIGHTED AMOUNT AMOUNT INTEREST BALANCE AT AVERAGE OUTSTANDING OUTSTANDING RATE END OF INTEREST DURING THE DURING THE DURING THE PERIOD RATE PERIOD PERIOD PERIOD ---------- -------- ----------- ----------- ---------- Securities sold under agreements to repurchase 1995.............................. $1,603.7 5.8% $1,914.1 $1,719.2 5.9% 1994.............................. $1,365.2 6.1% $2,300.2 $1,598.0 4.1% 1993.............................. $1,570.7 3.3% $2,437.2 $2,734.2 3.2%
Note: Securities sold under agreements to repurchase generally mature within one to four days of the transaction date. Average borrowings during the year was calculated based on daily average. 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 1995, wood fiber required for the Company's paper and wood products operations was produced from these lands and as a by-product of its solid wood operations to the extent shown on the following chart: WOOD FIBER REQUIREMENTS
PERCENTAGE SUPPLIED RAW MATERIALS INTERNALLY -------------------------------------------------- ---------- Sawtimber......................................... 45.2% Pine Pulpwood..................................... 56.3% Hardwood Pulpwood................................. 27.4%
The balance of the wood fiber required for these operations was purchased from numerous landowners and other lumber companies. In an effort to meet its projected need for hardwood fiber, the Company has entered into a joint venture to operate a eucalyptus plantation in Mexico. The Company expects to begin receiving fiber from this venture in five to seven years. During 1995, the bleached paperboard mill in Evadale, Texas, purchased small amounts of recycled pulp. Now that the expansion program is completed, this mill may purchase increasing amounts of recycled fiber. Linerboard and corrugated 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 corrugated medium. The Newport, Indiana, Newark, California, and New Johnsonville, Tennessee, mills are solely corrugated medium mills. The principal raw material used by the Rome, Georgia, and Orange, Texas, mills is virgin fiber. The Ontario, California; Newark, California; Newport, Indiana; and Maysville, Kentucky, mills use only old corrugated containers ("OCC"). The mill at New Johnsonville, Tennessee, uses a combination of virgin fiber and OCC. The price of OCC may exhibit volatility due to normal supply and demand fluctuations for the raw material and for the finished product. In 1995, the average delivered price of OCC was $156 per ton compared with $101 per ton during 1994. OCC is purchased by the Company and its competitors on the open market from numerous suppliers. Price fluctuations reflect the competitiveness of these markets. The Company's historical grade patterns produce more linerboard and less corrugated medium than is converted at 14 16 the Company's box plants. The deficit of corrugated 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 Company's manufacturing facilities 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. By utilizing these waste products, Inland was able to generate approximately 16 percent of its energy requirements at its mills in Rome, Georgia, and Orange, Texas, and Temple-Inland FPC generated approximately 47 percent of its energy requirements during 1995. The Ontario, California, mill includes a cogeneration plant that sells excess electricity generated to an electric utility. 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. The natural gas needed to run the Company's natural gas fueled power boilers is acquired pursuant to multiple gas contracts that provide for the purchase of gas on an interruptible basis at favorable rates. EMPLOYEES: At December 30, 1995, the Company and its subsidiaries had approximately 15,400 employees. Approximately 5,300 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 513 Hourly Production Employees, August 1, 1998 Union ("UPIU"), Local 801, UPIU, 206 Hourly Mechanical Mainte- Local 825, and International nance Employees, and 70 Brotherhood of Electrical Workers Electrical Maintenance Employees ("IBEW"), Local 390 Linerboard Mill, Orange, Texas... UPIU, Local 1398, and UPIU, Local 226 Hourly Production Employees July 31, 1999 391 and 109 Hourly Maintenance Employees Linerboard Mill, Rome, Georgia... UPIU, Local 804, IBEW, Local 613, 312 Hourly Production Employees, August 28, 2000 United Association of Journeymen 43 Electrical Maintenance Employ- & Apprentices of the Plumbing & ees and 178 Hourly Maintenance Pipefitting Industry of the U.S. Employees and Canada, Local 766, and Inter- 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 107 Hourly Production Employees, April 30, 1996 1737, UPIU, Local 114, and UPIU, 97 Hourly Production Employees, Local 954, respectively 108 Hourly Production Employees, and 83 Hourly Production Employ- ees, respectively Rome, Georgia, and Orlando, Florida, Box Plants ("Southern Multiple")....................... UPIU Local 838 and UPIU Local 150 and 109 Hourly Production December 1, 1997 834, respectively Employees, respectively
15 17 The Company has additional collective bargaining agreements with the employees of various of its other box plants, mills, and building products plants. These agreements each cover a relatively small 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 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 $9 million during 1995. 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 the environment and strives to maintain compliance with all state and federal environmental regulations in a manner that is also cost effective. In the construction of new facilities and the modernization of existing facilities, such as the modernization at the mill in Evadale, Texas, the Company has used state of the art technology for its air and water emissions. These forward-looking programs are intended to 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 currently estimates that capital expenditures for environmental purposes during the period 1996 through 1998 will average approximately $15 million each year. 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 may 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 not expected to exceed $200 million over the next five years, and could be less if the Company's recovery boilers meet the new standards. RCRA establishes a regulatory program for the treatment, storage, transportation, and disposal of solid and 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 various facilities. These closure plans are in various states of implementation, with most sites simply awaiting state certification. The 16 18 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. 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 almost 1,500 box plants in the United States. Box plants operated by Inland and its subsidiaries accounted for 8.3 percent of total industry shipments during 1995. 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. Financial Services competes 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 - ---------------------------------- --- --------------------------------------------- Clifford J. Grum.................. 61 Chairman of the Board and Chief Executive Officer David L. Ashcraft................. 50 Group Vice President William B. Howes.................. 58 Group Vice President Harold C. Maxwell................. 55 Group Vice President Kenneth M. Jastrow, II............ 48 Group Vice President and Chief Financial Officer M. Richard Warner................. 44 Vice President, General Counsel, and Secretary David H. Dolben................... 60 Vice President and Chief Accounting Officer David W. Turpin................... 45 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, a Director of Inland, Chairman of the Board of Guaranty, and a Director of Financial Services. David L. Ashcraft became a 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. 17 19 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 a Group Vice President of the Company in 1995 and the Chief Financial Officer of the Company in November 1991. He also serves as Chairman of the Board and Chief Executive Officer of Financial Services, President and Chief Executive Officer of Guaranty, and Chairman of the Board and Chief Executive Officer 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. M. Richard Warner became Vice President, General Counsel and Secretary of the Company in June 1994. From 1991 to 1994, Mr. Warner was an attorney in private practice in Lufkin, Texas. Mr. Warner served as Treasurer of the Company from January 1986 to 1990 and as Vice Chairman of Guaranty from 1990 to 1991. David H. Dolben became Vice President of the Company in May 1987. Mr. Dolben also serves as Vice President, Treasurer, and a Director of Temple-Inland FPC and a Director of Inland. David W. Turpin became Treasurer of the Company in June 1991. Mr. Turpin also serves as the Executive Vice President and Chief Financial Officer of Lumbermen's Investment Corporation, a real estate subsidiary of the Company. Mr. Turpin was first employed by the Company in December 1990 as the Senior Vice President and Treasurer of Lumbermen's Investment Corporation. 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 and has three box plants in Mexico and 50 percent joint venture interests in box plants in Argentina and Chile. Additional descriptions as of year-end of selected properties are set forth in the following charts: CONTAINERBOARD MILLS
RATED NO. OF ANNUAL 1995* LOCATION PRODUCT MACHINES CAPACITY PRODUCTION - ------------------------------------------------- ------------ -------- -------- ---------- (IN TONS) Ontario, California.............................. Linerboard 1 295,000 269,000 Rome, Georgia.................................... Linerboard 2 805,000 778,000 Orange, Texas.................................... Linerboard/ 2 675,000 609,000 Kraft Paper Maysville, Kentucky.............................. Linerboard 1 345,000 306,000 Newark, California............................... Medium 2 70,000 62,000 Newport, Indiana................................. Medium 1 275,000 253,000 New Johnsonville, Tennessee...................... Medium 1 257,000 237,000
- --------------- * Production during the second half of 1995 was curtailed due to economic conditions in the industry. 18 20 BLEACHED PAPERBOARD MILL
RATED NO. OF ANNUAL 1995 LOCATION PRODUCT MIX MACHINES CAPACITY PRODUCTION - ------------------------- --------------------- -------- -------- ---------- (IN TONS) Evadale, Texas........... Bleached Pulp 2% 4 725,000 9,336 Food Service 40% 233,368 Packaging 29% 168,748 Office Supplies 18% 104,140 Specialties 6% 33,411 Nodular Pulp 5% 31,137 ---- -------- ---------- 100% 4 725,000* 580,140 ===== ======= ========
- --------------- * Such capacity may vary to some degree depending on product mix. A fifth machine at the mill is no longer operating due to market conditions for the paperboard grade it was designed to produce. The annual capacity shown above includes the rated annual capacity of the new No. 5 machine, which did not go on-line until late in the fourth quarter of 1995. 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 Farmersville, Louisiana(1)........................................... 29,000 1994
- --------------- * 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) These facilities are 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. 19 21 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" 1973 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 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 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......................................... 98" 1980 Rock Hill, South Carolina......................................... 87" 1972 Elizabethton, Tennessee........................................... 98" 1982 Elizabethton, Tennessee(1)***..................................... None 1990 Dallas, Texas..................................................... 98" 1962 Edinburg, Texas................................................... 87" 1989 Petersburg, Virginia.............................................. 87" 1991 San Jose Iturbide, Mexico......................................... 87" 1994 Monterrey, Mexico................................................. 63" 1994 Los Mochis, Sinaloa, Mexico***.................................... None 1995 Buenos Aires, Argentina(2)........................................ 98" 1994 Santiago, Chile(2)................................................ 87" 1995
- --------------- * 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. (2) This facility is owned by a joint venture in which the Company has a 50% interest. (3) During 1995, the Company also operated a box plant in Macon, Georgia, which was closed at the end of the year. 20 22 Additionally, Inland owns a graphics resource center in Indianapolis, Indiana, that has a 100" preprint press and a tape manufacturing facility in Milwaukee, Wisconsin, and also leases 30 warehouses located throughout much of the United States. Inland owns a specialty converting plant in Harrington, Delaware, and leases specialty converting plants in Ontario, California; Leominster, Massachusetts; and Rural Hall, North Carolina. BUILDING PRODUCTS
RATED ANNUAL DESCRIPTION LOCATION CAPACITY - ------------------------------------------------------ ------------------------ --------------- (IN MILLIONS OF BOARD FEET) Lumber................................................ Diboll, Texas 150* Lumber................................................ Pineland, Texas 85 Lumber................................................ Buna, Texas 170 Lumber................................................ Rome, Georgia 90 Lumber................................................ DeQuincy, Louisiana 140
- --------------- * Includes separate finger jointing capacity of 10 million board feet.
