<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<S> <C>
(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 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-8634
</TABLE>
TEMPLE-INLAND INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1903917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
-----------------------------------------------------------------------------------------------------------
<S> <C>
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
</TABLE>
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, 1995, was $1,888,888,114. 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, 1995, 56,085,135 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 25-32, 37, 44, and 47-56 of the Annual Report to
Shareholders for the fiscal year ended December 31, 1994 -- Parts I and II.
(b) The Company's definitive proxy statement, dated March 24, 1995, in
connection with the Annual Meeting of Shareholders to be held May 5,
1995 -- Part III.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 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, 41 box plants, and five 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 consumer savings bank activities, mortgage
banking, real estate development, and insurance brokerage.
The Company is a Delaware corporation that was organized in 1983. Its
principal subsidiaries include Inland Container Corporation ("Inland"),
Temple-Inland Financial Services Inc. ("Financial Services"), Temple-Inland
Forest Products Corporation ("Temple-Inland FPC"), Guaranty Federal Bank, F.S.B.
("Guaranty"), and Temple-Inland Mortgage Corporation ("Temple-Inland Mortgage").
The Company's principal executive offices are located at 303 South Temple
Drive, Diboll, Texas 75941. Its telephone number is (409) 829-2211.
1
<PAGE> 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
<TABLE>
<CAPTION>
FOR THE YEAR
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Corrugated container...................... $1,438.2 $1,248.5 $1,254.4 $1,148.6 $1,144.2
Bleached paperboard....................... 299.4 318.5 352.6 370.6 373.0
Building products......................... 549.3 475.3 391.3 311.1 305.3
Other activities.......................... 19.2 58.4 77.1 67.9 70.0
-------- -------- -------- -------- --------
Manufacturing net sales................ 2,306.1 2,100.7 2,075.4 1,898.2 1,892.5
Financial services........................ 631.4 635.1 637.8 608.9 508.6
-------- -------- -------- -------- --------
Total revenues.................... $2,937.5 $2,735.8 $2,713.2 $2,507.1 $2,401.1
======== ======== ======== ======== ========
Income before taxes
Corrugated container...................... $ 102.0 $ 21.0 $ 112.3 $ 75.4 $ 150.9
Bleached paperboard....................... (22.1) (12.1) 23.3 79.9 98.8
Building products......................... 132.6 99.1 39.5 5.2 9.4
Other activities.......................... 1.5 (1.9) (2.0) 1.1 (1.7)
-------- -------- -------- -------- --------
Operating profit....................... 214.0 106.1 173.1 161.6 257.4
Financial services........................ 56.3 67.5 64.4 54.2 51.4
-------- -------- -------- -------- --------
270.3 173.6 237.5 215.8 308.8
Corporate expense......................... (13.7) (11.2) (15.3) (16.0) (20.7)
Parent company interest -- net............ (66.5) (69.0) (47.4) (31.8) (24.0)
Other income(a)........................... 3.2 2.8 2.2 (1.2) 4.7
-------- -------- -------- -------- --------
Income before taxes.................... $ 193.3 $ 96.2 $ 177.0 $ 166.8 $ 268.8
======== ======== ======== ======== ========
</TABLE>
---------------
(a) The 1991 amount includes losses of $7.4 million from the write-off of an
investment interest in a gypsum-fiberboard venture.
For more information with respect to identifiable assets, capital
expenditures, depreciation, and depletion on a business segment basis, see pages
31 and 54 of the Company's 1994 Annual Report to Shareholders, which are
incorporated herein by reference.
2
<PAGE> 4
The following table shows the revenues of the Company:
REVENUES
<TABLE>
<CAPTION>
FOR THE YEAR
---------------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Corrugated container........................ $1,438.2 $1,248.5 $1,254.4 $1,148.6 $1,144.2
Bleached paperboard
Paperboard................................ 232.7 246.8 263.6 301.9 314.7
Market pulp............................... 21.9 31.4 43.8 38.6 47.7
Nodular pulp.............................. 0.5 2.2 3.8 6.3 6.8
Other(a).................................. 44.3 38.1 41.4 23.8 3.8
Building products
Pine lumber(b)............................ 185.7 153.8 120.9 87.6 72.7
Fiber products............................ 66.3 62.9 55.8 48.2 48.5
Particleboard............................. 103.0 81.3 70.5 60.7 57.1
Plywood................................... 56.8 54.0 45.2 36.9 33.3
Gypsum wallboard.......................... 74.3 53.3 36.6 33.1 40.7
Rigid foam insulation(c).................. -- -- -- -- 4.9
Retail distribution....................... 58.4 60.0 53.5 42.2 41.7
Other..................................... 4.8 10.0 8.8 2.4 6.4
Other activities............................ 19.2 58.4 77.1 67.9 70.0
-------- -------- -------- -------- --------
Manufacturing net sales................... 2,306.1 2,100.7 2,075.4 1,898.2 1,892.5
Financial services.......................... 631.4 635.1 637.8 608.9 508.6
-------- -------- -------- -------- --------
Total revenues.................... $2,937.5 $2,735.8 $2,713.2 $2,507.1 $2,401.1
======== ======== ======== ======== ========
</TABLE>
---------------
(a) Reflects Temple-Inland Food Service Corporation beginning with its formation
in March 1991.
(b) Excludes the Rome, Georgia, sawmill, sales from which totaled $24.7 million,
$20.2 million, $16.9 million, $11.8 million, and $13.3 million in 1994,
1993, 1992, 1991, and 1990, respectively.
(c) A three-year lease with option to purchase was negotiated for the Company's
rigid foam insulation operation during the second quarter of 1990, and
extended through 1996. On January 31, 1995, the Company sold this operation
to the lessee.
3
<PAGE> 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
<TABLE>
<CAPTION>
RATED ANNUAL
CAPACITY AT UNIT SALES
DECEMBER 31, -----------------------------------------
1994 1994 1993 1992 1991 1990
------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS OF TONS)
Corrugated container....................... (a) 2,492 2,394 2,294 2,097 2,061
Bleached paperboard
Paperboard............................... (b) 430 426 414 447 462
Market pulp.............................. (b) 59 100 123 103 107
Nodular pulp............................. (b) 28 34 32 19 20
Building products (IN MILLIONS OF BOARD FEET)
Pine lumber(c)........................... 540 509 484 467 395 342
(IN MILLIONS OF SQUARE FEET)
Fiber products........................... 460 441 440 464 443 452
Particleboard............................ 350 347 319 326 321 302
Plywood.................................. 265 260 265 250 253 233
Gypsum wallboard......................... 810 796 782 621 601 699
Rigid foam insulation(d)................. -- -- -- -- -- 25
</TABLE>
---------------
(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 595,000 tons per year. The rated annual capacity
of the linerboard mills is approximately 2.0 million tons per year.
(b) The annual capacity of the paperboard and pulp mill is approximately 525,000
tons, which excludes the capacity of a fourth paper machine at the mill that
was shut down late in 1993 due to market conditions for the paperboard grade
it produced. 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 74 million
board feet, 68 million board feet, 71 million board feet, 59 million board
feet, and 67 million board feet in 1994, 1993, 1992, 1991, and 1990,
respectively.
(d) A three-year lease with option to purchase was negotiated for the Company's
rigid foam insulation operation during the second quarter of 1990, and
extended through 1996. On January 31, 1995, the Company sold this operation
to the lessee.
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 31, 1994, corrugated
container, bleached paperboard, building products, and financial services
provided 49%, 10%, 19%, and 21%, respectively, of the total consolidated net
revenues of the Company.
Corrugated Container. Inland manufactures containerboard that it converts
into a complete line of corrugated boxes and containers. Approximately 84% of
the containerboard produced by Inland in 1994 was
4
<PAGE> 6
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 31,
1994, about 48% of Inland's box shipments were sold directly for use in the food
industry, including beverage containers.
Inland also manufactures bulk containers that are constructed of multi-wall
corrugated board for extra strength. These are used for bulk shipments of
various materials. In addition, Inland manufactures paper sealing tape and other
tape specialties.
During 1994, Inland acquired Rand-Whitney Packaging Corporation
("Rand-Whitney"), a recognized leader in litho-laminate corrugated packaging and
high graphics folding cartons. This acquisition reflects the strategic efforts
of Inland to expand the high value packaging portion of its product mix.
Rand-Whitney will increase Inland's high-value business to about 20% of its
packaging business and leverage the capabilities of Inland's Graphics Resource
Center.
Inland services about 5,900 customers with approximately 10,100 shipping
destinations. The largest single customer accounted for approximately 5% and the
10 largest customers accounted for approximately 28% of Inland's 1994 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. Recently, however, industry shipments have
exceeded the growth rate of the U.S. economy.
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 16% of this
segment's 1994 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 56% of this segment's 1994 sales. During 1994, sales
were made to domestic customers in 44 states and Puerto Rico. Contracts
specifying annual tonnage quantities are maintained with several major
customers.
During 1992, the Board of Directors of the Company approved a modernization
program at the bleached paperboard mill in Evadale, Texas. The project is
currently on schedule and is estimated to be completed in late 1995 at a cost of
approximately $500 million. One aspect of the program is the addition of a new
softwood pulpline. The softwood line, which is scheduled to start up in the
first half of 1995, will be in addition to a new hardwood fiber line that began
operations during the fourth quarter of 1992. These two pulp operations will be
used to provide higher quality pulp to meet consumer demands. As a result of
this program, pulp production capacity will be increased by 35% and effluent
discharge will be decreased.
In addition to the pulp mill expansion, the Company will add a new paper
machine and make further upgrades to the three existing fourdrinier paper
machines at the Evadale mill to increase paperboard production. The focus of the
paperboard expansion program is to enable the mill to efficiently produce low-
density paperboard with high quality characteristics that are increasingly
demanded by end users. The addition of the new fourdrinier machine, which will
be designed primarily for low-density coated board, and the upgrades to the
three existing fourdrinier machines, will also enable the mill to balance more
effectively its
5
<PAGE> 7
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 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.
Food Service consists of converting plants in Carlisle, Ohio, Sacramento and El
Cajon, California, Monroe, Louisiana, and Denver, Colorado. Products
manufactured include paper plates and bowls, clamshells, carrying trays and
boxes, nested food trays, fry cartons, and pails. These products are sold to the
fast food industry, retail consumer stores, and restaurants and cafeterias for
use in food service.
Building Products. The Building Products Group produces a wide variety of
building products, such as lumber, plywood, particleboard, gypsum wallboard,
hardboard siding, and fiberboard sheathing.
Sales of building products are concentrated in the southeastern and
southwestern United States. No significant sales are generated under long-term
contracts. Sales of most of these products are made by account managers and
representatives. Most sales are to distributors, retailers, and O.E.M. (original
equipment manufacturer) accounts. Almost 95% of particleboard sales are to
commercial fabricators, such as manufacturers of cabinets and furniture. The 10
largest customers accounted for approximately 21% of the Building Products
Group's 1994 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 began construction of a new particleboard
plant to be located in Hope, Arkansas. The facility is scheduled to be operating
in the fourth quarter of 1995. The plant, which will cost approximately $62
million to build, will have an annual production capacity of 170 million square
feet of particleboard. The Company also announced that it intends to enter into
a joint venture that will produce medium density fiberboard.
Financial Services. Financial Services operates a consumer savings bank and
engages in mortgage banking, land development, and insurance activities.
(i) Savings Bank. Guaranty is a federally-chartered stock savings bank
operated by the Company through its financial services subsidiaries. Guaranty
conducts its business through 123 banking centers located primarily in the
eastern third of Texas, including Houston, Dallas, San Antonio, and Austin. The
primary business of Guaranty is to attract savings deposits from the general
public and to invest in loans or mortgage-backed securities secured by mortgages
on residential and other real estate.
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 banks or savings and loan
associations, are significantly influenced by general economic conditions, by
the monetary, fiscal, and regulatory policies of the federal government, and by
the policies of financial institution regulatory authorities. Deposit flows and
costs of funds are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for mortgage financing and for other types of loans as well as market
conditions. Guaranty primarily seeks assets with interest rates that adjust
periodically rather than assets with long-term fixed rates.
In 1988, Guaranty entered into an assistance agreement (the "Guaranty
Assistance Agreement") with the Federal Savings and Loan Insurance Corporation
(the "FSLIC"). Pursuant to the Guaranty Assistance Agreement, the FSLIC agreed
to provide continuing financial assistance to Guaranty consisting of notes from
the FSLIC, guaranteed yield on the book value of assets acquired from the FSLIC
("Covered Assets"), and
6
<PAGE> 8
protection against losses on the book value of the Covered Assets. Pursuant to
an acquisition in 1993, 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") entered into during 1988 by AFB. All of the notes
issued pursuant to these Assistance Agreements have been prepaid and the
guarantees are now obligations of the FSLIC Resolution Fund, a
government-sponsored entity created in August 1989 and managed by the Federal
Deposit Insurance Corporation (the "FDIC"). Both Assistance Agreements are
scheduled to expire during 1998. The Company, however, is currently negotiating
with the FDIC for early termination of these agreements. At December 31, 1994,
the book value of Covered Assets was approximately $418 million, which is less
than 5% of the total assets of Guaranty. Included in this amount is $202 million
of Covered Assets obtained in the acquisition of AFB.
The Company receives various tax benefits from the receipt of assistance
payments under the Covered Asset guarantees held by Guaranty. The tax benefits
to be received by the Company, however, will be subject to (i) the tax laws then
in effect, (ii) the amount of income attributable to certain Covered Assets, and
(iii) Guaranty's continued status as a "domestic building and loan association"
under the Internal Revenue Code of 1986, as amended. As part of the Omnibus
Budget Reconciliation Act of 1993 (the "Act"), Congress changed the treatment of
FSLIC assistance payments "with respect to any loss of principal, capital, or
similar amount upon the disposition of any asset" so that such assistance is
taken into account as compensation for such loss. By enacting this provision,
Congress eliminated the tax benefit that was permitted when a thrift deducted
the loss on disposition of a Covered Asset while it excluded related assistance
payments from income. As a result of the Act, the Company paid the government
$47 million during the year for 1991 and 1992 deductions that this legislation
eliminated. This payment will have no impact on future net income and the
Company will continue to receive other tax benefits from its ownership of
Guaranty, such as net operating loss carryforwards, that will reduce its future
cash tax payments.
In addition to other minimum capital standards, regulations of the Office
of Thrift Supervision of the Department of the Treasury (the "OTS") currently
require savings institutions to maintain a leverage capital ratio of at least 3%
of adjusted total assets. In addition, in earlier acquisitions from the FDIC,
Guaranty entered into an agreement with the OTS that at the time it makes any
future acquisitions, it will maintain a leverage capital ratio of at least 4% of
adjusted total assets. At December 31, 1994, Guaranty had a leverage capital
ratio of 4.61% 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, 1994, Guaranty met or exceeded these tests and intends to continue
meeting or exceeding these tests.
(ii) Mortgage Banking. Temple-Inland Mortgage, a wholly-owned subsidiary of
Guaranty headquartered in Austin, Texas, originates and services FHA, VA, and
conventional mortgage loans primarily on single family residential property.
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. At December
31, 1994, Temple-Inland Mortgage was servicing $10.1 billion in mortgage loans.
Temple-Inland Mortgage produced $2.1 billion in mortgage loans during 1994
compared with $4.8 billion during 1993.
(iii) Land Development and Income Properties. Subsidiaries of Financial
Services are involved in the development of 16 residential subdivisions in
Texas. The real estate group of the Company also owns 11 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.
7
<PAGE> 9
The following schedule presents the average balances, interest
income/expense, and rates earned or paid by major balance sheet category for the
years 1992 through 1994:
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST SPREAD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------- --------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- ------ ----- -------- ------ ----- -------- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-earning deposits in other
banks............................ $ 26.0 $ 1.3 4.96% $ 22.6 $ .6 2.78% $ 35.8 $ 1.3 3.78%
Mortgage-backed and investment
securities....................... 4,154.7 189.8 4.57% 4,981.8 241.9 4.86% 4,962.7 306.4 6.17%
Securities purchased under
agreements to resell, agency
discount notes, and federal funds
sold............................. 653.5 27.2 4.16% 1,181.4 43.0 3.64% 251.7 10.3 4.07%
Loans receivable and mortgage loans
held for sale(1)................. 3,241.5 244.7 7.55% 2,248.9 172.9 7.69% 1,609.5 152.4 9.47%
Covered assets..................... 536.2 30.3 5.66% 405.7 25.4 6.26% 479.4 36.1 7.53%
Other.............................. 25.4 2.2 8.52% 62.2 5.9 9.51% 88.5 7.3 8.29%
-------- ------ -------- ------ -------- ------
Total interest-earning
assets....................... 8,637.3 $495.5 5.74% 8,902.6 $489.7 5.50% 7,427.6 $513.8 6.92%
====== ====== ======
Cash................................. 107.2 90.0 75.8
Other FSLIC receivables.............. 17.4 5.2 71.9
Other assets......................... 469.0 440.7 303.8
-------- -------- --------
Total assets................... $9,230.9 $9,438.5 $7,879.1
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand.......... $1,549.4 $ 34.5 2.23% $1,443.4 $ 34.1 2.36% $1,382.8 $ 43.9 3.17%
Savings deposits................. 248.3 5.6 2.26% 201.5 5.2 2.57% 182.9 6.1 3.34%
Time deposits.................... 4,615.6 213.7 4.63% 3,919.7 197.5 5.04% 4,384.1 259.6 5.92%
-------- ------ -------- ------ -------- ------
Total interest-bearing
deposits..................... 6,413.3 253.8 3.96% 5,564.6 236.8 4.26% 5,949.8 309.6 5.20%
Advances from the Federal Home Loan
Bank............................. 154.3 9.5 6.13% 64.2 5.3 8.25% 57.6 5.6 9.64%
Securities sold under repurchase
agreements....................... 1,598.0 66.6 4.17% 2,734.2 88.4 3.23% 972.5 35.6 3.66%
Other borrowings................... 64.4 4.5 6.90% 82.6 5.6 6.74% 110.8 7.6 6.90%
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities.................. 8,230.0 $334.4 4.06% 8,445.6 $336.1 3.98% 7,090.7 $358.4 5.05%
====== ====== ======
Noninterest-bearing demand........... 85.8 92.4 51.2
Other liabilities.................... 363.0 388.4 306.8
Shareholder's equity................. 552.1 512.1 430.4
-------- -------- --------
Total liabilities and
shareholder's equity......... $9,230.9 $9,438.5 $7,879.1
======== ======== ========
Net interest income............ $161.1 $153.6 $155.4
====== ====== ======
Net yield on interest-earning
assets....................... 1.87% 1.73% 2.09%
===== ===== =====
</TABLE>
---------------
(1) Nonaccruing loans are included in the average of loans receivable.
8
<PAGE> 10
The following table provides an analysis of the changes in net interest
income attributable to changes in volume of interest-earning assets or
interest-bearing liabilities and to changes in rates earned or paid:
VOLUME/RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
1994 COMPARED WITH 1993 1993 COMPARED WITH 1992
INCREASE (DECREASE) DUE TO (1) INCREASE (DECREASE) DUE TO (1)
-------------------------------- ---------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ------ ------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-earning deposits in other banks..... $ .1 $ .6 $ .7 $ (.4) $ (.3) $ (.7)
Mortgage-backed and investment securities.... (38.4) (13.7) (52.1) 1.2 (65.7) (64.5)
Securities purchased under agreements to
resell, agency discount notes, and federal
funds sold................................. (21.3) 5.5 (15.8) 33.9 (1.2) 32.7
Loans receivable and mortgage loans held for
sale....................................... 74.9 (3.1) 71.8 52.8 (32.3) 20.5
Covered assets............................... 7.6 (2.7) 4.9 (5.1) (5.6) (10.7)
Other........................................ (3.2) (.5) (3.7) (2.4) 1.0 (1.4)
----- ------ ------ ----- ------- ------
TOTAL INTEREST INCOME.................. $19.7 $(13.9) $ 5.8 $80.0 $(104.1) $(24.1)
===== ====== ====== ===== ======= ======
Interest expense:
Deposits:
Interest-bearing demand.................... $ 2.4 $ (2.0) $ .4 $ 1.8 $ (11.6) $ (9.8)
Savings deposits........................... 1.1 (.7) .4 .6 (1.5) (.9)
Time deposits.............................. 33.1 (16.9) 16.2 (25.8) (36.3) (62.1)
----- ------ ------ ----- ------- ------
TOTAL INTEREST ON DEPOSITS............. 36.6 (19.6) 17.0 (23.4) (49.4) (72.8)
Advances from the Federal Home Loan Bank..... 5.8 (1.6) 4.2 .6 (.9) (.3)
Securities sold under repurchase
agreements................................. (43.0) 21.2 (21.8) 57.4 (4.6) 52.8
Other borrowings............................. (1.2) .1 (1.1) (1.9) (.1) (2.0)
----- ------ ------ ----- ------- ------
TOTAL INTEREST EXPENSE................. $(1.8) $ .1 $ (1.7) $32.7 $ (55.0) $(22.3)
===== ====== ====== ===== ======= ======
Net interest income (expense)................ $21.5 $(14.0) $ 7.5 $47.3 $ (49.1) $ (1.8)
===== ====== ====== ===== ======= ======
</TABLE>
---------------
(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
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993 1992
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Held-to-Maturity:
Mortgage-backed securities..................................... $3,760.4 $4,336.2 $5,185.3
Debt securities
U.S. Government securities (including agencies).............. .3 .8 1.9
Corporate bonds.............................................. 1.5 1.2 11.1
Other........................................................ .1 .1 9.8
-------- -------- --------
1.9 2.1 22.8
-------- -------- --------
Equity securities
Federal Home Loan Bank Stock................................. -- 68.9 56.4
Other........................................................ -- .1 .4
-------- -------- --------
-- 69.0 56.8
-------- -------- --------
Available-for-Sale:
Mortgage-backed securities..................................... 137.7 -- --
Equity securities
Federal Home Loan Bank Stock................................. 63.2 -- --
Other........................................................ 1.0 -- --
-------- -------- --------
64.2 -- --
-------- -------- --------
$3,964.2 $4,407.3 $5,264.9
======== ======== ========
</TABLE>
9
<PAGE> 11
The table below sets forth the maturities of mortgage-backed and investment
securities as of December 31, 1994:
MATURITY DISTRIBUTION OF MORTGAGE-BACKED AND INVESTMENT SECURITIES
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity:
Mortgage-backed securities...... $ -- -- $ -- -- $ -- -- $ -- -- $3,760.4 4.89% $3,760.4
Debt securities
U.S. Government securities
(including agencies)........ .3 5.84% -- -- -- -- -- -- -- -- .3
Corporate bonds............... -- -- .6 9.00% -- -- .9 6.92% -- -- 1.5
Other......................... -- -- .1 7.31% -- -- -- -- -- -- .1
---- ---- ---- ---- -------- --------
.3 .7 -- .9 -- 1.9
---- ---- ---- ---- -------- --------
Available-for-Sale:
Mortgage-backed securities...... -- -- -- -- -- -- -- -- 137.7 4.89% 137.7
Equity securities
Federal Home Loan Bank
Stock....................... -- -- -- -- -- -- -- -- 63.2 5.78% 63.2
Other......................... -- -- -- -- -- -- -- -- 1.0 -- 1.0
---- ---- ---- ---- -------- --------
-- -- -- -- 64.2 64.2
---- ---- ---- ---- -------- --------
$ .3 $ .7 $ -- $ .9 $3,962.3 $3,964.2
==== ==== ==== ==== ======== ========
</TABLE>
The following table shows the loan distribution for Financial Services:
TYPES OF LOANS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Real estate mortgage.................................... $3,137.5 $2,302.9 $1,153.3 $ 863.2 $ 782.5
Construction and development............................ 1,022.6 643.7 274.6 216.6 66.7
Commercial.............................................. 229.0 80.7 25.4 58.2 41.6
Consumer and other...................................... 366.0 404.1 271.1 294.9 184.7
------- ------- ------- ------- -------
4,755.1 3,431.4 1,724.4 1,432.9 1,075.5
Less:
Unfunded portion of loans............................. 1,027.7 614.0 320.6 146.1 51.9
Unearned discounts.................................... .6 3.0 9.3 24.5 3.4
Unamortized purchase discounts........................ (5.1) 8.9 28.1 39.5 49.4
Net deferred fees..................................... 3.2 2.2 2.3 .7 1.1
Allowance for loan losses............................. 53.9 47.9 20.8 19.5 2.0
------- ------- ------- ------- -------
1,080.3 676.0 381.1 230.3 107.8
------- ------- ------- ------- -------
$3,674.8 $2,755.4 $1,343.3 $1,202.6 $ 967.7
======== ======== ======== ======== =======
</TABLE>
10
<PAGE> 12
The table below presents the maturity distribution of loans (excluding real
estate mortgage and consumer loans) outstanding at December 31, 1994, 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
<TABLE>
<CAPTION>
MATURING
-----------------------------------------
WITHIN 1 TO 5 AFTER
1 YEAR YEARS 5 YEARS TOTAL
------ ------ ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Construction and development.......................... $658.6 $363.4 $ .6 $1,022.6
Commercial............................................ 103.9 91.7 33.4 229.0
------ ------ ------- --------
$762.5 $455.1 $34.0 $1,251.6
====== ====== ====== ========
Loans maturing after 1 year with:
Fixed interest rates................................ $ 68.5 $24.4
Variable interest rates............................. 386.6 9.6
------ -------
$455.1 $34.0
====== ======
</TABLE>
Nonaccrual, past due, restructured, and other potential problem loans were
less than two percent of total loans during 1994, 1993, 1992, 1991, and 1990.