RATED ANNUAL DESCRIPTION LOCATION CAPACITY - ------------------------------------------------------ ------------------------ --------------- (IN MILLIONS OF SQUARE FEET) Fiberboard............................................ Diboll, Texas 460 Particleboard......................................... Monroeville, Alabama 120 Particleboard......................................... Thomson, Georgia 115 Particleboard......................................... Diboll, Texas 115 Particleboard......................................... Hope, Arkansas 170 Plywood............................................... Pineland, Texas 265 Gypsum Wallboard...................................... West Memphis, Arkansas 390 Gypsum Wallboard...................................... Fletcher, Oklahoma 430
TIMBER AND TIMBERLANDS* (IN ACRES) Pine Plantations.......................................................... 1,303,716 Natural Pine.............................................................. 355,146 Hardwood.................................................................. 213,080 Special Use............................................................... 42,975 --------- TOTAL................................................................... 1,914,917 =========
- --------------- * Includes approximately 95,000 acres of leased land. 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. 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. During 1995, the Company completed construction of a 270,000 square foot office building in Austin, Texas, which houses nearly 1,000 employees of Financial Services. The Company also owns 341,000 mineral acres in Texas and Louisiana. Revenue from lease and production activities on these acres totaled $4.8 million in 1995. Additionally, the Company owns 395,830 mineral acres in Alabama and Georgia. There was no significant income from these mineral acres in 1995. 21 23 At year end 1995, property and equipment having a net book value of approximately $42.9 million were subject to liens in connection with $62.4 million of debt. ITEM 3. LEGAL PROCEEDINGS: GENERAL: The Company and its 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 to the business or financial condition 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 (2,3,7,8 -- TCDD) in some samples of paper mill sludge and bleach pulp. During 1992, the Company completed modifications to its bleaching process that successfully reduced the dioxin in its wastewater emissions to a point that dioxin was not detected in tests conducted during 1994 and 1995. The possible effects of human exposure to dioxin in trace amounts is currently the subject of much debate. Based on scientific studies conducted to date, the Company believes that human exposure to dioxin in whatever trace concentration might remain, if any, in the Company's treated wastewater does not represent a health risk to its employees or to the public. 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. In July 1993, a subsidiary's facility in Rome, Georgia, experienced a significant upset in its wastewater treatment process. This upset caused the Georgia environmental agency to order a temporary cessation of production. 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 other potential claims. During the fourth quarter of 1995, the Company paid a fine in the amount of $318,650 to the Texas Natural Resource Conservation Commission pursuant to an agreed order in settlement of alleged violations dating back to 1993 involving odor violations, TRS and particulate emission violations, and record keeping and reporting violations at the Company's bleached paperboard mill in Evadale, Texas. Management believes, however, that these matters will not result in liability to an extent that would have a material adverse effect on the business or financial condition of the Company. 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 22 24 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 indemnification agreement 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 business or financial condition 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 STOCKHOLDER MATTERS: MARKET INFORMATION: The information concerning market prices of the Company's Common Stock required by this item is incorporated by reference from page 36 of the Company's 1995 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, 1996, there were approximately 7,650 holders of record of the Common Stock. DIVIDEND POLICY: On February 2, 1996, the Board of Directors declared a quarterly dividend on the Common Stock of $.30 per share payable on March 15, 1996, to shareholders of record on March 1, 1996. During the first three quarters of 1994, the Company paid a quarterly dividend of $.25 per share. The quarterly dividend was increased to $.27 per share beginning with the dividend payable December 15, 1994. The dividend was again increased to $.30 per share beginning with the dividend payable September 15, 1995. 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. ITEM 6. SELECTED FINANCIAL DATA: The information required by this item is incorporated by reference from page 36 of the Company's 1995 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 27 through 35 of the Company's 1995 Annual Report to Shareholders furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b). 23 25 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 11 through 18 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. 1. FINANCIAL STATEMENTS:
PAGE ITEM NUMBER -------------------------------------------------------------------------- ------ Temple-Inland Inc. and Subsidiaries Report of Independent Auditors*......................................... 59 Consolidated Statements of Income -- three years ended December 30, 1995*................................................................ 50 Consolidating Balance Sheets at December 30, 1995 and December 31, 1994*................................................................ 52-53 Consolidated Statements of Shareholders' Equity -- three years ended December 30, 1995*................................................... 54 Consolidated Statements of Cash Flows -- three years ended December 30, 1995*................................................................ 51 Notes to Consolidated Financial Statements*............................. 55-58
- --------------- * Incorporated herein by reference from the Company's Annual Report to Shareholders for the fiscal year ended December 30, 1995, and filed for purposes of those portions so incorporated as Exhibit 13. Page numbers refer to page numbers in the Company's 1995 Annual Report to Shareholders. 24 26 2. FINANCIAL STATEMENT SCHEDULE: The following Financial Statement Schedule of the Company required by Regulation S-X and excluded from the Annual Report to Shareholders for the year ended December 30, 1995, is filed herewith at the page indicated.
PAGE ITEM NUMBER -------------------------------------------------------------------------- ------ Temple-Inland Inc. and Subsidiaries Schedule II -- Valuation and Qualifying Accounts........................ 29
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(18) 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(12), and as amended by Third Supplemental Indenture dated as of May 9, 1991(13) 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(12) 4.05 -- Form of Floating-rate Medium-Term Note, Series B, of the Company(12) 4.06 -- Form of 9% Note due May 1, 2001, of the Company(15) 4.07 -- Form of Fixed-rate Medium-Term Note, Series D, of the Company(14) 4.08 -- Form of Floating-rate Medium-Term Note, Series D, of the Company(14) 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(16) 4.12 -- Form of 8.25% Debenture due September 15, 2022, of the Company(16) 10.01* -- 1988 Stock Option Plan for Key Employees and Directors of Temple-Inland Inc. and its Subsidiaries(8) 10.02* -- Form of Incentive Option Agreement under the 1988 Stock Option Plan(8) 10.03* -- Form of Nonqualified Option Agreement under the 1988 Stock Option Plan(8) 10.04* -- Temple-Inland Inc. Incentive Stock Plan(1), as amended May 6, 1988(9), as amended February 7, 1992(18) 10.05* -- Form of Incentive Shares Agreement(10) 10.06* -- 1988 Performance Unit Plan for Key Employees of Temple-Inland Inc. and its Subsidiaries(9), as amended February 4, 1994(20) 10.07* -- Form of Performance Unit Rights Agreement under the Performance Unit Plan(6)
25 27
EXHIBIT NUMBER EXHIBIT - -------------------- ------------------------------------------------------------------------ 10.08 -- 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.(11) 10.09* -- Temple-Inland Inc. 1993 Stock Option Plan(17) 10.10* -- Temple-Inland Inc. 1993 Restricted Stock Plan(17) 10.11* -- Temple-Inland Inc. 1993 Performance Unit Plan(17), as amended February 4, 1994(20) 10.12 -- 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(19) 10.13 -- 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(19) 10.14 -- 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(19) 10.15 -- 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(19) 10.16 -- Holdback Escrow Agreement by and among LST, Guaranty, and Bank One, Texas, N.A. dated as of November 12, 1993(19) 10.17 -- Termination Agreement by and among Federal Deposit Insurance Corporation, as Manager of the FSLIC Resolution Fund, Guaranty Federal Bank, F.S.B., Guaranty Holdings Inc. I, and Temple-Inland Inc., dated as of October 31, 1995(21) 10.18 -- GFB Tax Agreement by and among Federal Deposit Insurance Corporation, as Manager of the FSLIC Resolution Fund, Guaranty Federal Bank, F.S.B., Guaranty Holdings Inc. I, and Temple-Inland Inc., dated as of October 31, 1995(21) 10.19 -- Termination Agreement by and among Federal Deposit Insurance Corporation, as Manager of the FSLIC Resolution Fund, Guaranty Federal Bank, F.S.B., the surviving institution resulting from the merger of American Federal Bank, F.S.B. with and into Guaranty, which subsequently became the successor-in-interest to LSST Financial Services Corporation, Guaranty Holdings Inc. I, and Temple-Inland Inc., dated as of October 31, 1995(21) 10.20 -- AFB Tax Agreement by and among Federal Deposit Insurance Corporation, as Manager of the FSLIC Resolution Fund, Guaranty Federal Bank, F.S.B., the surviving institution resulting from the merger of American Federal Bank, F.S.B. with and into Guaranty, which subsequently became the successor-in-interest to LSST Financial Services Corporation, Guaranty Holdings Inc. I, and Temple-Inland Inc., dated as of October 31, 1995(21) 11 -- Statement re: Computation of Per Share Earnings for the three years ended December 30, 1995(22) 13 -- Annual Report to Shareholders for the year ended December 30, 1995. 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(22) 23 -- Consent of Ernst & Young LLP(22) 27 -- Financial Data Schedule(22)
- --------------- * Management contract or compensatory plan or arrangement. 26 28 (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 Registration Statement No. 33-23132 on Form S-8 filed by the Company with the Commission. (9) Incorporated by reference to the Company's Definitive Proxy Statement filed with the Commission on March 18, 1988. (10) Incorporated by reference to the Company's Form 10-K for the year ended December 31, 1983. (11) Incorporated by reference to the Company's Form 8-K filed with the Commission on October 14, 1988. (12) Incorporated by reference to the Company's Form 8-K filed with the Commission on December 27, 1990. (13) Incorporated by reference to Registration Statement No. 33-40003 on Form S-3 filed by the Company with the Commission. (14) Incorporated by reference to Registration Statement No. 33-43978 on Form S-3 filed by the Company with the Commission. (15) Incorporated by reference to the Company's Form 8-K filed with the Commission on May 2, 1991. (16) Incorporated by reference to Registration Statement No. 33-50880 on Form S-3 filed by the Company with the Commission. (17) 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. (18) Incorporated by reference to the Company's Form 10-K for the year ended January 2, 1993. (19) Incorporated by reference to the Company's Form 8-K filed with the Commission on November 24, 1993. (20) Incorporated by reference to the Company's Form 10-K for the year ended January 1, 1994. (21) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. (22) Filed herewith. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter of 1995. 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 22, 1996. 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 22, 1996 ------------------------------ Board, and Chief Executive Clifford J. Grum Officer /s/ KENNETH M. JASTROW, II Group Vice President and March 22, 1996 ------------------------------ Chief Financial Officer Kenneth M. Jastrow, II /s/ DAVID H. DOLBEN Vice President and Chief March 22, 1996 ------------------------------ Accounting Officer David H. Dolben /s/ PAUL M. ANDERSON Director March 22, 1996 ------------------------------ Paul M. Anderson /s/ ROBERT CIZIK Director March 22, 1996 ------------------------------ Robert Cizik /s/ ANTHONY M. FRANK Director March 22, 1996 ------------------------------ Anthony M. Frank /s/ BOBBY R. INMAN Director March 22, 1996 ------------------------------ Bobby R. Inman /s/ HERBERT A. SKLENAR Director March 22, 1996 ------------------------------ Herbert A. Sklenar /s/ WALTER P. STERN Director March 22, 1996 ------------------------------ Walter P. Stern /s/ ARTHUR TEMPLE III Director March 22, 1996 ------------------------------- Arthur Temple III /s/ CHARLOTTE TEMPLE Director March 22, 1996 -------------------------------- Charlotte Temple /s/ LARRY E. TEMPLE Director March 22, 1996 -------------------------------- Larry E. Temple
28 30 SCHEDULE II TEMPLE-INLAND INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
CHARGED BALANCE AT CHARGED TO TO OTHER BALANCE BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTIONS -- AT END PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD ------------ ---------- ----------- ------------- --------- Year ended December 30, 1995: Deducted from accounts receivable: Allowance for doubtful accounts................... $ 8.4 $ 1.9 $ -- $ 2.0(A) $ 8.3 Reserve for discounts and allowances................. .7 -- 7.9(B) 7.1(C) 1.5 Allowance for loan losses.... 53.9 14.6 4.2(D) 7.2(A) 65.5 Allowance for unrealized losses on available-for-sale securities................. .7 (.7) (1.7)(E) -- (1.7) Allowance for unrealized losses on mortgage loans held for sale.............. .8 -- -- .5(A) .3 ------ ---------- ----------- ------ --------- Totals.................. $ 64.5 $ 15.8 $10.4 $16.8 $73.9 ========= ======== ========= ========== ======= Year ended December 31, 1994: Deducted from accounts receivable: Allowance for doubtful accounts................... $ 7.4 $ 1.9 $ -- $ .9(A) $ 8.4 Reserve for discounts and allowances................. 1.0 2.7 5.1(B) 8.1(C) .7 Allowance for loan losses.... 47.9 6.5 7.6(D) 8.1(A) 53.9 Allowance for unrealized losses on available-for-sale securities................. -- .7 -- -- .7 Allowance for unrealized losses on mortgage loans held for sale.............. 1.6 (.3) -- .5(A) .8 ------ ---------- ----------- ------ --------- Totals.................. $ 57.9 $ 11.5 $12.7 $17.6 $64.5 ========= ======== ========= ========== ======= Year ended January 1, 1994: Deducted from accounts receivable: Allowance for doubtful accounts................... $ 5.8 $ 2.6 $ -- $ 1.0(A) $ 7.4 Reserve for discounts and allowances................. .6 2.5 4.7(B) 6.8(C) 1.0 Allowance for loan losses.... 20.8 4.8 24.0(D) 1.7(A) 47.9 Allowance for unrealized losses on mortgage loans held for sale.............. 2.1 .2 -- .7(A) 1.6 ------ ---------- ----------- ------ --------- Totals.................. $ 29.3 $ 10.1 $28.7 $10.2 $57.9 ========= ======== ========= ========== =======
- --------------- (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. (E) Unrealized gains. 29 31 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER EXHIBIT PAGE - ---------- ----------------------------------------------------------------------------------- 11 -- Statement re: Computation of Per Share Earnings for the three years ended December 30, 1995 13 -- Annual Report to Shareholders for the year ended December 30, 1995. 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 23 -- Consent of Ernst & Young LLP 27 -- Financial Data Schedules
EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 TEMPLE-INLAND INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (IN MILLIONS EXCEPT FOR PER SHARE DATA)
YEAR ENDED ---------------------------------------- DECEMBER 30, DECEMBER 31, JANUARY 1, 1995 1994 1994 ------------ ------------ ---------- PRIMARY Average common shares outstanding........................... 56.0 55.8 55.3 Net effect of dilutive stock options based on treasury stock method using average market price......................... .1 .1 .2 ------------ ------------ ---------- Weighted average shares outstanding.................... 56.1 55.9 55.5 ========== ========== ======= Net income: Income before accounting changes.......................... $281.0 $131.4 $ 67.3 Cumulative effect of accounting changes................... -- -- 50.0 ------------ ------------ ---------- Net income................................................ $281.0 $131.4 $117.3 ========== ========== ======= Earnings per share: Before accounting changes................................. $ 5.01 $ 2.35 $ 1.21 Effect of accounting changes.............................. -- -- .90 ------------ ------------ ---------- Earnings per share........................................ $ 5.01 $ 2.35 $ 2.11 ========== ========== ======= FULLY DILUTED Average common shares outstanding........................... 56.0 55.8 55.3 Net effect of dilutive stock options based on treasury stock method using the closing market price, if higher than average market price...................................... .1 .1 .3 ------------ ------------ ---------- Weighted average shares outstanding.................... 56.1 55.9 55.6 ========== ========== ======= Net income: Income before accounting changes.......................... $281.0 $131.4 $ 67.3 Cumulative effect of accounting changes................... -- -- 50.0 ------------ ------------ ---------- Net income................................................ $281.0 $131.4 $117.3 ========== ========== ======= Earnings per share: Before accounting changes................................. $ 5.01 $ 2.35 $ 1.21 Effect of accounting changes.............................. -- -- .90 ------------ ------------ ---------- Earnings per share........................................ $ 5.01 $ 2.35 $ 2.11 ========== ========== =======
EX-13 3 ANNUAL REPORT TO SHAREHOLDERS 1 Exhibit 13 MANAGEMENT'S DISCUSSION AND ANALYSIS Results of Operations and Financial Condition Results of operations including information regarding the principal business segments are shown below. BUSINESS SEGMENTS
For the year 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 ----------------------------------------------------------------------------------------- (in millions) REVENUES Corrugated container $1,825 $1,438 $1,249 $1,254 $1,148 $1,144 $1,138 $1,093 $964 $722 $684 Bleached paperboard 369 299 319 353 371 373 368 336 293 265 257 Building products 502 549 475 391 311 305 320 312 323 281 268 Other activities - 20 58 77 68 70 68 33 23 28 34 ----------------------------------------------------------------------------------------- Manufacturing net sales 2,696 2,306 2,101 2,075 1,898 1,892 1,894 1,774 1,603 1,296 1,243 Financial services 764 632 635 638 609 509(a) 49 40 39 47 39 ----------------------------------------------------------------------------------------- Total Revenues $3,460 $2,938 $2,736 $2,713 $2,507 $2,401 $1,943 $1,814 $1,642 $1,343 $1,282 ========================================================================================= INCOME BEFORE TAXES Corrugated container 344 102 21 112 76 151 208 221 151 39 50 Bleached paperboard 19 (22) (12) 23 80 99 115 83 53 29 20 Building products 61 133 99 40 5 9 24 25 37 36 23 Other activities - 1 (2) (2) 1 (2) (1) 1 - (6) 2 ----------------------------------------------------------------------------------------- Operating profit 424 214 106 173 162 257 346 330 241 98 95 Financial services 98 56 68 64 54 52(a) (2) - 5 13 18 ----------------------------------------------------------------------------------------- 522 270 174 237 216 309 344 330 246 111 113 Corporate expense (22) (14) (11) (15) (16) (21) (13) (20) (12) (13) (8) Parent company interest-net (73) (67) (69) (48) (38) (26) (26) (23) (23) (19) (10) Other income 4 4 2 3 5 7 7 17 9 30(b) 31(c) ----------------------------------------------------------------------------------------- Income before taxes $ 431 $ 193 $ 96 $ 177 $ 167 $ 269 $ 312 $ 304 $220 $109 $126 =========================================================================================
During the five preceding fiscal years, the Company's cumulative total shareholder return compared with the Standard & Poor's 500 Stock Index and to the Standard & Poor's Paper Industry Index was as shown in the following table. [GRAPH]
MEASUREMENT PERIOD TEMPLE-INLAND (FISCAL YEAR COVERED) INC. S&P 500 S&P PAPER 1990 100.00 100.00 100.00 1991 165.55 130.47 126.84 1992 168.72 140.41 145.03 1993 168.57 154.56 159.84 1994 154.10 156.60 166.55 1995 153.49 214.86 183.38
(a) Includes operating results from the consolidation of Guaranty Federal Bank, F.S.B., beginning January 1, 1990. (b) Includes $15.3 million income net of federal income taxes from life insurance operations which were discontinued in 1990. (c) Includes $11.3 million gain on the sale of Eastex Packaging subsidiary. 1995 Annual Report | 27 2 CORRUGATED CONTAINER The Corrugated Container Group manufactures linerboard and corrugating medium at seven paper mills and converts it into corrugated shipping containers at 42 box plants located throughout the United States and in Puerto Rico, Mexico and South America. In addition, the Group operates six specialty converting plants. The Group earned $344 million in 1995, more than triple the $102 million earned in 1994. Revenue growth was 27 percent in 1995 compared with 15 percent in 1994. The strong global demand for boxes in 1994 carried over to the first half of 1995, providing the conditions for price improvement. Even though demand weakened in the second half of 1995, improved box prices held through most of 1995. In addition, the Company's strategy to become a diversified packaging company rather than simply a producer of shipping containers paid dividends in both 1995 and 1994 with revenues from the specialty packaging business growing toward a goal of 33 percent of the Group's total revenues. Tons of boxes sold were relatively unchanged in 1995 and were up 6 percent in 1994. For the second consecutive year, the combination of these factors allowed revenues and earnings as a percent of revenues to improve substantially. The earnings improvement occurred despite a much higher average cost in 1995 and 1994 of old corrugated containers (OCC), the primary raw material in over 42 percent of the Group's containerboard production. The cost of OCC was up $55 per ton in 1995 and $49 per ton in 1994. As indicated in the table below, mill production, curtailed by 132,000 tons to control inventory levels, totaled 2,514,000 tons in 1995, an 89,000 ton reduction from the previous year. Production of containerboard exceeded internal box plant usage by 317,000 tons in 1995, and 376,000 tons in both 1994 and 1993. Excess production was sold in the domestic and export markets.