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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................ $ 47.9 $20.8 $19.5 $ 2.0 $1.2
Charge-offs:
Real estate mortgages..................... (4.4)(a) (.7) (1.8) (.4) (.2)
Commercial................................ (1.1) -- -- -- --
Consumer and other........................ (4.7)(a) (1.8) (1.9) (1.6) (.5)
------ ----- ----- ----- ----
(10.2) (2.5) (3.7) (2.0) (.7)
Recoveries:
Real estate mortgages..................... .6 .2 .2 -- --
Commercial................................ .1 -- -- -- --
Consumer and other........................ 1.4 .6 .8 .2 .1
------ ----- ----- ----- ----
2.1 .8 1.0 .2 .1
------ ----- ----- ----- ----
Net charge-offs................... (8.1)(a) (1.7) (2.7) (1.8) (.6)
Additions charged to operations............. 6.5 4.8 2.6 2.3 1.4
Additions related to bulk purchases of
loans..................................... 7.6 24.0(a) 1.4 17.0 --
------ ----- ----- ----- ----
Balance at end of year...................... $ 53.9 $47.9 $20.8 $19.5 $2.0
====== ===== ===== ===== ====
Ratio of net charge-offs during the year to
average loans outstanding during the
year...................................... 0.27% 0.10% 0.22% 0.15% 0.08%
====== ===== ===== ===== ====
</TABLE>
---------------
(a) Principally related to the loan portfolio from the acquisition of AFB.
11
<PAGE> 13
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------------- --------------------- --------------------- --------------------- ---------------------
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
--------- ---------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate.... $37.5 66% $24.5 67% $13.5 67% $13.2 60% $ .9 73%
Construction
and
development... 1.3 21% 1.0 19% .5 16% .3 15% .3 6%
Commercial..... 10.2 5% 14.7 2% 2.8 1% .7 4% .1 4%
Consumer and
other........ 4.9 8% 7.7 12% 4.0 16% 5.3 21% .7 17%
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
$53.9 100% $47.9 100% $20.8 100% $19.5 100% $ 2.0 100%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
</TABLE>
The amount charged to operations and the related balance in the allowance
for loan losses are based on periodic evaluations of the loan portfolio by
management. These evaluations consider several factors, including without
limitation, past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral, and current economic conditions.
Deposits. The average amount of deposits and the average rates paid on
noninterest-bearing demand deposits, interest-bearing demand deposits, savings
deposits, and time deposits are presented on the schedule of average balance
sheets and analysis of net interest spread of Financial Services on page 8
hereof.
The amount of time deposits of $100,000 or more and related maturities at
December 31, 1994, are disclosed in Note G to Financial Services Financial
Statements on page 44 of the Company's 1994 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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1993(1) 1992
------ ------ ------
<S> <C> <C> <C>
Return on average assets........................................ .44% 1.07% .68%
Return on average equity........................................ 7.41% 19.73% 12.42%
Dividend payout ratio........................................... 73.22% 41.56% 17.40%
Equity to assets ratio.......................................... 5.99% 5.43% 5.46%
</TABLE>
---------------
(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.
12
<PAGE> 14
Short-term borrowings. The following table shows short-term borrowings
outstanding at the end of the reported period:
SHORT TERM BORROWINGS
(IN MILLIONS)
<TABLE>
<CAPTION>
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
---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Securities sold under agreements to
repurchase
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%
1992.............................. $1,459.5 3.5% $1,571.4 $ 972.5 3.7%
</TABLE>
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.
Other Activities. A subsidiary of Temple-Inland FPC was engaged in
commercial, industrial, and public works contracting as a prime contractor until
its operations were terminated by the Company during 1993. During 1994, the
Company sold the assets of its subsidiary that constructed and maintained
electrical distribution facilities for local utilities.
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 1994, wood
fiber required for the Company's paper and wood products operations was produced
from these lands and as a by-product of our solid wood operations to the extent
shown on the following chart:
WOOD FIBER REQUIREMENTS
<TABLE>
<CAPTION>
PERCENTAGE
SUPPLIED
RAW MATERIALS INTERNALLY
------------- ----------
<S> <C>
Sawtimber......................................... 48.1%
Pine Pulpwood..................................... 44.7%
Hardwood Pulpwood................................. 16.2%
</TABLE>
The balance of the wood fiber required for these operations was purchased
from numerous landowners and other lumber companies. During 1994, the bleached
paperboard mill in Evadale, Texas, purchased small amounts of recycled pulp. As
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") and the mill at New
Johnsonville, Tennessee, uses a combination of virgin fiber and OCC. The price
of OCC rose during the year until hitting a peak in the third quarter at a level
three times greater than the price paid by the Company early in the year. The
price of OCC moderated during the fourth quarter, but has started to rise again
early in 1995. Similar fluctuations in future years could
13
<PAGE> 15
force the Company to absorb increased material costs. The Company's historical
grade patterns produce more linerboard and less corrugated medium than is
converted at 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 15% of its energy requirements and Temple-Inland
FPC generated approximately 66% of its energy requirements during 1994. 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.
14
<PAGE> 16
EMPLOYEES
At December 31, 1994, the Company and its subsidiaries had approximately
15,000 employees. Approximately 5,000 of these employees are covered by
collective bargaining agreements. These agreements generally run for a term of
two to five years and have varying expiration dates. The following table
summarizes certain information about the collective bargaining agreements that
cover a significant number of employees:
<TABLE>
<CAPTION>
LOCATION BARGAINING UNIT(S) EMPLOYEES COVERED EXPIRATION DATE
--------------------------------- --------------------------------- --------------------------------- ----------------
<S> <C> <C> <C>
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, 235 Hourly Production Employees July 31, 1999
Local 391 and 104 Hourly Maintenance
Employees
Linerboard Mill, Rome, Georgia... UPIU, Local 804, IBEW, Local 613, 316 Hourly Production Employees, August 28, 2000
United Association of Journeymen 43 Electrical Maintenance
& Apprentices of the Plumbing & Employees and 172 Hourly Mainte-
Pipefitting Industry of the U.S. nance 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 95 Hourly Production Employees, April 30, 1996
1737, UPIU, Local 114, and UPIU, 85 Hourly Production Employees,
Local 954, respectively 95 Hourly Production Employees,
and 70 Hourly Production Employ-
ees, respectively
Rome, Georgia, Macon, Georgia,
and Orlando, Florida, Box Plants
("Southern Multiple")............ UPIU Local 838, UPIU, Local 628, 129, 89, and 95 Hourly Production December 1, 1997
and UPIU Local 834, respectively Employees, respectively
</TABLE>
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 $24 million
during 1994. This amount does not include capital expenditures for environmental
control facilities made as part of major mill modernizations and expansions or
capital expenditures made for another purpose that have an indirect benefit on
environmental compliance.
The Company is committed to protecting the health and welfare of its
employees, the public, and our environment and strives to maintain compliance
with all state and federal environmental regulations in a manner that is also
cost effective. In recent modernization programs, most notably at Evadale,
Texas, the
15
<PAGE> 17
Company has used state of the art technology for its air and water emissions.
These forward-looking programs minimize the impact that changing regulations
have on capital expenditures for environmental compliance.
Future expenditures for environmental control facilities will depend on new
laws and regulations and other changes in legal requirements and agency
interpretations thereof, as well as technological advances. The Company expects
the trend toward more stringent environmental regulation to continue for the
foreseeable future. The trend in interpretation and application of existing
regulations by regulatory authorities also appears to be toward increasing
stringency particularly under RCRA with respect to certain solid wastes
generated at kraft mills. Given these uncertainties, the Company currently
estimates that capital expenditures for environmental purposes during the period
1995 through 1997 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 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 over 1,500 box
plants in the United States. Box plants operated by Inland and its subsidiaries
accounted for 8.5% of total industry shipments during 1994. 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.
16
<PAGE> 18
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.
In its operations, 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:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---------------------------------- --- ---------------------------------------------
<S> <C> <C>
Clifford J. Grum.................. 60 Chairman of the Board and Chief Executive
Officer
David L. Ashcraft................. 49 Group Vice President
William B. Howes.................. 57 Group Vice President
Harold C. Maxwell................. 54 Group Vice President
Kenneth M. Jastrow, II............ 47 Chief Financial Officer
M. Richard Warner................. 43 Vice President, General Counsel, and
Secretary
David H. Dolben................... 59 Vice President and Chief Accounting Officer
David W. Turpin................... 44 Treasurer
</TABLE>
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 and Chief Executive Officer of Guaranty, and
Chairman, Chief Executive Officer, 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.
William B. Howes became a Group Vice President of the Company and the
Chairman of the Board and Chief Executive Officer of Inland in July 1993 after
serving as the President and Chief Operating Officer of Inland since April 1992.
From August 1990 until April 1992, Mr. Howes was the Executive Vice President of
Inland. Before joining Inland in 1990, Mr. Howes was an employee of Union Camp
Corporation for 28 years, serving most recently as Senior Vice President.
Harold C. Maxwell became Group Vice President of the Company in May 1989.
He has also served as Group Vice President -- Building Products of Temple-Inland
FPC since November 1982.
Kenneth M. Jastrow, II became the Chief Financial Officer of the Company in
November 1991. He also serves as Chairman of Temple-Inland Mortgage, President
of Guaranty, and President of Financial Services. In 1984, Mr. Jastrow formed
Capitol Mortgage Bankers, which became a subsidiary of the Company through an
acquisition in June 1991 and changed its name to Temple-Inland Mortgage
Corporation during 1992. In March 1990, Security Financial Corporation, of which
Mr. Jastrow was an executive officer, filed a voluntary petition under Chapter
11 of the Bankruptcy Code.
M. Richard Warner became Vice President, General Counsel and Secretary of
the Company in June 1994. He also serves as Vice President, Secretary, and a
Director of Inland and as a Director and Assistant Secretary of Temple-Inland
FPC. 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.
17
<PAGE> 19
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. Since March
1993, Mr. Turpin has also served as Executive Vice President and Treasurer of
Lumbermen's Investment Corporation, a real estate subsidiary of the Company, for
which he served as Senior Vice President and Treasurer from January 1991 to
March 1993. From June 1987 to December 1991, Mr. Turpin was Vice President and
Senior Manager of Corporate Banking with The Sanwa Bank, Limited in Dallas,
Texas.
Officers are elected at the Company's Annual Meeting of Directors to serve
until their successors have been elected and have qualified or as otherwise
provided in the Company's Bylaws.
ITEM 2. PROPERTIES
The Company owns and operates plants, mills, and manufacturing facilities
throughout the United States and has two box plants in Mexico and a 50% joint
venture interest in a box plant in Argentina. Additional descriptions as of
year-end of selected properties are set forth in the following charts:
CONTAINERBOARD MILLS
<TABLE>
<CAPTION>
RATED
NO. OF ANNUAL 1994
LOCATION PRODUCT MACHINES CAPACITY PRODUCTION
---------------------------------------------- ------------ -------- -------- ----------
(IN TONS)
<S> <C> <C> <C> <C>
Ontario, California........................... Linerboard 1 305,000 301,000
Rome, Georgia................................. Linerboard 2 825,000 809,000
Orange, Texas................................. Linerboard/ 2 600,000 613,000
Kraft Paper
Maysville, Kentucky........................... Linerboard 1 295,000 289,000
Newark, California............................ Medium 2 70,000 69,000
Newport, Indiana.............................. Medium 1 275,000 273,000
New Johnsonville, Tennessee................... Medium 1 250,000 249,000
</TABLE>
BLEACHED PAPERBOARD MILL
<TABLE>
<CAPTION>
RATED
NO. OF ANNUAL 1994
LOCATION PRODUCT MIX MACHINES CAPACITY PRODUCTION
------------------------- --------------------- -------- -------- ----------
(IN TONS)
<S> <C> <C> <C> <C> <C>
Evadale, Texas........... Bleached Pulp 10% 50,548
Food Service 38% 195,732
Packaging 22% 114,540
Office Supplies 21% 107,424
Specialties 4% 19,669
Nodular Pulp 5% 27,440
---- --------
100% 3 525,000* 515,353
========
</TABLE>
---------------
* Such capacity may vary to some degree depending on product mix. A fourth
machine at the mill is no longer operating due to market conditions for the
paperboard grade it was designed to produce.
18
<PAGE> 20
FOOD SERVICE CONVERTING PLANTS*
<TABLE>
<CAPTION>
DATE
LOCATION PLANT SIZE ACQUIRED
---------------------------------------------------------------------- ---------------- --------
(IN SQUARE FEET)
<S> <C> <C>
Sacramento, California................................................ 88,000 1991
Carlisle, Ohio(1)..................................................... 83,000 1991
El Cajon, California.................................................. 120,000 1991
Denver, Colorado...................................................... 50,000 1991
Monroe, Louisiana..................................................... 29,000 1994
</TABLE>
---------------
* The annual capacity of the converting plants of Food Service is not given
because such annual capacity is a function of the product mix, customer
requirements, and the type of converting equipment installed and operating
at each plant, all of which vary from time to time.
(1) This facility is owned by the Company. The other converting plants are
leased.
Additionally, Food Service rents, from time to time, warehouse space near
its converting plants primarily to store finished products awaiting shipment.
19
<PAGE> 21
CORRUGATED CONTAINER PLANTS*
<TABLE>
<CAPTION>
DATE
CORRUGATOR ACQUIRED OR
LOCATION SIZE CONSTRUCTED
------------------------------------------------------------------ ---------- -----------
<S> <C> <C>
Fort Smith, Arkansas.............................................. 87" 1978
Bell, California.................................................. 97" 1972
Buena Park, California(1)......................................... 85" 1990
El Centro, California(1).......................................... 87" 1990
Newark, California................................................ 87" 1974
Ontario, California............................................... 87" 1985
Santa Fe Springs, California...................................... 87" 1972
Santa Fe Springs, California(1)**................................. 87" 1990
Santa Fe Springs, California***................................... None 1990
Tracy, California**............................................... 87" 1986
Wheat Ridge, Colorado............................................. 87" 1977
Orlando, Florida.................................................. 98" 1955
Macon, Georgia.................................................... 100" 1947
Rome, Georgia**................................................... 87" & 98" 1955
Chicago, Illinois................................................. 87" 1957
Crawfordsville, Indiana........................................... 98" 1971
Evansville, Indiana............................................... 98" 1958
Indianapolis, Indiana............................................. 87" 1990
Garden City, Kansas............................................... 96" 1981
Kansas City, Kansas............................................... 87" 1981
Louisville, Kentucky.............................................. 87" 1958
Minden, Louisiana................................................. 98" 1986
Minneapolis, Minnesota............................................ 87" 1986
Hattiesburg, Mississippi.......................................... 87" 1965
St. Louis, Missouri............................................... 87" 1963
Spotswood, New Jersey............................................. 87" 1963
Middletown, Ohio.................................................. 98" 1930
Biglerville, Pennsylvania......................................... 98" 1955
Erie, Pennsylvania................................................ 85" 1952
Hazleton, Pennsylvania............................................ 98" 1976
Vega Alta, Puerto Rico............................................ 87" 1977
Lexington, South Carolina......................................... 80" 1980
Rock Hill, South Carolina......................................... 87" 1972
Elizabethton, Tennessee........................................... 98" 1982
Elizabethton, Tennessee(1)***..................................... None 1990
Dallas, Texas..................................................... 87" 1962
Edinburg, Texas................................................... 87" 1989
Petersburg, Virginia.............................................. 87" 1991
San Jose Iturbide, Mexico......................................... 87" 1994
Monterrey, Mexico................................................. 78" 1994
Buenos Aires, Argentina(2)........................................ 98" 1994
</TABLE>
---------------
* 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.
20
<PAGE> 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 18 warehouses located throughout much of
the United States. During 1994, Inland entered into two separate joint ventures,
one of which operates a box plant in Argentina and the other of which will
operate a box plant in Chile. As a result of its acquisition of Rand-Whitney,
Inland owns a specialty converting plant in Harrington, Delaware, and leases
specialty converting plants in Leominster, Massachusetts, and Montville,
Connecticut.
BUILDING PRODUCTS
<TABLE>
<CAPTION>
RATED
ANNUAL
DESCRIPTION LOCATION CAPACITY
------------------------------------------------------ ------------------------ ---------------
<S> <C> <C>
(IN MILLIONS OF
BOARD FEET)
Lumber................................................ Diboll, Texas 150*
Lumber................................................ Pineland, Texas 85
Lumber................................................ Buna, Texas 170
Lumber................................................ Rome, Georgia 80
Lumber................................................ DeQuincy, Louisiana 135
</TABLE>
---------------
* Includes separate finger jointing capacity of 10 million board feet.
<TABLE>
<CAPTION>
RATED
ANNUAL
DESCRIPTION LOCATION CAPACITY
------------------------------------------------------ ------------------------ ---------------
<S> <C> <C>
(IN MILLIONS OF
SQUARE FEET)
Fiberboard............................................ Diboll, Texas 460
Particleboard......................................... Monroeville, Alabama 120
Particleboard......................................... Thomson, Georgia 115
Particleboard......................................... Diboll, Texas 115
Plywood............................................... Pineland, Texas 265
Gypsum Wallboard...................................... West Memphis, Arkansas 390
Gypsum Wallboard...................................... Fletcher, Oklahoma 420
</TABLE>
The Company is building a new particleboard plant to be located in Hope,
Arkansas. The plant is expected to be completed in the fourth quarter of 1995
and will produce 170 million square feet of particleboard annually.
TIMBER AND TIMBERLANDS*
(IN ACRES)
<TABLE>
<S> <C>
Pine Plantations........................................ 1,280,086
Natural Pine............................................ 349,174
Hardwood................................................ 213,936
Special Use............................................. 52,756
---------
TOTAL......................................... 1,895,952
=========
</TABLE>
---------------
* 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 1994, the Company began construction of a 270,000
square foot office building in Austin, Texas. This facility, scheduled for
completion in late 1995, will house nearly 1,000 employees of Financial Services
and Guaranty.
21
<PAGE> 23
The Company also owns 336,000 mineral acres in Texas and Louisiana. Revenue
from lease and production activities on these acres totaled $3.6 million in
1994. Additionally, the Company owns 395,830 mineral acres in Alabama and
Georgia. There was no significant income from these minerals in 1994.
Reference is made to the "Long-Term Debt" Note to the Financial Statements
of the Company on page 37 of the Company's 1994 Annual Report to Shareholders
for information concerning various mortgages and other encumbrances on the
properties, which information is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS:
GENERAL:
The Company 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 in
relation to the consolidated financial position of the Company and its
subsidiaries.
ENVIRONMENTAL:
The facilities of the Company are periodically inspected by environmental
authorities and must file periodic reports on the discharge of pollutants with
these authorities. Occasionally, one or more of these facilities have operated
in violation of applicable pollution control standards, which could subject the
facilities to fines or penalties in the future. Management believes that any
fines or penalties that may be imposed as a result of these violations will not
have a material adverse effect on the Company's earnings or competitive
position. The Company, however, has noticed an increase in the number and dollar
amount of fines and penalties imposed by environmental authorities. No assurance
can be given, therefore, that any fines levied against the Company in the future
for any such violations will not be material.
A cooperative study of the paper industry and the United States
Environmental Protection Agency ("EPA") conducted in 1988 found trace amounts,
in the parts per trillion level, of the chemical compound dioxin in some samples
of paper mill sludge and bleach pulp. 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 1994
testing. 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.
The Company was a defendant in a lawsuit filed in Orange County, Texas, by
approximately 250 plaintiffs in which unspecified actual and punitive damages
were sought for alleged diminished property values and increased risk of cancer
resulting from the discharge of dioxin into the river near the Company's plant
at Evadale, Texas. As disclosed in the Quarterly Report on Form 10-Q for the
quarter ended October 1, 1994, the Company agreed to settlement terms with the
plaintiffs. The case against the Company has now been dismissed and a definitive
settlement agreement has been executed by the parties. Although the Company is
prohibited from disclosing the terms of the settlement, the costs of settlement
are significantly under the materiality standard of Item 103 of Regulation S-K.