1995 1994 1993 -------------------------------- (in tons) MILL PRODUCTION 2,514,000 2,603,000 2,473,000 ================================
Box production at the Mexican, Puerto Rican and South American converting facilities grew to 90,000 tons in 1995 from 40,000 tons in 1994. In May 1994, the Company purchased the stock of Rand-Whitney Packaging Corporation for $57.5 million. Included in the purchase were three manufacturing plants specializing in litho-laminate corrugated packaging and high graphics folding cartons. In 1995, the Company expanded this operation with an additional plant in Ontario, California, and acquired C.B. Displays of Rural Hall, North Carolina, a producer of point-of-sale packaging. This year, the Group also acquired a controlling interest in Wesland Container LLC in Little Rock, Arkansas, a producer of medical waste boxes. As a result of these acquisitions and expansions, the Company has the ability to service the national litho-laminate market. The table below shows the Corrugated Container Group 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. After rising in 1994 in response to the initial surge in demand as the paper cycle turned upward, 1995's decrease in unit sales was primarily due to weaker market conditions. CORRUGATED CONTAINER
1995 1994 1993 ------------------------------ UNIT SALES (in thousands of tons) 1st Qtr 602 628 598 2nd Qtr 614 648 606 3rd Qtr 564 622 593 4th Qtr 553 594 597 ------------------------------ For the year 2,333 2,492 2,394 ============================== NET SALES (in millions) 1st Qtr $ 433.4 $ 326.9 $ 318.5 2nd Qtr 476.4 353.8 319.6 3rd Qtr 464.9 371.2 307.8 4th Qtr 450.1 386.3 302.6 ------------------------------ For the year 1,824.8 1,438.2 1,248.5 ==============================
28 | Temple-Inland Inc. 3 BLEACHED PAPERBOARD The Bleached Paperboard Group manufactures bleached paperboard at one mill in Evadale, Texas. This Group's products are sold to commercial printers and paperboard converters, including converters serving packaging, food service and office product markets. The Group reported income of $18.6 million in 1995 compared with a loss of $22.1 million in 1994. As a result of strengthening demand and improved product mix, average prices for bleached paperboard were up 30 percent over 1994 averages, which were 6 percent below 1993 levels. However, increased manufacturing costs offset some of the gain in pricing. Manufacturing costs were up 10 percent in 1995 compared with 1994 because of operational disruptions related to the various construction projects, the start-up of a new paper machine and an increase in fiber costs of 10 percent. Manufacturing costs were up 5 percent in 1994 compared with 1993, primarily because of increased fiber cost. The year opened with strong demand across all product lines and increasing prices. However, by mid-year demand began to decelerate and by year end was very weak, particularly in the packaging markets. This weakness coupled with start-up tonnage on the new paper machine caused finished goods inventories to grow significantly during the last half of 1995. Once demand recovers, inventory should decrease, but the improved product mix will require inventories to be maintained at higher than historic levels. The Group completed a $500 million modernization and expansion program during 1995. The cornerstone of this project is a new 550 ton per day paperboard machine capable of producing low density, lightweight bleached paperboard and bleached bristols. Other key elements of the expansion project included major technological upgrades on three existing paperboard machines, a pine fiberline, a coating plant, a power boiler, an extruder plant, a lime kiln and a concentrator. Additionally, one of the mill's recovery boilers was rebuilt during the third and fourth quarters of 1995. While these projects caused manufacturing costs to be higher during 1995, a return to normal production levels should significantly reduce costs as a result of this advanced technology. Before the modernization and expansion, the Evadale mill could efficiently manufacture about one-half of all bleached paperboard grades. However, with the addition of the new paperboard machine and the upgrades to the three existing machines, the mill will have the capability to produce most of these grades efficiently. The higher-end grades, primarily printing and low density folding carton, should have better margins than the commodity oriented grades. 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, Denver, Colorado, and Farmersville, Louisiana. Products manufactured 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 develop and market paper products for the food service industry. Food Service converted 65,583 and 51,919 tons of bleached paperboard and recorded revenues of $80.9 million and $57.9 million during 1995 and 1994, respectively. 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
1995 1994 1993 ------------------------------ UNIT SALES (in thousands of tons) Paperboard 1st Qtr 120 106 116 2nd Qtr 97 109 109 3rd Qtr 83 112 103 4th Qtr 100 103 98 ------------------------------ For the year 400 430 426 ============================== Pulp 1st Qtr 16 20 38 2nd Qtr 28 25 41 3rd Qtr 20 24 33 4th Qtr 35 18 22 ------------------------------ For the year 99 87 134 ============================== NET SALES (in millions) Paperboard 1st Qtr $ 70.7 $ 51.1 $ 63.9 2nd Qtr 56.8 54.4 60.1 3rd Qtr 54.4 56.3 53.7 4th Qtr 67.1 55.6 51.0 ------------------------------ For the year $ 249.0 $217.4 $ 228.7 ============================== Pulp 1st Qtr $ 5.3 $ 4.4 $ 10.3 2nd Qtr 12.8 5.3 10.3 3rd Qtr 7.1 6.6 7.9 4th Qtr 11.7 5.8 4.9 ------------------------------ For the year $ 36.9 $ 22.1 $ 33.4 ============================== Food Service and Other 1st Qtr $ 18.7 $ 14.2 $ 14.6 2nd Qtr 22.7 16.3 16.5 3rd Qtr 22.2 16.2 14.0 4th Qtr 19.5 13.2 11.3 ------------------------------ For the year $ 83.1 $ 59.9 $ 56.4 ==============================
1995 Annual Report | 29 4 BUILDING PRODUCTS The Building Products Group manufactures a diversified line of construction and commercial grade building materials at ten locations in Texas, Louisiana, Oklahoma, Arkansas, Alabama and Georgia. Three-fourths of its revenues are typically realized from wood-based materials made from Southern pine logs or log residues. These products include lumber, plywood, fiber products and particleboard sold to both residential and commercial market segments. The non-wood based business unit manufactures a variety of gypsum wallboard products which are sold to the same market segments. The Group's retail locations, which sell a broad range of building materials to the contractor and retail markets, accounted for 10 percent of Group net revenues in 1995. Approximately 15 percent of 1995's retail revenues were derived from Group manufactured products. Early in the fourth quarter, the Group sold its two Houston area retail operations, which historically accounted for about 80 percent of annual retail revenues. The Group earned $61.0 million in 1995, the third highest level in its history following record earnings of $132.6 million in 1994 and $99.1 million in 1993. Revenues were down 9 percent in 1995 compared with a 16 percent increase in 1994. The decrease in revenues from 1994 was attributable to lower lumber prices and decreased volume. The reverse was largely true in comparing 1994 with 1993. In addition to the effect of sales prices, earnings as a percent of revenues decreased compared with 1994 due to increases in the cost of pine sawtimber. Except for the gypsum wallboard unit, shipments across all product lines declined in 1995 as demand softened for building materials in conjunction with an approximate 8 percent reduction in housing starts. The following table provides information on unit sales volumes and net sales for each business unit. BUILDING PRODUCTS
1995 1994 1993 ------------------------------ UNIT SALES (in millions of board feet) Pine lumber 493 509 484 (in millions of square feet) Fiber products 422 441 440 Particleboard 329 347 319 Plywood 217 260 265 Gypsum wallboard 813 796 782 ============================== NET SALES (in millions) Pine lumber $ 159.6 $ 185.7 $ 153.8 Fiber products 59.7 66.3 62.9 Particleboard 99.1 103.0 81.3 Plywood 49.3 56.8 54.0 Gypsum wallboard 83.1 74.3 53.3 Retail distribution 51.3 58.4 60.0 Other .3 4.8 10.0 ------------------------------ For the year $ 502.4 $ 549.3 $ 475.3 ==============================
Pine lumber shipments of 493 million board feet dropped 3 percent from the record 509 million board feet of 1994, but remained slightly above volumes shipped in 1993. Lumber prices declined during the year and by the fourth quarter were 16 percent below the same period in 1994, the low for that year. Reduced building activity resulted in oversupplied markets with the market imbalance particularly aggravated by increasing Canadian lumber shipments into the U.S. The Canadian share of the U.S. market had grown to 35 percent in the second half of the year. Domestic producers were caught in an untenable situation resulting from deteriorating product prices and escalating raw material costs. The intense bidding for Southern pine stumpage that accompanied strong demand for lumber products in 1994 resulted in high stumpage prices well into 1995. This market imbalance resulted in some curtailment of production by southern producers by year-end. Plywood revenues in 1995 declined 13 percent from 1994 due to reduced sales volume. During the year, the Group's plywood plant was involved in a $3.8 million modernization project to upgrade its veneer process capability and associated construction activities periodically impacted production schedules. A construction related fire during the renovation accounted for over one-third of the total volume reduction. While plywood pricing normally tracks lumber pricing, the Group's sales prices advanced almost 5 percent over 1994 levels as the plant increased its higher grade items from 48 percent of production in 1994 to 58 percent in 1995. 30 | Temple-Inland Inc. 5 By-product wood chips from the manufacture of lumber and plywood are shipped to the Company's two Texas paper mills and in 1995 represented about 24 percent of these two mill's pine fiber requirements. Chips supplied to the fiber products operation in 1995, as in prior years, represented over half its total fiber requirements. A combination of lower sales prices and reduced shipment volumes of siding products in 1995 resulted in a 10 percent reduction in revenues for fiber products. Downward pressure on siding prices resulted from the lower rate of housing starts combined with the growth in alternative siding products such as vinyl and cement fiberboard. However, TrimCraft(TM), the alternative lumber trim product, continued to gain acceptance at the builder level. Roof and wall insulation products represented about 40 percent of fiber products shipments in 1995 as they did in prior years. The Group manufactures particleboard from by-products of lumber processing at three mills in Texas, Alabama and Georgia. A fourth mill in Arkansas, at a cost of $65 million, was completed late in the fourth quarter, and will eventually increase existing capacity by about 50 percent, or 170 million square feet. Particleboard shipments in 1995 were 5 percent below levels of the prior year although prices finished the year up about 2 percent. During the second quarter demand abated due to excessive customer inventory levels, and the Group elected one week of unscheduled downtime at each of its three mills. Gypsum wallboard shipments increased 2 percent over 1994 and revenues were up 12 percent. Price levels, in response to demand, were particularly strong during the first half of the year. Even with some additional production into the markets by mid-year, demand for wallboard remained relatively firm throughout the last half, with fourth quarter prices equal to year ago levels. Value-added specialty products accounted for 34 percent of 1995 shipments, an increase of 21 percent over 1994. 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 provides a detailed description of these operations. TEMPLE-INLAND FINANCIAL SERVICES SELECTED SEGMENT INFORMATION
Years ended December 31 1995 1994 1993 --------------------------------- (in millions) INCOME Savings bank $ 78.1 $ 37.2 $ 45.1 Mortgage banking 20.3 15.9 19.9 Real estate (3.8) (.6) (1.5) Insurance 3.5 3.8 4.0 --------------------------------- Income before taxes and accounting change 98.1 56.3 67.5 Taxes on income 27.3 15.3 18.8 --------------------------------- Income before accounting change 70.8 41.0 48.7 Cumulative effect of accounting change - - 52.3 --------------------------------- Net income $ 70.8 $ 41.0 $ 101.0 ================================= ASSETS Savings bank $ 8,881.7 $ 8,707.8 $ 8,799.6 Mortgage banking 157.0 122.2 131.8 Real estate 238.4 214.7 224.7 Insurance 19.1 21.4 31.0 Other activities 1.6 1.6 13.9 Eliminations (86.7) (60.0) (67.7) --------------------------------- Total assets $ 9,211.1 $ 9,007.7 $ 9,133.3 ================================= LIABILITIES Savings bank $ 8,405.2 $ 8,281.7 $ 8,415.2 Mortgage banking 113.5 91.8 97.2 Real estate 156.2 130.8 125.8 Insurance 13.2 15.9 27.1 Other activities 4.6 4.6 24.0 Eliminations (86.7) (60.0) (67.7) --------------------------------- Total liabilities $ 8,606.0 $ 8,464.8 $8,621.6 ================================= EQUITY Savings bank $ 476.5 $ 426.1 $ 384.3 Mortgage banking 43.5 30.4 34.6 Real estate 82.2 83.9 98.9 Insurance 5.9 5.4 3.9 Other activities (3.0) (2.9) (10.0) --------------------------------- Total equity $ 605.1 $ 542.9 $ 511.7 =================================