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 potential claims of the U.S. EPA and private
citizens. The Texas Natural Resource Conservation Commission has proposed a fine
against the Company of $341,100 for alleged odor violations, TRS and particulate
emission violations, and record keeping and reporting violations at the
Company's bleached paperboard mill in Evadale, Texas.
22
<PAGE> 24
Management believes, however, that these matters will not result in liability to
an extent that would have a material adverse effect on the Company's financial
position.
Under CERCLA, liability for the cleanup of a Superfund site may be imposed
on waste generators, site owners and operators, and others regardless of fault
or the legality of the original waste disposal activity. While joint and several
liability is authorized under CERCLA, as a practical matter, the cost of cleanup
is generally allocated among the many waste generators. Subsidiaries of the
Company are parties to numerous proceedings relating to the cleanup of hazardous
waste sites under CERCLA and similar state laws. The subsidiaries have conducted
investigations of the sites and in certain instances believe that there is no
basis for liability and have so informed the governmental entities. The internal
investigations of the remaining sites reveal that the portion of the remediation
costs for these sites to be allocated to the Company should be relatively small
and will have no material impact on the Company. There can be no assurance that
subsidiaries of the Company will not be named as potentially responsible parties
at additional Superfund sites in the future or that the costs associated with
the remediation of those sites would not be material.
In addition, while the Company has an 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 financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The Company did not submit any matter to a vote of its shareholders during
the fourth quarter of its last fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS:
MARKET INFORMATION:
The information concerning market prices of the Company's Common Stock
required by this item is incorporated by reference from page 32 of the Company's
1994 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, 1995,
there were approximately 8,081 holders of record of the Common Stock.
DIVIDEND POLICY:
On February 3, 1995, the Board of Directors declared a quarterly dividend
on the Common Stock of $.27 per share payable on March 15, 1995, to shareholders
of record on March 1, 1995. During fiscal 1993 and 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 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.
23
<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA:
The information required by this item is incorporated by reference from
page 32 of the Company's 1994 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 25 through 31 of the Company's 1994 Annual Report to Shareholders
furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The financial statements of the Company and its subsidiaries required to be
included in this Item 8 are set forth in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
The Company has had no changes in or disagreements with its independent
auditors to report under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The information required by this item is incorporated herein by reference
from pages 5 through 8 of the Company's definitive proxy statement, involving
the election of directors, to be filed pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this Form 10-K (the "Definitive Proxy Statement").
Information required by this item concerning executive officers is included in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION:
The information required by this item is incorporated by reference from
pages 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 5 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.
24
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
(a) Documents Filed as Part of Report.
1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER
---------------------------------------------------------------------------- ------
<S> <C>
Temple-Inland and Subsidiaries
Report of Independent Auditors*........................................... 56
Consolidated Statements of Income -- three years ended December 31,
1994*.................................................................. 47
Consolidated Balance Sheets -- December 31, 1994 and January 1, 1994*..... 48-49
Consolidated Statements of Shareholders' Equity -- three years ended
December 31, 1994*..................................................... 51
Consolidated Statements of Cash Flows -- three years ended December 31,
1994*.................................................................. 50
Notes to Consolidated Financial Statements*............................... 52-55
</TABLE>
---------------
* Incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1994, and filed for
purposes of those portions so incorporated as Exhibit 13. Page numbers refer
to page numbers in the Company's 1994 Annual Report to Shareholders.
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 31, 1994, is filed herewith at the page indicated.
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER
------------------ ------
<S> <C> <C>
Temple-Inland Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts...................... 29
</TABLE>
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:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------------------- ------------------------------------------------------------------------
<C> <S>
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)
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------------------- ------------------------------------------------------------------------
<C> <S>
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)
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)
11 -- Statement re: Computation of Per Share Earnings for the three years
ended December 31, 1994(21)
13 -- Annual Report to Shareholders for the year ended December 31, 1994.
Such Report is not deemed to be filed with the Commission as part of
this Annual Report on Form 10-K, except for the portions thereof
expressly incorporated by reference.
21 -- Subsidiaries of the Company(21)
23 -- Consent of Ernst & Young LLP(21)
27 -- Financial Data Schedule for Temple-Inland Inc. and Subsidiaries(21)
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
26
<PAGE> 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) Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1994.
27
<PAGE> 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 24,
1995.
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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
----------------------------------------------- ----------------------------- ---------------
<S> <C> <C>
/s/ CLIFFORD J. GRUM Director, Chairman of the March 24, 1995
Clifford J. Grum Board, and Chief Executive
Officer
/s/ KENNETH M. JASTROW, II Chief Financial Officer March 24, 1995
Kenneth M. Jastrow, II
/s/ DAVID H. DOLBEN Vice President and Chief March 24, 1995
David H. Dolben Accounting Officer
/s/ PAUL M. ANDERSON Director March 24, 1995
Paul M. Anderson
/s/ ROBERT CIZIK Director March 24, 1995
Robert Cizik
/s/ ANTHONY M. FRANK Director March 24, 1995
Anthony M. Frank
/s/ BOBBY R. INMAN Director March 24, 1995
Bobby R. Inman
/s/ HERBERT A. SKLENAR Director March 24, 1995
Herbert A. Sklenar
/s/ WALTER P. STERN Director March 24, 1995
Walter P. Stern
/s/ ARTHUR TEMPLE III Director March 24, 1995
Arthur Temple III
/s/ CHARLOTTE TEMPLE Director March 24, 1995
Charlotte Temple
/s/ LARRY E. TEMPLE Director March 24, 1995
Larry E. Temple
</TABLE>
28
<PAGE> 30
SCHEDULE II
TEMPLE-INLAND INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTIONS -- AT END
PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
------------ ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Deducted from accounts
receivable:
Allowance for doubtful
accounts.................. $ 7.4 $ 1.9 $ -- $ .9(A) $ 8.4
Reserve for loan losses and
allowances................ 1.0 2.7 5.1(B) 8.1(C) .7
Allowance for loan losses
and unrealized losses on
mortgage loans held for
sale...................... 49.5 6.2 7.6 8.6 54.7
------ ------ ----- ----- -----
Totals................. $ 57.9 $ 10.8 $12.7 $17.6 $63.8
========= ======== ========= ========== =======
Year ended January 1, 1994:
Deducted from accounts
receivable:
Allowance for doubtful
accounts.................. $ 5.8 $ 2.6 $ -- $ 1.0(A) $ 7.4
Reserve for loan losses and
allowances................ .6 2.5 4.7(B) 6.8(C) 1.0
Allowance for loan losses
and unrealized losses on
mortgage loans held for
sale...................... 22.9 5.0 24.0(D) 2.4 49.5
------ ------ ----- ----- -----
Totals................. $ 29.3 $ 10.1 $28.7 $10.2 $57.9
========= ======== ========= ========== =======
Year ended January 2, 1993:
Deducted from accounts
receivable:
Allowance for doubtful
accounts.................. $ 5.5 $ .7 $ .8 $ 1.2(A) $ 5.8
Reserve for loan losses and
allowances................ .6 -- 6.9(B) 6.9(C) .6
Allowance for loan losses
and unrealized losses on
mortgage loans held for
sale...................... 24.8 3.6 1.4 6.9 22.9
------ ------ ----- ----- -----
Totals................. $ 30.9 $ 4.3 $ 9.1 $15.0 $29.3
====== ====== ===== ===== =====
</TABLE>
---------------
(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.
29
<PAGE> 31
EXHIBIT INDEX
(Page One of Three)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------------------- ------------------------------------------------------------------------
<C> <S>
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)
</TABLE>
<PAGE> 32
EXHIBIT INDEX
(Page Two of Three)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
-------------------- ------------------------------------------------------------------------
<C> <S>
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)
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)
11 -- Statement re: Computation of Per Share Earnings for the three years
ended December 31, 1994(21)
13 -- Annual Report to Shareholders for the year ended December 31, 1994.
Such Report is not deemed to be filed with the Commission as part of
this Annual Report on Form 10-K, except for the portions thereof
expressly incorporated by reference.
21 -- Subsidiaries of the Company(21)
23 -- Consent of Ernst & Young LLP(21)
27 -- Financial Data Schedule for Temple-Inland Inc. and Subsidiaries(21)
</TABLE>
---------------
* Management contract or compensatory plan or arrangement.
<PAGE> 33
EXHIBIT INDEX
(Page Three of Three)
(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) Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1994.
<PAGE> 1
EXHIBIT (11)
TEMPLE-INLAND INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Primary
Average common shares outstanding......................... 55.8 55.3 55.1
Net effect of dilutive stock options based on treasury
stock method using average market price................. .1 .2 .4
--------- ------- -------
Weighted average shares outstanding............. 55.9 55.5 55.5
========= ======= =======
Net income:
Income before accounting changes........................ $ 131.4 $ 67.3 $ 146.9
Cumulative effect of accounting changes................. -- 50.0 --
--------- ------- -------
Net income.............................................. $ 131.4 $ 117.3 $ 146.9
========= ======= =======
Earnings per share:
Before accounting changes............................... $ 2.35 $ 1.21 $ 2.65
Effect of accounting changes............................ -- .90 --
--------- ------- -------
Earnings per share...................................... $ 2.35 $ 2.11 $ 2.65
========= ======= =======
Fully Diluted
Average common shares outstanding......................... 55.8 55.3 55.1
Net effect of dilutive stock options based on treasury
stock method using the closing market price, if higher
than average market price............................... .1 .3 .4
--------- ------- -------
Weighted average shares outstanding............. 55.9 55.6 55.5
========= ======= =======
Net income:
Income before accounting changes........................ $ 131.4 $ 67.3 $ 146.9
Cumulative effect of accounting changes................. -- 50.0 --
--------- ------- -------
Net income.............................................. $ 131.4 $ 117.3 $ 146.9
========= ======= =======
Earnings per share:
Before accounting changes............................... $ 2.35 $ 1.21 $ 2.64
Effect of accounting changes............................ -- .90 --
--------- ------- -------
Earnings per share...................................... $ 2.35 $ 2.11 $ 2.64
========= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 13
1 9 9 4 A N N U A L R E P O R T
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations and Financial Condition
Results of operations including information regarding the principal
business segments are shown below.
<TABLE>
<CAPTION>
BUSINESS SEGMENT
FOR THE YEAR 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES (in millions)
Corrugated container $1,438 $1,249 $1,254 $1,148 $1,144 $1,138 $1,093 $ 964 $ 722 $ 684 $ 665
Bleached paperboard 299 319 353 371 373 368 336 293 265 257 285
Building products 549 475 391 311 305 320 312 323 281 268 295
Other activities 20 58 77 68 70 68 33 23 28 34 18
Manufacturing
net sales 2,306 2,101 2,075 1,898 1,892 1,894 1,774 1,603 1,296 1,243 1,263
Financial services 632 635 638 609 509(a) 49 40 39 47 39 36
Total Revenues $2,938 $2,736 $2,713 $2,507 $2,401 $1,943 $1,814 $1,642 $1,343 $1,282 $1,299
===============================================================================================
INCOME BEFORE TAXES
Corrugated container $ 102 $ 21 $ 112 $ 76 $ 151 $ 208 $ 221 $ 151 $ 39 $ 50 $ 75
Bleached paperboard (22) (12) 23 80 99 115 83 53 29 20 47
Building products 133 99 40 5 9 24 25 37 36 23 41
Other activities 1 (2) (2) 1 (2) (1) 1 - (6) 2 (3)
Operating profit 214 106 173 162 257 346 330 241 98 95 160
Financial services 56 68 64 54 52(a) (2) - 5 13 18 13
270 174 237 216 309 344 330 246 111 113 173
Corporate expense (14) (11) (15) (16) (21) (13) (20) (12) (13) (8) (12)
Parent company
interest--net (66) (69) (47) (32) (24) (24) (23) (20) (13) 1 (5)
Other income 3 2 2 (1)(b) 5 5 17(c) 6 24(d) 20(e) 9
Income before taxes $ 193 $ 96 $ 177 $ 167 $ 269 $ 312 $ 304 $ 220 $ 109 $ 126 $ 165
===============================================================================================
</TABLE>
[GRAPH]
(a) Includes operating results from the consolidation of Guaranty Federal Bank,
F.S.B., beginning January 1, 1990.