1995 Annual Report | 31 6 SAVINGS BANK The Company's Savings Bank, Guaranty Federal Bank, F.S.B. ("Guaranty"), conducts its business through 113 banking centers located throughout Texas, including Houston, Dallas, San Antonio, Austin and the east Texas area. The primary business of Guaranty is to attract savings deposits from the public, be a major construction lender to the commercial and residential real estate industry, invest in loans secured by real estate mortgages, and provide a variety of loan products to consumers. Presented below is selected financial information for Guaranty: GUARANTY FEDERAL BANK, F.S.B. SELECTED FINANCIAL INFORMATION
Years ended December 31 1995 1994 1993 --------------------------------- (dollars in millions) INCOME AND EXPENSE Net interest income $ 179.5 $ 149.2 $ 135.4 Noninterest income 37.7 25.0 19.5 Noninterest expense 124.6 130.5 104.9 Income before taxes and accounting change 78.1 37.2 45.1 AVERAGE BALANCE SHEET Total earning assets 8,819.5 8,544.7 8,720.7 Loans receivable and mortgage loans held for sale 4,453.6 3,147.6 2,116.4 Mortgage-backed and investment securities 3,647.1 4,151.3 4,978.0 Securities purchased under resell agreements - 551.3 1,176.0 Covered assets 298.6 536.2 405.7 Deposits 6,721.3 6,681.6 5,838.3 Securities sold under repurchase agree- ments and FHLB advances 1,873.0 1,714.2 2,726.9 KEY RATIOS Yield on earning assets 6.87% 5.59% 5.32% Cost of funds 4.96% 3.91% 3.83% --------------------------------- Net spread 1.91% 1.68% 1.49% =================================
When Guaranty was acquired in September 1988, its primary assets were mortgage loans, properties and notes receivable, all of which were guaranteed by agencies of the federal government. Corresponding liabilities were largely consumer deposits. Further acquisitions in the next two years were primarily cash assets offset by consumer deposit liabilities. The cash assets were converted to mortgage-backed securities, the interest rate on which was indexed to the cost of deposits in the FHLB Eleventh District Cost of Funds Index ("EDCOF"), which is primarily California institutions. The long-term target was to convert these securities to adjustable rate mortgage loans and by December 31, 1995, loans receivable comprised 57 percent of earning assets, up from 45 percent in the prior year. Over the next few years, this percentage should approach 80 percent of earning assets. Guaranty can fund its asset base with consumer deposits or short-term borrowings, including repurchase agreements. Since the earnings of a large portion of its assets are indexed to the EDCOF, the comparative cost of deposit liabilities of Guaranty with this index is important to profitability. In 1995, the seven basis point improvement in comparative cost increased income by approximately $3 million. Although the average balance of total earning assets remained virtually constant with 1994, the improved mix of loans receivable rather than investments and guaranteed assets improved net interest income by $30.3 million in 1995. This improved asset mix accounted for a portion of the 23 basis points increase in the net interest spread. In 1994, on similar asset balance, the better mix improved earnings by $13.8 million and the interest spread by 19 basis points. When new loans are originated, an estimated allowance for losses is provided. Thereafter, this provision is adjusted for actual experience. The increase in loans outstanding in both 1994 and 1995 is the primary reason for the increase in the loan loss provision. Noninterest income increased by $3.7 million in 1995 and $5.5 million in 1994. Noninterest income is comprised primarily of fees collected, including service charges on deposits. In addition, in 1995, Guaranty recognized a $9 million gain, representing its portion of gains on certain asset dispositions (see Note C on page 46 for additional information). BIF/SAIF LEGISLATION Both the House Banking Committee and the Senate Banking Committee approved legislation that would recapitalize the Savings Association Insurance Fund ("SAIF") and merge the SAIF with the Bank Insurance Fund ("BIF"). This proposed legislation would have imposed a one-time assessment estimated to be $58 million on the deposits of Guaranty and would have ultimately reduced future deposit insurance premiums by approximately $15 million per year. Due to the recent budget impasse in Congress, the Company is unable to predict when or if such legislation will be adopted or if the assessment would be less because of the favorable current experience of the insurance fund. 32 | Temple-Inland Inc. 7 ACQUISITIONS: In June 1994, Guaranty purchased substantially all of the net assets of First Federal Savings Bank of San Antonio ("FFSB") for approximately $43 million. FFSB was a savings bank with ten banking centers in San Antonio, Texas, with assets at acquisition totaling approximately $363 million, consisting primarily of mortgage loans and cash. In November 1993, Guaranty purchased all of the outstanding stock of American Federal Bank, F.S.B. ("AFB") for approximately $156 million. Assets of AFB at acquisition totaled approximately $1.3 billion, principally $750 million in loans and $400 million in covered assets. See Note B on page 46 for additional information. LIQUIDITY, INTEREST RATE RISK MANAGEMENT AND CAPITAL: Guaranty 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. At December 31, 1995, Guaranty exceeded the required liquidity ratios. The operations of Guaranty are subject to a risk of interest rate fluctuation to the extent that interest-earning assets and interest-bearing liabilities mature or reprice at different times or in differing amounts. Since approximately 80 percent of Guaranty's assets have adjustable rates, this risk is significantly mitigated. A significant portion of Guaranty's investments in adjustable rate mortgage-backed securities have annual or lifetime caps that subject Guaranty to interest rate risk should rates rise above certain levels. To optimize net interest income while maintaining acceptable levels of interest rate and liquidity risk, Guaranty from time to time will enter into various interest rate contracts for purposes other than trading. See Note K on page 49 for additional information. OTS regulations require savings institutions to maintain certain minimum levels of capital. Guaranty's regulatory capital exceeded all applicable capital requirements at December 31, 1995. Note L on page 49 contains additional information concerning Guaranty's capital requirements. MORTGAGE BANKING Mortgage banking activity is conducted through Temple-Inland Mortgage Corporation ("TIMC"), a full service mortgage banker. TIMC arranges financing of single-family mortgage loans, then sells the loans into the secondary market (primarily FNMA, FHLMC and GNMA securities). The Group generally retains the servicing of these loans. A summary of selected financial information is provided below. MORTGAGE BANKING OPERATIONS SUMMARY
Years ended December 31 1995 1994 1993 --------------------------------- (dollars in millions) Revenues $ 71 $ 73 $ 104 Income before taxes 20 16 20 --------------------------------- Portfolio roll-forward: Beginning servicing $ 10,068 $ 9,067 $ 7,746 Purchased servicing 3,782 1,650 - New loans added, net of servicing released 948 540 3,302 Run-off (1,338) (1,189) (1,981) --------------------------------- Ending servicing $ 13,460 $ 10,068 $ 9,067 Portfolio growth rate 33.7% 11.0% 17.0% Run-off factor 13.3% 13.1% 25.6% Ending number of loans serviced 184,800 149,500 144,700 =================================
The servicing portfolio grew from both internal production and acquisition to a record $13.5 billion during 1995. Servicing totaling $3.8 billion was acquired during the year. Another $4.4 billion in servicing was under contract at year end and will be added to the portfolio in 1996. The portfolio growth has allowed significant cost efficiencies. The cost to service a loan in 1995 was approximately 10 percent lower than the cost to service a loan in 1994. Increases in mortgage interest rates throughout most of 1995 and lower levels of new construction led to a decline in mortgage loan originations. Originations were $1.2 billion in 1995 compared with $2.1 billion in 1994. Accordingly, the size of the origination network continued to be reduced proportionately. Production operations expanded in early 1996 with the purchase of a 16-branch West Coast retail mortgage origination company. See Note B on page 46 for additional information. 1995 Annual Report | 33 8 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 19 residential subdivisions in Austin, Houston, San Antonio and Dallas, Texas, as well as Denver, Colorado and Tampa, Florida. At the end of 1995, land development inventory included 1,056 residential lots (695 under contract) and 5,096 acres of land. Lot sales for 1995 were 467 compared with 461 in 1994 and 526 in 1993. The Company owns ten commercial properties consisting of two hotels, two office buildings, two retail centers and four parcels of commercial land. Selected financial information related to these activities is shown below. REAL ESTATE GROUP OPERATIONS SUMMARY
Years ended December 31 1995 1994 1993 --------------------------------- (in millions) REVENUES: Residential $ 12.7 $ 8.4 $ 8.0 Commercial 19.4 21.1 18.3 Interest and other 4.9 4.6 7.9 --------------------------------- Total $ 37.0 $ 34.1 $ 34.2 ================================= INCOME (LOSS) BEFORE TAXES: Residential $ (1.9) $ (2.6) $ (3.5) Commercial 2.0 2.1 1.1 Interest and other (3.9) (.1) .9 --------------------------------- Total $ (3.8) $ (.6) $ (1.5) =================================
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 1995 1994 1993 --------------------------------- (in millions) Assets $ 20.1 $ 19.7 $ 18.6 Liabilities(a) 19.0 18.6 17.5 Equity 1.1 1.1 1.1 =================================
(a) Although the Company's pro rata share of joint venture notes payable total $18.1 million, the joint venture partners are in most instances jointly and severally liable for notes payable. The gross balance of these notes was $39.7 million at December 31, 1995. 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. INSURANCE Timberline Insurance Managers, Inc. ("Timberline"), one of the largest insurance agencies in Texas, operates as a general agency selling a full range of insurance products including automobile, homeowners, business insurance, annuities, and life and health products. The agency also acts as the risk management department of the Company. Timberline currently has offices in Austin, Houston, Dallas/Fort Worth, El Paso and San Antonio, Texas. A summary of revenues and income before taxes is shown below. INSURANCE OPERATIONS SUMMARY
Years ended December 31 1995 1994 1993 --------------------------------- (in millions) Revenues $ 16.5 $ 18.4 $ 21.1 Income before taxes 3.5 3.8 4.0 =================================
ENVIRONMENTAL MATTERS The Company is committed to protecting the health and welfare of its employees, the public, and the 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, including the mill at Evadale, Texas, the Company has used state-of-the-art technology for 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 anticipated environmental purposes during the period 1996 through 1998 will average $15 million each year. 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 34 | Temple-Inland Inc. 9 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 not expected to exceed $200 million over the next five years, and could be less if the Company's recovery boilers meet the new standards. 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.
1995 1994 1993 --------------------------------- (in millions) CAPITAL EXPENDITURES Corrugated container $ 153.3 $ 114.9 $ 87.5 Bleached paperboard 145.8 275.1 200.5 Building products 67.6 43.4 26.1 Timber and timberlands 19.1 28.5 22.5 Other activities .3 1.2 3.7 --------------------------------- Total manufacturing group $ 386.1 $ 463.1 $ 340.3 =================================
Capital expenditures of approximately $275 million are projected for 1996. Commitments on construction projects totaled $39 million at the end of 1995. Net interest expense incurred by the Parent Company is shown below.