(b) Includes losses of $7.4 million from the write-off of an investment
interest in a gypsum-fiberboard venture.
(c) Includes gains of $12.4 million on the disposition of lands and $50 million
on the sale of the AFCO Industries subsidiary.
(d) Includes $15.3 million income net of federal income taxes from life
insurance operations which were discontinued in 1990 (amounts were immaterial in
other years).
(e) Includes $11.3 million gain on the sale of Eastex Packaging Subsidiary.
25
<PAGE> 2
T E M P L E - I N L A N D I N C.
CORRUGATED CONTAINER
The Corrugated Container group manufactures linerboard and corrugating medium
at seven paper mills and converts it into corrugated shipping containers at 41
box plants. In addition, it operates five Specialty Converting plants.
The group earned $102 million in 1994, almost five times more than the
$21 million earned in 1993. Global demand for boxes increased dramatically
during 1994, causing prices for both corrugated shipping containers and
containerboard to rise rapidly. This pricing improvement allowed earnings to
improve in spite of record costs for old corrugated container ("OCC"), the
primary raw material in over 42 percent of the group's containerboard
production.
Mill production totaled 2.6 million tons in 1994, an increase of 5
percent from the previous year. Production of containerboard exceeded internal
box plant usage by 376,000 tons in both 1994 and 1993 and 243,000 tons in 1992.
Most of the excess production was sold in the domestic and export markets.
Construction of the $176 million recycle linerboard mill in Maysville,
Kentucky was completed during the fourth quarter of 1992. This mill has the
capacity to annually produce 295,000 tons of linerboard and corrugating medium
using OCC as a raw material. The $40 million expansion of the Ontario,
California recycle linerboard mill was completed in the second quarter of 1992.
This expansion increased production by about one-third; to 305,000 tons
annually.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------
<S> <C> <C> <C>
TONS MILL PRODUCTION 2,603,000 2,473,000 2,287,000
----------------------------------------------------------------
</TABLE>
The Company's 41 box plants are located throughout the United States
and in Puerto Rico, Mexico and South America. They manufacture a wide range of
boxes from the simplest brown box to intricate die cut containers which can be
printed with many colors and attractive graphics. Average prices of boxes can
be significantly impacted by variations in product mix at the box plants.
Tons of boxes sold increased by 6 percent in 1994 and 2 percent in
1993. Domestic container prices for the entire year 1994 were up an average of
5 percent after having been down 2 percent in 1993.
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.
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. Changes in
product mix from period to period may make historical comparisons difficult.
<TABLE>
<CAPTION>
CORRUGATED CONTAINER 1994 1993 1992
---------------------------------------------------------------
UNIT SALES (in thousands of tons)
<S> <C> <C> <C>
1st Qtr 628 598 539
2nd Qtr 648 606 573
3rd Qtr 622 593 579
4th Qtr 594 597 603
For the year 2,492 2,394 2,294
---------------------------------------------------------------
NET SALES (in millions)
1st Qtr $ 326.9 $ 318.5 $ 296.1
2nd Qtr 353.8 319.6 319.0
3rd Qtr 371.2 307.8 315.6
4th Qtr 386.3 302.6 323.7
For the year $1,438.2 $1,248.5 $1,254.4
---------------------------------------------------------------
</TABLE>
BLEACHED PAPERBOARD
The Bleached Paperboard group produces bleached paperboard at its mill in
Evadale, Texas. This group's products are sold to packaging converters and
commercial printers. These customers require a high degree of product purity
and print quality.
In 1994, this group reported a loss of $22.1 million, its second loss since
operations began in 1954. The average prices for bleached paperboard were down
6 percent from 1993 levels because of weak demand during the first half of the
year. Demand began to increase during the second quarter and by year end was
strong across all product lines. Prices for bleached paperboard increased by 13
percent from May to December 1994. During 1993, the group reported its first
loss as a result of the weak global markets for bleached paperboard.
The group began a $500 million modernization and expansion program during
1992. In October 1994, a scheduled mill outage of ten days was taken which also
allowed for integration of new equipment into the manufacturing processes. A
new lime kiln and causticizing line was completed in November 1994.
Construction is on schedule and within budget for the remaining key expansion
projects, including the new paper machine, new pine fiberline, coating plant,
extruder plant and power boiler. These projects should be substantially
complete by the end of 1995. In spite of the disruptions related to the
construction projects, which caused manufacturing costs to increase, the group
increased good paperboard production by one percent during 1994.
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 Monroe,
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 51,919 and 49,054 tons of
bleached paperboard and recorded revenues of $57.9 million and $55.6 million
during 1994 and 1993, respectively.
26
<PAGE> 3
1 9 9 4 A N N U A L R E P O R T
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.
<TABLE>
<CAPTION>
BLEACHED PAPERBOARD 1994 1993 1992
---------------------------------------------------------------
UNIT SALES (in thousands of tons)
<S> <C> <C> <C>
Paperboard
1st Qtr 106 116 109
2nd Qtr 109 109 97
3rd Qtr 112 103 101
4th Qtr 103 98 107
For the year 430 426 414
---------------------------------------------------------------
Pulp
1st Qtr 20 38 40
2nd Qtr 25 41 35
3rd Qtr 24 33 40
4th Qtr 18 22 40
For the year 87 134 155
---------------------------------------------------------------
NET SALES (in millions)
Paperboard
1st Qtr $ 55.9 $ 68.9 $ 66.5
2nd Qtr 57.2 64.9 65.2
3rd Qtr 59.6 58.5 65.0
4th Qtr 60.0 54.5 66.9
For the year $232.7 $246.8 $263.6
---------------------------------------------------------------
Pulp
1st Qtr $ 4.5 $10.3 $12.9
2nd Qtr 5.5 10.3 10.2
3rd Qtr 6.5 7.9 12.7
4th Qtr 5.9 5.1 11.8
For the year $22.4 $33.6 $47.6
---------------------------------------------------------------
Other (including Food Service)
1st Qtr $ 9.3 $ 9.6 $12.1
2nd Qtr 13.3 11.7 10.4
3rd Qtr 13.0 9.2 8.9
4th Qtr 8.7 7.6 10.0
For the year $44.3 $38.1 $41.4
---------------------------------------------------------------
</TABLE>
BUILDING PRODUCTS
The Building Products group manufactures a diversified line of construction and
commercial grade building materials at ten separate locations in Texas,
Louisiana, Oklahoma, Arkansas, Alabama and Georgia which, in 1994, generated 89
percent of group net sales. Three-fourths of its revenues are typically
realized from wood-based materials made from Southern pine logs or the green
and dry residue that result from log conversion. 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 also marketed to residential
and commercial end users. Four retail locations, which sell a broad range of
building materials to the contractor and retail markets, accounted for 11
percent of group net revenues in 1994. Approximately 21 percent of 1994's
retail revenues were derived from Company manufactured products.
Each manufacturing business unit established record profit levels in 1994,
providing the group with $132.6 million in earnings, which exceeded the prior
year record of $99.1 million by 34 percent. Gains were experienced across all
product lines as construction markets responded to increased housing demand
even as mortgage interest rates continued to rise. The proliferation of cheaper
adjustable rate mortgages continued to underpin affordability, and improving
job markets renewed a buyer willingness to make long-range credit commitments.
While timber constraints on the West Coast continued to affect the domestic
supply of wood products in 1994, markets made pricing corrections throughout
the year as other regions increased production and as added imports narrowed
the earlier supply imbalance.
The following table provides information on unit sales volumes and net
sales for each business unit.
<TABLE>
<CAPTION>
BUILDING PRODUCTS 1994 1993 1992
----------------------------------------------------------------
UNIT SALES (in millions of board feet)
<S> <C> <C> <C>
Pine lumber 509 484 467
(in millions of square feet)
Fiber products 441 440 464
Particleboard 347 319 326
Plywood 260 265 250
Gypsum wallboard 796 782 621
----------------------------------------------------------------
NET SALES (in millions)
Pine lumber $185.7 $153.8 $120.9
Fiber products 66.3 62.9 55.8
Particleboard 103.0 81.3 70.5
Plywood 56.8 54.0 45.2
Gypsum wallboard 74.3 53.3 36.6
Retail distribution 58.4 60.0 53.5
Other 4.8 10.0 8.8
For the year $549.3 $475.3 $391.3
----------------------------------------------------------------
</TABLE>
Pine lumber sales volume gained 5 percent and 4 percent in 1994 and
1993, respectively, as the group's saw mills continued to improve in operating
efficiencies and in product yields--the volume of lumber produced from logs.
Although lumber prices declined about 10 percent in the fourth quarter of 1994
from first quarter record highs, the year's sales remained well above 1993
levels and total revenues were up 21 percent over 1993, following the 27
percent increase in 1993 sales over 1992. The lumber group expanded its product
mix to include more premium shop and molding grade items, and at year end was
nearing completion of a $4.3 million capital project to increase the grade,
volume and yields of its stud grade production, which accounted for 12 percent
of lumber production in 1994.
Plywood revenues in 1994 increased 5 percent over 1993 even as unit
sales declined 2 percent, due to a reduction in production volume. Production
was negatively impacted in 1994 by a shift in product mix that required slower
production rates and was designed to address changing market opportunities.
Competitive oriented-strand board continues to erode market share of plywood
structural grade products, and the Company is committed to a program that
emphasizes specialty panels, engineered products and other items for the export
trade. In 1994, export of plywood comprised 41 percent of total plywood
shipments.
27
<PAGE> 4
T E M P L E - I N L A N D I N C.
By-product wood chips from the manufacture of lumber and plywood are
shipped to the Company's two East Texas paper mills and in 1994 represented
about 28 percent of their pine fiber requirements. Chips supplied to the fiber
products operation in 1994, as in prior years, continued to provide over half
of its fiber requirements.
The demand for siding products manufactured by the fiber products
business unit was firm during 1994, moving to even higher levels than during
1993, and moderated only late in the fourth quarter as seasonal buying habits
affected order placements. TrimCraft(TM), the new line of engineered lumber
substitutes, moved to a two-shift production schedule during the year
following the growth in demand for these alternative lumber products. A $3.5
million capital project completed at the close of 1993 enabled the mill to
triple its output of this product. Roof and wall insulation products
represented 38 percent and 42 percent of fiber products shipments in 1994 and
1993, respectively, and sales gains were experienced throughout the year.
The Company manufactures particleboard from dry by-products of lumber
processing at three mills located in Texas, Alabama and Georgia. A fourth mill,
with a projected cost of $62 million, was approved for construction in 1993,
and by early 1996 will increase existing capacity by almost 50 percent, or 170
million square feet. In 1994, the particleboard group experienced record
shipments. Volumes increased 9 percent over 1993, with quarter-over-quarter
pricing repeating the upward trend which began in 1993. The firm demand for
these commercial grade products continued well into the fourth quarter.
Approximately half of particleboard shipments moved to ready-to-assemble
manufacturers of furniture and kitchen cabinets with another 11 percent sold to
plastic and paper laminators, which supply similar end uses.