1995 1994 1993 --------------------------------- (in millions) PARENT COMPANY INTEREST-NET Interest expense $ 111.3 $ 94.8 $ 81.9 Capitalized interest (38.6) (27.7) (12.5) --------------------------------- Interest expense--net $ 72.7 $ 67.1 $ 69.4 =================================
Interest expense increased in 1995 and 1994 due to the higher levels of debt outstanding. In 1995, the Company issued $188 million of private placement debt ranging in maturities from 2002 to 2007. Also, during the year, a financial services entity borrowed $95 million against a revolving credit agreement. The increase in capitalized interest in 1995 and 1994 was due to higher levels of construction in progress associated primarily with the Bleached Paperboard Group's modernization and expansion project. Since this project was completed in 1995, capitalized interest in 1996 should be comparable to 1993 levels with interest expense not changing appreciably for 1996; net interest expense should increase. Parent Company interest paid during 1995, 1994 and 1993 was $95.4 million, $89.2 million and $80.9 million, respectively. In August 1995, the Board approved a stock repurchase program allowing the Company to repurchase up to 2.5 million shares. By year end, approximately 25 percent of this program had been achieved. ACCOUNTING MATTERS--PRONOUNCEMENTS In 1993, the Company implemented FASB Statements No. 109, "Accounting for Income Taxes", and No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions". The effect of the implementation of Statement No. 109 was to increase net income $125 million ($2.25 per share). The effect of the implementation of Statement No. 106, net of taxes, was to decrease income $75 million ($1.35 per share). 1995 Annual Report | 35 10 SELECTED FINANCIAL DATA
For The Year 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 --------------------------------------------------------------------------------------------- (in millions, except per share data) Total revenues $ 3,460 $ 2,938 $ 2,736 $ 2,713 $ 2,507 $2,401(a) $1,943 $1,814 $1,642 $1,343 $1,282 Manufacturing net sales 2,696 2,306 2,101 2,075 1,898 1,892 1,894 1,774 1,603 1,296 1,243 Net income 281 131 117(b) 147 138 232(a) 207 199 141 81 85 Capital expenditures: Manufacturing 386 463 340 359 378 324 260 219 139 103 184 Financial services 34 20 14 11 9 4 9 4 1 1 - Depreciation and depletion: Manufacturing 208 200 191 167 158 140 126 112 94 79 66 Financial services 8 8 6 5 4 5 2 2 1 1 1 Earnings per share 5.01 2.35 2.11b 2.65 2.51 4.20(a) 3.75 3.58 2.34 1.32 1.40 Dividends per common share 1.14 1.02 1.00 .96 .88 .80 .58 .42 .35 .29 .26 Average shares outstanding 56.1 55.9 55.5 55.5 55.2 55.4 55.3 55.7 60.3 61.1 60.8 Common shares outstanding at year end 55.7 56.0 55.5 55.2 54.9 54.6 54.9 55.2 55.3 60.7 60.5 --------------------------------------------------------------------------------------------- AT YEAR END Total assets $12,764 $12,251 $11,959 $10,766 $10,068 $7,834(c) $2,380 $2,247 $2,020 $1,894 $1,594 Long-term debt: Parent company 1,489 1,316 1,045 964 864 501 399 417 416 366 248 Financial services 113 82 76 99 76 94 30 25 30 25 14 Ratio of total debt to total capitalization--parent company 43% 43% 38% 38% 36% 26% 24% 29% 31% 28% 23% Shareholders' equity 1,975 1,783 1,700 1,633 1,532 1,439 1,259 1,096 927 929 864 =============================================================================================
COMMON STOCK PRICES AND DIVIDEND INFORMATION
1995 1994 ----------------------------------------------------------------- Price Range Price Range ----------------------------------------------------------------- High Low Dividends High Low Dividends ----------------------------------------------------------------- First Quarter $ 51 $ 44-5/8 $ .27 $ 54-3/4 $ 45-3/4 $ .25 Second Quarter 47-3/4 41-1/2 .27 50-3/4 43-3/4 .25 Third Quarter 55-3/4 48 .30 56-3/4 46-7/8 .25 Fourth Quarter 52-3/8 42-1/2 .30 56-3/4 43 .27 ----------- ----------- Year 55-3/4 41-1/2 1.14 56-3/4 43 1.02 =================================================================
(a) Includes operating results from consolidation of Guaranty Federal Bank, F.S.B., beginning January 1, 1990. (b) Includes a $50 million or $.90 per share from cumulative effect of accounting changes. (c) Includes Savings Bank assets from consolidation of Guaranty Federal Bank, F.S.B., beginning January 1, 1990. 36 | Temple-Inland Inc. 11 NOTE F | Deposits Deposits consisted of the following:
At year end 1995 1994 -------------------------------------------- (dollars in millions) Rate Amount Rate Amount -------------------------------------------- Noninterest bearing demand -% $ 128.3 -% $ 185.3 Interest bearing demand 2.75% 1,028.4 2.75% 1,255.7 Savings deposits 2.25% 198.9 2.25% 247.4 Time deposits 5.74% 5,017.9 5.19% 4,901.8 -------------------------------------------- 6,373.5 6,590.2 Deposit premium 3.5 8.1 -------------------------------------------- $ 6,377.0 $ 6,598.3 ============================================
Scheduled maturities of time deposits outstanding at December 31, 1995, are as follows:
Time deposits $100,000 Less than in amounts of: or more $100,000 Total ---------------------------- (in millions) 3 months or less $ 88.9 $ 699.3 $ 788.2 Over 3 through 6 months 105.2 859.1 964.3 Over 6 through 12 months 170.6 1,316.8 1,487.4 Over 12 months 237.5 1,540.5 1,778.0 ---------------------------- $ 602.2 $4,415.7 $5,017.9 ============================
A summary of interest paid by the Group is shown below:
For the year 1995 1994 1993 ------------------------ (in millions) Interest on deposits $317.7 $ 262.9 $ 241.1 Interest on borrowed funds 115.9 79.0 99.2 ------------------------ $433.6 $ 341.9 $ 340.3 ========================
At December 31, 1995, time deposits maturity dates were as follows (in millions): 1996-$3,239.9; 1997-$1,110.5; 1998-$255.2; 1999-$242.3; 2000-$161.0; 2001 and thereafter-$9.0. NOTE G | 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 Guaranty at the maturities of the agreements. The agreements generally mature within ninety days. Information concerning borrowings under repurchase agreements is summarized as follows:
1995 1994 ------------------ (dollars in millions) At year-end: Weighted average interest rate 5.81% 6.11% Mortgage-backed securities pledged to secure the agreements: Carrying value 1,699.6 $1,502.8 Estimated market value 1,680.8 1,426.3 During the year: Average balance 1,719.2 1,598.0 Maximum month-end balance 1,914.1 2,300.2 ==================
NOTE H | Federal Home Loan Bank Advances Pursuant to collateral agreements with the Federal Home Loan Bank of Dallas ("FHLB"), advances are secured by a blanket floating lien on Guaranty's assets. The weighted average interest rate of the advances was 6.60 percent and 6.72 percent at December 31, 1995 and 1994, respectively. At December 31, 1995, the advances had calendar year maturity dates as follow (in millions): 1996-$100.0; 1997-$2.3; 1998-$2.5; 1999-$51.7. NOTE I | Other Borrowings Other borrowings, which represent borrowings of non-savings bank entities, consisted of the following:
At year end 1995 1994 ------------------ (in millions) Long-term debt with an average rate of 7.44% during 1995, due through 2000 $ 95.0 $ - Long-term debt at various rates which approximate prime, secured primarily by real estate 17.7 81.7 ------------------ $ 112.7 $ 81.7 ==================
In August 1995, a non-savings bank subsidiary entered into a secured variable rate revolving credit agreement with an initial credit line of $175 million that expires in 2000, of which $80 million remained unused at December 31, 1995. Maturities of other borrowings during the next five years are as follows: 1996-$0.8; 1997-$8.6; 1998-$12.8; 1999- $24.2; and 2000-$53.0. 48 | Temple-Inland Inc. 12 CONSOLIDATED STATEMENTS OF INCOME Temple-Inland Inc. and Subsidiaries
For the year 1995 1994 1993 ------------------------------ (in millions) REVENUES Manufacturing net sales $ 2,696 $ 2,306 $ 2,101 Financial services revenues 764 632 635 ------------------------------ 3,460 2,938 2,736 ------------------------------ COSTS AND EXPENSES Manufacturing costs and expenses 2,294 2,106 2,006 Financial services expenses 666 576 567 ------------------------------ 2,960 2,682 2,573 ------------------------------ OPERATING INCOME 500 256 163 Parent company interest--net (73) (67) (69) Other 4 4 2 ------------------------------ INCOME BEFORE TAXES AND ACCOUNTING CHANGES 431 193 96 Taxes on income 150 62 29 ------------------------------ INCOME BEFORE ACCOUNTING CHANGES 281 131 67 Cumulative effect of accounting changes - - 50 ------------------------------ NET INCOME $ 281 $ 131 $ 117 ============================== EARNINGS PER SHARE: Before Accounting Changes $ 5.01 $ 2.35 $ 1.21 Effect of Accounting Changes - - .90 ------------------------------ Earnings Per Share $ 5.01 $ 2.35 $ 2.11 ==============================
See the notes to the consolidated financial statements. 50 | Temple-Inland Inc. 13 CONSOLIDATED STATEMENTS OF CASH FLOWS Temple-Inland Inc. and Subsidiaries
For the year 1995 1994 1993 ------------------------------- (in millions) CASH PROVIDED BY (USED FOR) OPERATIONS Net income $ 281 $ 131 $ 117 Adjustments to reconcile net income to net cash: Cumulative effect of accounting changes - - (50) Depreciation and depletion 216 208 197 Deferred taxes and tax credits 53 47 (2) Amortization and accretion 18 12 13 Receivable from FDIC (18) 19 (1) Mortgage loans held for sale 24 500 (174) Receivables (42) (41) 15 Inventories (71) (1) (10) Accounts payable and accrued expenses (51) (2) 47 Collections and remittances on loans serviced for others, net 96 (164) 122 Other (31) (46) 36 ------------------------------- 475 663 310 ------------------------------- CASH PROVIDED BY (USED FOR) INVESTMENTS Capital expenditures (420) (483) (354) Proceeds from sale of property and equipment 16 19 19 Purchases of securities available-for-sale (54) (146) - Maturities of securities available-for-sale 12 17 - Purchases of securities held-to-maturity - (229) (295) Maturities of securities held-to-maturity 391 790 1,156 Loans originated or acquired, net of principal collected on loans (1,009) (823) (670) Proceeds from sale of securities available-to-sale 192 - - Proceeds from sale of securities held-to-maturity and loans - - 24 Reduction in Covered Assets 343 244 127 Savings bank acquisitions - 200 (76) Manufacturing acquisitions (2) (60) - Other (23) 11 11 ------------------------------- (554) (460) (58) ------------------------------- CASH PROVIDED BY (USED FOR) FINANCING Additions to debt 356 334 134 Payments of debt (165) (54) (87) Securities sold under repurchase agreements and short-term borrowings, net 239 (205) 111 Purchase of stock for treasury (24) (1) (3) Cash dividends paid to shareholders (64) (57) (55) Net decrease in deposits (217) (92) (310) Other (3) 22 (2) ------------------------------- 122 (53) (212) ------------------------------- Net increase in cash and cash equivalents 43 150 40 Cash and cash equivalents at beginning of year 315 165 125 ------------------------------- Cash and cash equivalents at end of year $ 358 $ 315 $ 165 ===============================
See the notes to the consolidated financial statements. 1995 Annual Report | 51 14 CONSOLIDATING BALANCE SHEETS Temple-Inland Inc. and Subsidiaries
Parent Financial At year end 1995 Company Services Consolidated ------------------------------- (in millions) ASSETS Cash and cash equivalents $ 15 $ 343 $ 358 Mortgage loans held for sale - 106 106 Loans receivable - 4,764 4,764 Mortgage-backed and investment securities - 3,424 3,424 Trade and other receivables 285 - 283 Inventories 338 - 338 Property and equipment 2,788 76 2,864 Other assets 182 498 627 Investment in affiliates 605 - - ------------------------------- TOTAL ASSETS $ 4,213 $ 9,211 $ 12,764 =============================== LIABILITIES Deposits $ - $ 6,377 $ 6,377 Securities sold under repurchase agreements and Federal Home Loan Bank advances - 1,759 1,759 Other liabilities 358 357 702 Long-term debt 1,489 113 1,602 Deferred income taxes 259 - 217 Postretirement benefits 132 - 132 ------------------------------- TOTAL LIABILITIES $ 2,238 $ 8,606 10,789 =============================== SHAREHOLDERS' EQUITY Preferred stock--par value $1 per share: authorized 25,000,000 shares; none issued - Common stock--par value $1 per share: authorized 200,000,000 shares; issued 61,389,552 shares including shares held in the treasury 61 Additional paid-in capital 306 Translation and other adjustments (14) Retained earnings 1,773 --------- 2,126 Cost of shares held in the treasury: 5,731,411 shares (151) --------- TOTAL SHAREHOLDERS' EQUITY 1,975 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,764 =========