Gypsum wallboard shipments increased about 2 percent in 1994 following
a 26 percent gain in 1993 over 1992 when the Oklahoma and Arkansas plants moved
to full production schedules. Demand for these products increased throughout
the year resulting in substantial sales gains for this business unit. Business
remained firm at the end of the year, and specialty products comprised almost a
third of total shipments. Within the specialty product mix is the Company's
Stretch 54(R), a popular wallboard used in homes with nine foot ceilings, which
greatly reduces waste and application labor costs.
TEMPLE-INLAND FINANCIAL SERVICES
The Company's Financial Services operations include a savings bank, mortgage
banking, real estate development and insurance. The following selected
financial information is provided to offer a detailed description of these
operations.
<TABLE>
<CAPTION>
TEMPLE-INLAND FINANCIAL SERVICES
SELECTED SEGMENT INFORMATION
Years ended December 31 1994 1993 1992
----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
INCOME
Savings bank $ 37.2 $ 45.1 $ 44.9
Mortgage banking 15.9 19.9 20.9
Real estate (.6) (1.5) (7.6)
Insurance 3.8 4.0 6.2
Income before taxes
and accounting
change 56.3 67.5 64.4
Taxes on income 15.3 18.8 11.0
Income before accounting
change 41.0 48.7 53.4
Cumulative effect of
accounting change - 52.3 -
Net income $ 41.0 $ 101.0 $ 53.4
----------------------------------------------------------------
ASSETS
Savings bank $8,707.8 $8,799.6 $7,629.7
Mortgage banking 122.2 131.8 113.7
Real estate 214.7 224.7 245.8
Insurance 21.4 31.0 19.2
Other activities 1.6 13.9 13.9
Eliminations (60.0) (67.7) (44.3)
Total assets $9,007.7 $9,133.3 $7,978.0
LIABILITIES
Savings bank $8,281.7 $8,415.2 $7,315.9
Mortgage banking 91.8 97.2 82.5
Real estate 130.8 125.8 149.4
Insurance 15.9 27.1 17.5
Other activities 4.6 24.0 4.4
Eliminations (60.0) (67.7) (44.3)
Total liabilities $8,464.8 $8,621.6 $7,525.4
----------------------------------------------------------------
EQUITY
Savings bank $ 426.1 $ 384.3 $ 313.8
Mortgage banking 30.4 34.6 31.2
Real estate 83.9 98.9 96.4
Insurance 5.4 3.9 1.7
Other activities (2.9) (10.0) 9.5
Total equity $ 542.9 $ 511.7 $ 452.6
----------------------------------------------------------------
</TABLE>
SAVINGS BANK
The Company's Savings Bank, Guaranty Federal Bank, F.S.B., conducts its
business through 123 banking centers located primarily in the eastern third of
Texas, including Houston, Dallas, San Antonio and Austin. The primary business
of the Savings Bank is to attract savings deposits from the public to invest in
loans secured by mortgages on residential and other real estate or mortgage-
backed securities.
28
<PAGE> 5
1 9 9 4 A N N U A L R E P O R T
Presented below is selected financial information for the Savings Bank:
<TABLE>
<CAPTION>
SAVINGS BANK
SELECTED FINANCIAL INFORMATION
Years ended December 31 1994 1993 1992
----------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
INCOME AND EXPENSE
Net interest income $149.2 $135.4 $136.5
Noninterest income 25.0 19.5 22.3
Noninterest expense 130.5 104.9 111.4
Income before taxes and
accounting change 37.2 45.2 44.9
AVERAGE BALANCE SHEET
Total earning assets 8,544.7 8,720.7 7,238.7
Mortgage-backed and
investment securities 4,151.3 4,978.0 4,958.7
Loans receivable and
mortgage loans held
for sale 3,147.6 2,116.4 1,467.5
Securities purchased under
resell agreements 551.3 1,176.0 251.7
Covered Assets 536.2 405.7 479.4
Deposits 6,681.6 5,838.3 6,128.0
Securities sold under re-
purchase agreements and
advances from FHLB 1,714.2 2,726.9 998.0
KEY RATIOS
Yield on earning assets 5.59% 5.32% 6.72%
Cost of funds 3.91% 3.83% 4.91%
Net spread 1.68% 1.49% 1.81%
----------------------------------------------------------------
</TABLE>
Net interest income for 1994 increased $13.8 million from 1993.
Although the total amount of average earning assets during 1994 remained
relatively unchanged from 1993, the average balance of loans receivable
increased approximately $1 billion, principally due to the acquisition of
American Federal Bank, F.S.B. ("AFB") with a corresponding decrease in
mortgage-backed securities (due to normal principal reductions) and resell
agreements (due to the maturity of the short-term instruments). The resell
agreements were purchased during 1993 in anticipation of the acquisition of
AFB. This change in the asset mix primarily accounts for the 19 basis points
increase in the net interest spread because the loans receivable have a higher
yield than mortgage-backed securities and resell agreements. At December 31,
1994, loans receivable comprised 42 percent of total assets, an increase of 11
percent from the prior year.
Net interest income for 1993 decreased $1.1 million from 1992. Although
average earning assets increased $1.5 billion during 1993, the Savings Bank's
net interest spread decreased 32 basis points, attributable to two factors: (1)
a shortening of the maturities of the investment portfolio in anticipation of
the acquisition of AFB, and (2) spread compression of mortgage-backed
securities indexed to the Federal Home Loan Bank Eleventh District Cost of
Funds Index ("EDCOF"). During 1993, EDCOF decreased 72 basis points while the
Savings Bank's cost of funds decreased only 51 basis points.
The Savings Bank's noninterest income is comprised primarily of service
charges on deposits. Noninterest income for 1994 increased $5.5 million from
1993 due to the increase in average deposits as a result of the acquisitions
completed in late 1993 and mid-1994. Noninterest income in 1992 includes a $5.1
million gain recognized from the sale of substantially all its fixed-rate
mortgage-backed securities. This sale was undertaken to allow the Savings Bank
to reduce its interest rate risk exposure and more effectively match the
maturities of its assets and liabilities.
Noninterest expense for 1994 increased $25.6 million from 1993, also as
a result of the acquisitions. Operating expense categories which experienced an
increase include compensation, occupancy costs, federal insurance premiums on
deposits and amortization of goodwill and core deposit intangibles.
Acquisitions
In June 1994, the Savings Bank purchased substantially all of the net
assets of First Federal Savings Bank of San Antonio ("FFSB") for approximately
$43 million, subject to final purchase price adjustments. 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, the Savings Bank purchased all of the outstanding
stock of AFB for approximately $156 million. AFB was a savings bank
headquartered in Dallas, Texas, with 30 banking centers in north and east
Texas. To achieve operating economies, six of these banking centers were closed
December 31, 1993 and the deposits were transferred to existing banking
centers. Assets of AFB at acquisition totaled approximately $1.3 billion,
principally $750 million in loans and $400 million in covered assets. See Note
B on page 41 for additional information.
Liquidity, Interest Rate Risk Management and Capital
The Savings Bank is required by the Office of Thrift Supervision
("OTS") to maintain average daily balances of liquid assets and short-term
liquid assets in amounts equal to 5 percent and 1 percent, respectively, of net
withdrawable deposits and short-term borrowings. At December 31, 1994, the
Savings Bank exceeded the required liquidity ratios.
The primary sources of funds for the Savings Bank are customer
deposits, advances from Federal Home Loan Bank ("FHLB"), securities sold under
repurchase agreements and principal reductions of mortgage-backed securities
and loans. The Savings Bank uses its funding sources to support current loan
demand, fund deposit withdrawals, repay borrowings and maintain its liquidity.
The operations of the Savings Bank 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 the Savings Bank's assets
have adjustable rates, this risk is significantly mitigated. A significant
portion of the Savings Bank's investments in adjustable rate mortgage-backed
securities have annual or lifetime caps that
29
<PAGE> 6
T E M P L E - I N L A N D I N C.
subject the Savings Bank to interest rate risks should rates rise above certain
levels. To optimize net interest income while maintaining acceptable levels of
interest rate and liquidity risk, the Savings Bank enters into various interest
rate contracts for purposes other than trading. See Note M on page 45 for
additional information. OTS regulations require savings institutions to
maintain certain minimum levels of capital. The Savings Bank's regulatory
capital exceeded all applicable capital requirements at December 31, 1994. Note
N on page 46 contains additional information concerning capital requirements,
including capital ratios of the Savings Bank.
MORTGAGE BANKING
Mortgage banking activity is conducted through Temple-Inland Mortgage
Corporation, a full service mortgage banker. The Company arranges financing of
single-family mortgage loans, sells the loans into the secondary market
(primarily FNMA, FHLMC and GNMA securities) and services the loans after the
sale.
A summary of selected financial information is provided below.
<TABLE>
<CAPTION>
MORTGAGE BANKING
OPERATIONS SUMMARY
Years ended December 31 1994 1993 1992
----------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C>
Revenues $ 73 $ 104 $ 82
Income before taxes 16 20 21
Portfolio roll-forward:
Beginning servicing $ 9,067 $ 7,746 $ 6,477
Purchased servicing 1,650 - -
New loans added, net of
servicing released 540 3,302 2,516
Run-off (1,189) (1,981) (1,247)
Ending servicing $10,068 $ 9,067 $ 7,746
Portfolio growth rate 11.0% 17.0% 19.6%
Run-off factor 13.1% 25.6% 19.3%
Ending number of loans
serviced 149,500 144,700 138,400
----------------------------------------------------------------
</TABLE>
Increases in mortgage interest rates during 1994 led to a significant
decline in mortgage loan originations. Originations were $2.1 billion in 1994
as compared with $4.8 billion in 1993. The size of the origination network was
reduced proportionately.
A servicing purchase program was initiated during 1994. Portfolios
totaling $1.7 billion were acquired, and another $2.3 billion in servicing was
under contract as of December 31, 1994. During 1994, the servicing portfolio
grew to a record $10.1 billion.
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 16 residential
subdivisions in Austin, Houston, San Antonio and Dallas, Texas. At the end of
1994, land development inventory included 662 residential lots (561 under
contract) and 4,766 acres of land. Lot sales for 1994 were 461 as compared with
526 in 1993 and 487 in 1992.
The Company owns 11 commercial properties consisting of two hotels,
three office buildings, two retail centers and four parcels of commercial land.
Selected financial information related to these activities is shown
below.
<TABLE>
<CAPTION>
REAL ESTATE GROUP
OPERATIONS SUMMARY
Years ended December 31 1994 1993 1992
----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
REVENUES:
Residential $ 8.4 $ 8.0 $ 5.5
Commercial 21.1 18.3 15.9
Interest and other 4.6 7.9 10.3
Total $34.1 $34.2 $31.7
----------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES:
Residential $(2.6) $(3.5) $(8.9)
Commercial 2.1 1.1 (.7)
Interest and other (.1) .9 2.0
Total $(.6) $(1.5) $(7.6)
----------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
REAL ESTATE GROUP
INVESTMENT IN JOINT VENTURES
Years ended December 31 1994 1993 1992
----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Assets $19.7 $18.6 $31.7
Liabilities(a) 18.6 17.5 32.8
Equity 1.1 1.1 (1.1)
----------------------------------------------------------------
</TABLE>
(a) Although the Company's pro rata share of joint venture notes payable total
$14.9 million, the joint venture partners are in most instances jointly and
severally liable for notes payable. The gross balance of these notes was
$33.4 million at December 31, 1994. 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.