See the notes to the consolidated financial statements. 52 | Temple-Inland Inc. 15 CONSOLIDATING BALANCE SHEETS Temple-Inland Inc. and Subsidiaries
Parent Financial At year end 1994 Company Services Consolidated ------------------------------- (in millions) ASSETS Cash and cash equivalents $ 13 $ 302 $ 315 Mortgage loans held for sale - 130 130 Loans receivable - 3,675 3,675 Mortgage-backed and investment securities - 3,964 3,964 Covered assets - 418 418 Trade and other receivables 244 - 244 Inventories 268 - 268 Property and equipment 2,621 50 2,671 Other assets 175 469 566 Investment in affiliates 543 - - ------------------------------- TOTAL ASSETS $ 3,864 $ 9,008 $ 12,251 =============================== LIABILITIES Deposits $ - $ 6,598 $ 6,598 Securities sold under repurchase agreements and Federal Home Loan Bank advances - 1,520 1,520 Other liabilities 410 265 663 Long-term debt 1,316 82 1,398 Deferred income taxes 229 - 163 Postretirement benefits 126 - 126 ------------------------------- TOTAL LIABILITIES $ 2,081 $ 8,465 10,468 =============================== SHAREHOLDERS' EQUITY Preferred stock--par value $1 per share: authorized 25,000,000 shares; none issued - Common stock--par value $1 per share: authorized 200,000,000 shares; issued 61,389,552 shares including shares held in the treasury 61 Additional paid-in capital 305 Translation and other adjustments (10) Retained earnings 1,556 --------- 1,912 Cost of shares held in the treasury: 5,370,976 shares (129) --------- TOTAL SHAREHOLDERS' EQUITY 1,783 --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,251 =========
See the notes to the consolidated financial statements. 1995 Annual Report | 53 16 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Temple-Inland Inc. and Subsidiaries
Additional Other Common Paid-in Equity Retained Treasury Stock CapitalAdjustments Earnings Stock Total ----------------------------------------------------------------- (in millions) BALANCE AT JANUARY 2, 1993 $ 61 $ 295 $ - $ 1,420 $ (144) $ 1,632 Net income - - - 117 - 117 Dividends paid on common stock--$1.00 per share - - - (55) - (55) Stock issued for stock plans-- 310,088 shares - 2 - - 7 9 Stock reacquired for treasury-- 79,377 shares - - - - (3) (3) ----------------------------------------------------------------- BALANCE AT JANUARY 1, 1994 $ 61 $ 297 $ - $ 1,482 $ (140) $ 1,700 ================================================================= Net income - - - 131 - 131 Translation and other adjustments - - (10) - - (10) Dividends paid on common stock--$1.02 per share - - - (57) - (57) Stock issued for stock plans-- 608,713 shares - 8 - - 14 22 Stock reacquired for treasury-- 71,516 shares - - - - (3) (3) ----------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 $ 61 $ 305 $ (10) $ 1,556 $ (129) $ 1,783 ================================================================= Net income - - - 281 - 281 Translation and other adjustments - - (4) - - (4) Dividends paid on common stock--$1.14 per share - - - (64) - (64) Stock issued for stock plans-- 154,109 shares - 1 - - 2 3 Stock reacquired for treasury-- 514,544 shares - - - - (24) (24) ----------------------------------------------------------------- BALANCE AT DECEMBER 30, 1995 $ 61 $ 306 $ (14) $ 1,773 $ (151) $ 1,975 =================================================================
See the notes to the consolidated financial statements. 54 | Temple-Inland Inc. 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 | 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 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. Certain amounts have been reclassified to conform with current year's classification. Included as an integral part of the consolidated financial statements are separate summarized financial statements 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 year. The weighted average shares outstanding was 56,064,000, 55,890,000 and 55,528,000 in 1995, 1994 and 1993, respectively. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, amounts due from banks, securities purchased under resell agreements, federal funds sold, and other short-term liquid instruments with original maturities of three months or less. USE OF ESTIMATES Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. TRANSLATION OF INTERNATIONAL CURRENCIES Balance sheets of the Company's international operations where the functional currency is other than the U.S. dollar are translated into U.S. dollars at year-end exchange rates. Adjustments resulting from financial statement translation are reported as a component of shareholders' equity. For other international operations where the functional currency is the U.S. dollar, inventories, property, plant and equipment are translated at the rate of exchange on the date the assets were acquired, while other assets and liabilities are translated at year-end exchange rates. Translation adjustments for these operations are included in net income. Income and expense items are converted to U.S. dol-lars at average rates of exchange prevailing during the year. Gains and losses resulting from foreign currency transactions are included in earnings and are not material. PENDING ACCOUNTING POLICY CHANGES In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt Statement 121 in the first quarter of 1996 and, based on current circumstances, does not believe the effect of adoption will be material. In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation". Under the provisions of FASB 123, companies can elect to account for stock-based compensation plans using a fair value based method or continue measuring compensation expense for those plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". FASB 123 requires that companies electing to continue using the intrinsic value method must make pro forma disclosures of net income and earnings per share as if the fair value based method had been applied. The Company's required adoption date for FASB 123 is January 1, 1996. Presently, the Company anticipates continuing to account for stock-based compensation using APB 25. NOTE 2 | Stock-Based Compensation The Company has established stock option plans for key employees and directors. The plans provide for the granting of nonqualified stock options and/or incentive stock options, and prior to 1994, the plans permitted the grant of stock appreciation rights with all or part of any options so granted. Options for 717,618, 643,201 and 741,379 shares were exercisable at year end 1995, 1994 and 1993, respectively. An additional 1,431,172 shares of common stock were available for grants at December 30, 1995. 1995 Annual Report | 55 18 A summary of activity under the option plans is presented below: COMMON STOCK
Number Price Range of Shares Per Share ---------------------------- 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 Granted 267,696 $ 34 - $ 53 Exercised (319,274) $ 12 - $ 36 Forfeited (68,016) $ 22 - $ 54 ---------------------------- Outstanding at December 31, 1994 1,274,862 $ 12 - $ 54 Granted 326,258 $ 31 - $ 47 Exercised (145,564) $ 12 - $ 42 Forfeited (51,053) $ 28 - $ 54 ---------------------------- Outstanding at December 30, 1995 1,404,503 $ 12 - $ 54 ============================
Additionally, a restricted stock plan provides for a maximum of 300,000 shares of restricted common stock to be reserved for awards. At year end 1995, awards of 124,472 shares of common stock were outstanding at an average price of $49.81 per share. NOTE 3 | Pension Plans The Company and its subsidiaries have 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 on an actuarial basis to provide assets sufficient to meet the benefits to be paid in accordance with the requirements of ERISA. A summary of the components of net pension cost in 1995, 1994 and 1993 follows:
1995 1994 1993 ---------------------------- (in millions) CHARGES (CREDITS) Service cost--benefits earned during the period $ 11.6 $ 12.7 $ 9.6 Interest cost on projected benefit obligation 30.6 28.0 25.7 Actual return on plan assets (72.0) (3.7) (59.0) Net amortization and deferral 31.0 (38.6) 19.3 Net pension ---------------------------- charge (credit) $ 1.2 $ (1.6) $ (4.4) ============================
The following assumptions were used to measure net periodic pension cost for the defined benefit pension plans:
For the years 1995 1994 1993 ---------------------------- Discount rate 7.75% 8.25% 7.25% Expected long-term rate of return 9.00% 9.00% 9.00% Average increase in compensation levels 4.75% 5.25% 4.25% ============================
The funded status of employee pension benefit plans at year end 1995 and 1994 is summarized below:
1995 1994 ----------------- (in millions) Actuarial present value of benefit obligations: Vested benefits $ 360.6 $ 322.5 Nonvested benefits 28.1 19.0 ----------------- Accumulated benefit obligation $ 388.7 $ 341.5 ================= Projected benefit obligation for service rendered to date $(426.5) $(380.7) Plan assets at fair value, primarily stocks and bonds 472.8 420.3 ----------------- Plan assets in excess of projected benefit obligation 46.3 39.6 Prior service cost not yet recognized in net periodic pension cost .4 .3 Unrecognized net loss from past experience different from that assumed 15.1 27.0 Unrecognized net asset at beginning of period, less amortization to date (21.4) (26.0) ----------------- Net pension asset included in the balance sheet $ 40.4 $ 40.9 =================
NOTE 4 | 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 year end 1995 and 1994 is as follows:
1995 1994 ----------------- (in millions) ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION Retirees $ 63.4 $ 61.8 Active participants, eligible to retire 16.8 14.6 All other participants 41.5 32.7 ----------------- Accrued postretirement benefit cost 121.7 109.1 Unrecognized net gains 12.0 18.8 Unrecognized prior service cost (2.1) (2.4) ----------------- Postretirement benefit liability $ 131.6 $ 125.5 =================
The components of net postretirement benefit costs for 1995, 1994 and 1993 are as follows:
1995 1994 1993 ---------------------------- (in millions) Service costs for benefits $ 2.6 $ 1.9 $ 1.7 Interest cost 8.7 7.3 9.2 Net amortization and deferral (.4) (.8) - ---------------------------- Net postretirement charge $ 10.9 $ 8.4 $ 10.9 ============================
56 | Temple-Inland Inc. 19 The discount rate used in determining the APBO as of December 30, 1995 was 7.75 percent. The assumed health care cost trend rate used in measuring the APBO was 11 percent in 1995, declining to six percent in years 2010 and later. The assumptions for 1994 included an 8.25 percent discount rate and health care trend rates beginning at 11 percent and declining to six percent in 2010 and thereafter. If the health care cost trend rate assumptions were increased by one percent, the APBO as of December 30, 1995 would be increased by nine percent and the net periodic postretirement costs for 1995 would be increased by 11 percent. NOTE 5 | Taxes on Income Taxes on income from operations consisted of the following:
Current Deferred ----------------- (in millions) 1995 Federal $ 87.2 $ 48.2 State and other 11.9 2.7 ----------------- $ 99.1 $ 50.9 ================= 1994 Federal $ 10.7 $ 43.7 State and other 6.8 .6 ----------------- $ 17.5 $ 44.3 ================= 1993 Federal $ 67.9 $ (49.2) State and other 9.1 1.1 ----------------- $ 77.0 $ (48.1) =================
Significant components of the Company's consolidated deferred tax assets and liabilities as of year end 1995 and 1994 are as follows:
1995 1994 ----------------- (in millions) DEFERRED TAX LIABILITIES: Depreciation $ 297.8 $ 267.8 Depletion 37.7 39.6 Pensions and other 48.7 13.8 ----------------- Total deferred tax liabilities 384.2 321.2 ================= DEFERRED TAX ASSETS: Alternative minimum tax credits 169.7 121.0 Net operating loss carryforwards 80.6 204.0 OPEB obligations 46.2 43.9 Other 4.2 7.9 ----------------- Total deferred tax assets 300.7 376.8 VALUATION ALLOWANCE (133.0) (219.0) ----------------- Net deferred tax liability $ 216.5 $ 163.4 =================
The differences between the consolidated effective income tax rate and the federal statutory income tax rates include the following:
1995 1994 1993 ---------------------------- (in millions) Taxes on income at statutory rate $ 150.9 $ 67.7 $ 33.7 Book benefit of FDIC assistance and other permanent items (9.8) (10.3) (10.9) State and other taxes 8.9 4.4 6.1 ---------------------------- $ 150.0 $ 61.8 $ 28.9 ============================
In fiscal year 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes", whereby the Company was required to adopt the liability method of computing deferred income taxes. The cumulative effect of adopting FASB Statement No. 109 as of January 1993 was to increase net earnings by $125 million, or $2.25 per share. Income tax payments, net of refunds received, were $74 million, $58 million and $19 million during 1995, 1994 and 1993, respectively. Temple-Inland has net operating loss carryforwards which expire through the year 2009. Alternative minimum tax credits may be carried forward indefinitely. The decrease in the valuation allowance results from the Termination Agreement which included payments to the FSLIC Resolution Fund for its share of the tax benefits the Company received from the Assistance Agreements. The remaining valuation allowance represents accruals for deductions that are uncertain and accordingly have not been recognized for financial reporting purposes. NOTE 6 | Fair Value of Financial Instruments The carrying amounts and fair values of financial instruments were as follows:
1995 1994 ------------------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------------ (in millions) FINANCIAL ASSETS Loans receivable $4,764.4 4,798.7 $3,674.8 $3,624.2 Mortgage-backed and investment securities 3,423.6 3,368.4 3,964.2 3,753.0 Covered assets - - 418.1 418.1 ==================================== FINANCIAL LIABILITIES Deposits 6,377.0 6,627.4 6,598.3 6,567.3 FHLB advances 155.0 160.3 154.5 156.1 Long-term debt 1,601.6 1,701.3 1,397.5 1,396.5 ==================================== OFF-BALANCE-SHEET INSTRUMENTS Commitments to extend credit - (1.3) - (4.3) Interest rate swaps - - - (.9) ====================================
1995 Annual Report | 57 20 Differences between fair value and carrying amounts are primarily due to instruments which provide fixed interest rates or contain fixed interest rate elements. Inherently, such instruments are subject to fluctuations in fair value due to subsequent movements in interest rates. The fair value of cash and cash equivalents, trade and other receivables, securities sold under agreements to repurchase and mortgage loans held for sale consistently approximate the carrying amount due to their short-term nature and are excluded from the above table. The fair value of mortgage-backed and investment securities and off balance sheet instruments are based on quoted market prices. Other financial instruments are valued using discounted cash flows. The discount rates used represent current rates for similar instruments. NOTE 7 | Business Segment Information Refer to "Business Segments" on page 27 for information relating to Revenues and Income Before Taxes, and page 35 for information relating to Capital Expenditures for the business segments for the three years 1995, 1994 and 1993. Identifiable assets by business segment are those assets specifically used in Company operations in each segment. The results of the timber and timberlands operations are allocated to the manufacturing groups based upon fiber usage. Corporate assets are principally cash and office buildings. Additional business segment information is presented below:
For the year 1995 1994 1993 ------------------------------- (in millions) IDENTIFIABLE ASSETS Corrugated container $ 1,823.6 $1,709.3 $1,580.3 Bleached paperboard 956.3 838.7 596.1 Building products 280.3 248.1 223.2 Timber and timberlands 490.6 466.1 453.7 Corporate and other activities 44.7 46.5 62.9 ------------------------------- 3,595.5 3,308.7 2,916.2 Financial services 9,211.1 9,007.7 9,133.3 Reclassifications and eliminations (42.2) (65.7) (90.2) ------------------------------- Total $12,764.4 12,250.7 11,959.3 =============================== DEPRECIATION AND DEPLETION Corrugated container $ 124.4 $ 120.6 $ 112.5 Bleached paperboard 46.6 43.3 40.1 Building products 24.0 23.2 22.6 Timber and timberlands 12.2 11.2 12.7 Corporate and other activities .4 2.0 3.2 ------------------------------- 207.6 200.3 191.1 Financial services 8.1 7.8 5.8 ------------------------------- Total $ 215.7 $ 208.1 $ 196.9 ===============================
NOTE 8 | Summary of Quarterly Results of Operations (Unaudited) Selected quarterly financial results for the years 1995 and 1994 are summarized below:
First Second Third Fourth Quarter Quarter Quarter Quarter --------------------------------------- (in millions except per share amounts) 1995 Total revenues $ 834.7 $ 889.0 $ 869.7 $ 867.1 Manufacturing net sales 660.8 697.5 673.7 664.2 Manufacturing gross profit 150.7 167.2 187.6 153.5 Financial services operating income before taxes 14.2 24.0 24.9 35.0 Net income 58.3 72.9 84.8 65.0 Earnings per Share 1.04 1.30 1.51 1.16 ====================================== 1994 Total revenues $ 706.3 $ 725.1 $ 755.0 $ 751.1 Manufacturing net sales 541.8 573.5 601.2 589.6 Manufacturing gross profit 79.8 89.8 103.8 132.5 Financial services operating income before taxes 17.0 14.4 12.8 12.1 Net income 22.9 26.6 33.1 48.8 Earnings per Share .41 .48 .59 .87 ======================================
NOTE 9 | 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 10 | 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 statements of the Company and its subsidiaries. See page 35 for a discussion of commitments on construction projects. 58 | Temple-Inland Inc. 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 accordance 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 transactions are executed in accordance with management'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 accounting 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 LLP, 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. /s/CLIFFORD J. GRUM CLIFFORD J. GRUM Chairman of the Board and Chief Executive Officer /s/ DAVID H. DOLBEN 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 December 30, 1995 and December 31, 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 30, 1995. 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 December 30, 1995 and December 31, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. As discussed in Notes 4 and 5 to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretirement benefits other than pensions and income taxes. /s/ ERNST & YOUNG Houston, Texas February 2, 1996 1995 Annual Report | 59 EX-21 4 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF TEMPLE-INLAND INC. (State of Incorporation) (Percentage of Ownership by Immediate Parent) (Federal Tax I.D. Number) INLAND CONTAINER CORPORATION I (DELAWARE) (100%) (75-2042862) Inland Container Corporation (Delaware)(100%)(13-2946332) C.B. Displays, Inc. (Delaware)(100%)(56-1924238) El Morro Corrugated Box Corporation (Delaware)(100%)(35-1323144) El Morro Corrugated Box Corporation (Puerto Rico)(100%)(66-0274059) Georgia Kraft Company (Delaware)(100%)(75-2212491) Sabine River & Northern Railroad Company (Texas)(100%)(34-0969790) IC Holding, Inc.(Delaware)(100%)(75-2559834) Rand-Whitney Packaging Corporation (Massachusetts)(100%)(04-2424252) Delmar Packaging, Inc. (Delaware)(100%)(59-0981827) Rand-Whitney Robertson Corporation (Delaware)(100%)(04-2938624) Inland Argentina, Inc. (Delaware)(100%)(75-2559834) Inland Massuh S.A. (Argentina)(50%) Inland Chile I, Inc. (Delaware)(100%)(75-2559831) Inland Chile II, Inc. (Delaware)(100%)(75-2559773) Inland Chile Ltda. (Chile)(100%) Inland Container FSC, Inc. (U.S. Virgin Islands)(100%)(66-0412023) Inland International Holding Company (Delaware)(100%)(75-2559772) Inland Corrugados de Mexico, S.A. de C.V. (Mexico)(100%) Inland Corrugados de Guanajato, S.A. de C.V. (Mexico)(100%) Inland Corrugados de Monterrey, S.A. de C.V. (Mexico)(100%) Inland Corrugados de Sinaloa, S.A. de C.V. (Mexico)(100%) TinCorr S.A. (Uruguay)(100%) Inland Paper Company, Inc. (Indiana)(100%)(35-1343720) Inland Real Estate Investments, Inc. (Indiana)(100%)(35-6019135) Crockett Container Corporation (California)(100%)(95-2692965) King Container Company (California)(100%)(95-3420258) Pakway Container Corporation (Indiana)(100%)(35-1142085) Wesland Container LLC (Arkansas)(50%) TEMPLE-INLAND FOREST PRODUCTS CORPORATION (DELAWARE) (100%) (75-1462427) The Angelina Free Press, Inc. (Texas)(100%)(75-1080101) Big Tin Barn Inc. (Delaware)(100%)(75-2450632) Eastex Incorporated (Texas)(100%)(74-1180064) Evadale Realty Company (Delaware)(100%)(74-6047398) Bestile Manufacturing Company (California)(100%)(95-1608040) Home Owners Trust Company (Texas)(100%)(74-1482976) Sabine Investment Company of Texas, Inc. (Texas)(100%)(75-1308206) Scotch Investment Company (Texas)(100%)(74-1463738) Scotch Properties Management Inc. (Delaware)(100%)(75-2242094) Southern Pine Lumber Company (Texas)(100%)(75-1183646) Southern Pine Plywood Co. (Texas)(100%)(75-1159301) Templar Essex Inc. (Delaware)(100%)(75-2459426) Temple Associates, Inc. (Texas)(100%)(75-0777257) Temple-Eastex Incorporated (Delaware)(100%)(75-2248412) Temple Industries, Inc. (Texas)(100%)(75-0571180) Temple-Inland Food Service Corporation (Delaware)(100%)(75-2285370) 2 EXHIBIT 21 -- (CONTINUED) Temple-Inland Forest Products International Inc. (Delaware)(100%)(75-1462427) Planfosur S. de R.L. de C.V. (Mexico)(50%) Temple Inland Forest Products of Canada Inc. (New Brunswick, Canada)(100%) Temple-Inland Paperboard Specialty Company (Delaware)(100%)(75-2504953) Temple-Inland Recaustisizing Company (Delaware)(100%)(75-2468479) Temple-Inland Recovery Company (Delaware)(100%)(75-2468476) Temple-Inland Stores Company (Delaware)(100%)(75-2468477) Temple-Inland Trading Company (Delaware)(100%)(75-2604111) Temple Lumber Company (Texas)(100%)(75-6018597) Texas Southeastern Railroad Company (Texas)(100%)(75-6002614) Topaz Oil Company (Texas)(100%)(75-1053707) TEMPLE-INLAND FINANCIAL SERVICES INC. (DELAWARE) (50%; 50% BY TEMPLE-INLAND FOREST PRODUCTS CORPORATION)(74-2421034) Guaranty Holdings Inc. I (Delaware)(100%)(75-2244180) Guaranty Federal Bank, F.S.B. (Federal)(100%) Guaranty Group Inc. (Texas)(100%)(75-2515512) Guaranty Investment Advisory, Inc. (Texas)(100%)(75-2406252) Participation Purchase Corporation (Nevada)(100%)(74-2676327) Temple-Inland Mortgage Corporation (Nevada)(100%)(74-1878850) Temple-Inland Properties Inc. (Delaware)(100%)(74-2431999) Stanford Realty Advisors, Inc. (Delaware)(100%)(75-2426395) LIC Investments Inc. (Delaware)(100%)(74-2366105) Lumbermen's Investment Corporation (Delaware)(100%)(74-1213624) Austin Crest Hotel, Inc. (Texas)(100%)(74-1547526) LIC Financial Corporation (Delaware)(100%)(74-2553548) Sunbelt Insurance Company (Texas)(100%)(74-1950814) TEEC Inc. (Texas)(100%)(75-1962795) Timberline Insurance Managers, Inc. (Texas)(100%)(74-1550763) Capline Marketing Group (Texas)(50%)(74-2577835) Timberline Securities, Inc. (Texas)(100%)(76-2678579) Temple-Inland Capital Inc. (Delaware)(100%)(75-2555146) Temple-Inland Life Inc. (Nevada)(100%)(74-2387096) Temple-Inland Insurance Corporation (Delaware)(100%)(75-2045626) Temple-Inland Realty Inc. (Delaware)(100%)(75-2370575) EX-23 5 CONSENT OF ERNST & YOUNG LLP 1 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 2, 1996, included in the 1995 Annual Report to Shareholders of Temple-Inland Inc. Our audit also included the financial statement schedule of Temple-Inland Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents 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 33-23132 on Form S-8, (iii) Post-Effective Amendment Number 1 to Registration Statement Number 33-25650 on Form S-8, (iv) Post-Effective Amendment Number 1 to Registration Statement Number 33-27286 on Form S-8, (v) Post-Effective Amendment Number 2 to Registration Statement Number 33-32124 on Form S-8, (vi) Registration Statement Number 33-43802 on Form S-8, (vii) Registration Statement Number 33-50880 on Form S-3, (viii) Registration Statement Number 33-48034 on Form S-8, (ix) Registration Statement Number 33-54388 on Form S-8, and (x) Registration Statement Number 33-63104 on Form S-8 of our report dated February 2, 1996 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 schedule included in this Annual Report (Form 10-K) of Temple-Inland Inc. /s/ Ernst & Young LLP March 20, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from consolidated balance sheets and consolidated income statements for Temple-Inland Inc. and subsidiaries and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1995 DEC-31-1995 358 0 283 0 338 0 2,864 0 12,764 0 1,602 61 0 0 1,914 12,764 2,696 3,460 2,294 2,960 0 0 73 431 150 281 0 0 0 281 5.01 5.01
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