30
<PAGE> 7
1 9 9 4 A N N U A L R E P O R T
INSURANCE
Timberline Insurance Managers, Inc., one of the largest insurance agencies in
Texas, operates as a general agency providing a full range of insurance
products including automobile, homeowners, business insurance, annuities, and
life and health products. This agency also acts as the risk management
department of the Company. Timberline currently has offices in Austin, Baytown,
Dallas, El Paso and San Antonio, Texas.
A summary of revenues and income before taxes is shown below.
<TABLE>
<CAPTION>
INSURANCE
OPERATIONS SUMMARY
Years ended December 31 1994 1993 1992
----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Revenues $18.4 $21.1 $21.8
Income before taxes 3.8 4.0 6.2
----------------------------------------------------------------
</TABLE>
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, most notably its mill at
Evadale, Texas, the Company has used state-of-the-art technology for its air
and water emissions. These forward-looking programs minimize the impact that
changing regulations have on capital expenditures for environmental compliance.
Future expenditures for environmental control facilities will depend on
changing laws and regulations and technological advances. Given these
uncertainties, the Company estimates that capital expenditures for
environmental purposes during the period 1995 through 1997 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 could
require modifications at several facilities. Some of these modifications can be
included in modernization projects that will have economic benefits to the
Company. The extent of such benefits can increase these investments, but the
Company currently estimates that these expenditures may range up to $200
million over the next five years.
CAPITAL RESOURCES AND LIQUIDITY
The Company's financial condition continues to be strong. Internally generated
funds, existing credit facilities and the capacity to issue long-term debt are
sufficient to fund projected capital expenditures, to service existing debt, to
pay dividends and to meet normal working capital requirements.
A summary of capital expenditures is shown below.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Corrugated container $114.9 $ 87.5 $214.9
Bleached paperboard 275.1 200.5 87.9
Building products 43.4 26.1 16.1
Timber and timberlands 28.5 22.5 36.5
Other activities 1.2 3.7 3.3
Total manufacturing group $463.1 $340.3 $358.7
----------------------------------------------------------------
</TABLE>
Capital expenditures of approximately $440 million are projected for
1995. Commitments on construction projects totaled $105 million at the end of
1994.
Net interest expense incurred by the Parent Company is shown below.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
PARENT COMPANY INTEREST--NET
Interest expense $94.7 $81.9 $72.3
Interest income (.6) (.4) (.6)
Capitalized interest (27.7) (12.5) (24.3)
Interest expense--net $66.4 $69.0 $47.4
----------------------------------------------------------------
</TABLE>
Interest expense increased in 1994 and 1993 due to the higher levels of
debt outstanding. Interest capitalized more than doubled in 1994 because of the
$500 million bleached paperboard group's modernization projects which are
expected to be operational late in the second half of 1995. Parent Company
interest paid during 1994, 1993 and 1992 was $89.2 million, $80.9 million and
$66.3 million, respectively. The Company anticipates that debt maturities will
be repaid from cash generated by operations or refinanced.
31
<PAGE> 8
T E M P L E - I N L A N D I N C.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
For The Year 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
------------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 2,938 $ 2,736 $ 2,713 $ 2,507 $2,401(a) $1,943 $1,814 $1,642 $1,343 $1,282 $1,299
Manufacturing net sales 2,306 2,101 2,075 1,898 1,892 1,894 1,774 1,603 1,296 1,243 1,263
Net income 131 117(b) 147 138 232(a) 207 199 141 81 85 103
Capital expenditures:
Manufacturing 463 340 359 378 324 260 219 139 103 184 130
Financial services 20 14 11 9 4 9 4 1 1 - -
Depreciation and depletion:
Manufacturing 200 191 167 158 140 126 112 94 79 66 63
Financial services 8 6 5 4 5 2 2 1 1 1 1
Earnings per share 2.35 2.11(b) 2.65 2.51 4.20(a) 3.75 3.58 2.34 1.32 1.40 1.69
Dividends per common share 1.02 1.00 .96 .88 .80 .58 .42 .35 .29 .26 .20
Average shares outstanding 55.9 55.5 55.5 55.2 55.4 55.3 55.7 60.3 61.1 60.8 60.6
Common shares outstanding
at year end 56.0 55.5 55.2 54.9 54.6 54.9 55.2 55.3 60.7 60.5 60.3
AT YEAR END
Total assets $12,251 $11,959 $10,766 $10,068 $7,834(c) $6,390 $2,247 $2,020 $1,894 $1,594 $1,510
Long-term debt:
Parent company 1,316 1,045 964 864 501 399 417 416 366 248 251
Financial services 82 76 99 76 94 30 25 30 25 14 13
Ratio of total debt to total
capitalization--parent
company 43% 39% 38% 37% 28% 24% 29% 31% 28% 23% 24%
Shareholders' equity 1,783 1,700 1,633 1,532 1,439 1,259 1,096 927 929 864 793
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK PRICES AND DIVIDEND INFORMATION
1994 1993
------------------------------------------------------------------------------------------------------------------------------
Price Range Price Range
High Low Dividends High Low Dividends
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $54 3/4 $45 3/4 $.25 $52 1/2 $45 3/4 $.25
Second Quarter 50 3/4 43 3/4 .25 47 1/8 41 3/8 .25
Third Quarter 56 3/4 46 7/8 .25 45 3/4 40 1/2 .25
Fourth Quarter 56 3/4 43 .27 51 1/4 37 1/4 .25
Year 56 3/4 43 1.02 52 1/2 37 1/4 1.00
</TABLE>
(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.
32
<PAGE> 9
1 9 9 4 A N N U A L R E P O R T
NOTES TO THE PARENT COMPANY
(TEMPLE-INLAND INC.)
SUMMARIZED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Parent Company (Temple-Inland Inc.) summarized financial statements include
the accounts of Temple-Inland Inc. (the "Company") and its manufacturing
subsidiaries. The Financial Services group, including a savings bank, mortgage
banking and real estate development operations, are reflected in the financial
statements on the equity basis. Refer to pages 39 through 46 for the Temple-
Inland Financial Services summarized financial statements. All material
intercompany amounts and transactions have been eliminated. These financial
statements should be read in conjunction with the Temple-Inland Inc.
consolidated financial statements.
INVENTORIES
Inventories are stated at the lower of cost or market.
Cost of inventories amounting to $83.8 million in 1994 and $86.2
million in 1993 was determined by the last-in, first-out method (LIFO). The
cost of the remaining inventories of $184.4 million in 1994 and $171.9 million
in 1993 was determined principally by the first-in, first-out method (FIFO).
If the FIFO method of accounting had been applied to those inventories
which were costed on the LIFO method, inventories would have been $19.4 and
$9.0 million higher than reported at year end 1994 and 1993, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less allowances for accumulated
depreciation and depletion. Depreciation is generally provided on the
straight-line method based on estimated useful lives as follows:
<TABLE>
<CAPTION>
CLASSIFICATION ESTIMATED USEFUL LIVES
-----------------------------------------------------------------
<S> <C>
Buildings 15 to 40 years
Machinery and equipment:
Manufacturing and production equipment 3 to 20 years
Automobiles and aircraft 3 to 10 years
Office and other equipment 3 to 10 years
-----------------------------------------------------------------
</TABLE>
Certain equipment is being depreciated based on operating hours because
depreciation occurs primarily through use rather than merely through elapsed
time.
Timberlands, including long-term timber harvesting rights, are stated
at cost, less accumulated cost of timber harvested. The portion of the cost of
timberlands attributed to standing timber is charged against income as timber
is harvested at rates determined annually, based on the relationship of
unamortized timber costs to the estimated volume of recoverable timber. The
costs of seedlings and reforestation of timberlands are capitalized.
NOTE B - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
(in millions)
<S> <C> <C>
Bank Loans--Weighted average
interest rate was 4.16% and 3.24%
during 1994 and 1993, respectively $ - $ 19.0
Commercial Paper--Weighted average
interest rate was 4.26% and 3.16%
during 1994 and 1993, respectively 172.0 52.5
8.375% Notes Payable due 1996 70.0 70.0
8.73% to 9.0% Notes Payable due
1995 to 1998 190.0 200.0
9.0% Notes Payable due 2001 200.0 200.0
8.125% to 8.38% Notes Payable due 2006 100.0 100.0
7.25% Notes Payable due 2004 100.0 100.0
8.25% Debentures due 2022 150.0 150.0
7.04% Private Placement Debt due 1998 80.0 -
7.31% Private Placement Debt due 1999 70.0 -
Revenue Bonds due 2014--Average
interest rate was 2.58% and 2.19%
during 1994 and 1993, respectively 34.5 34.5
Revenue Bonds due through 2009--
Average interest rate was 3.04% and
2.6% during 1994 and 1993,
respectively 11.7 11.7
Other Revenue Bonds due through 2028,
weighted average interest rate of
3.21% and 2.61% during 1994 and
1993, respectively 123.7 95.3
Other indebtedness due through 2006,
weighted average interest rate of
7.98% and 10.24% during 1994 and
1993, respectively 13.9 11.8
$1,315.8 $1,044.8
-----------------------------------------------------------------
</TABLE>
In July 1994, the Company privately placed $80 million of 7.04 percent
notes due 1998 and $70 million of 7.31 percent notes due 1999. Proceeds of the
notes were used to repay short-term floating rate debt. Also, in October 1994,
the Company, through a subsidiary, issued $21.4 million in tax-exempt financing
related to certain assets at the Company's Hope, Arkansas particleboard mill
currently under construction.
At December 31, 1994, $172 million in commercial paper was outstanding.
These borrowings are supported by multi-year revolving credit agreements with
banks and, accordingly, are classified as long-term debt. The credit agreements
are for a total of $500 million with final maturities at various dates in 1997,
and are available for general corporate use.
At year end 1994, property and equipment of approximately $49.7 million
were subject to liens in connection with $64.9 million of debt.
Based on the Company's incremental borrowing rate for loans, notes and
debentures with similar terms and maturities, the fair value of long-term debt
is $1.3 billion at December 31, 1994.
Aggregate maturities of the Parent Company's long-term debt during the
next five years are as follows (in millions): 1995--$14.1; 1996--$167.3;
1997--$179.0; 1998--$171.2; and 1999--$71.2. For an analysis of net interest
expense, see page 31.
37
<PAGE> 10
T E M P L E - I N L A N D I N C.
NOTE G - DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
At year end 1994 1993
RATE AMOUNT Rate Amount
---------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C>
Noninterest bearing demand -% $ 185.3 -% $ 224.9
Interest bearing demand 2.75% 1,255.7 2.42% 1,518.9
Savings deposits 2.25% 247.4 2.50% 224.8
Time deposits 5.19% 4,901.8 4.91% 4,377.7
6,590.2 6,346.3
Deposit premium 8.1 16.0
$6,598.3 $6,362.3
---------------------------------------------------------------
</TABLE>
Scheduled maturities of time deposits outstanding at December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
Time deposits $100,000 Less than
in amounts of: or more $100,000 Total
(in millions)
---------------------------------------------------------------
<S> <C> <C> <C>
3 months or less $ 93.3 $ 686.3 $ 779.6
Over 3 through 6 months 82.8 674.2 757.0
Over 6 through 12 months 129.9 920.6 1,050.5
Over 12 months 288.2 2,026.5 2,314.7
$594.2 $4,307.6 $4,901.8
---------------------------------------------------------------
</TABLE>
A summary of interest paid by the Group is shown below:
<TABLE>
<CAPTION>
For the year 1994 1993 1992
---------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Interest on deposits $262.9 $241.1 $312.7
Interest on borrowed funds 79.0 99.2 44.4
Total Interest Paid $341.9 $340.3 $357.1
---------------------------------------------------------------
</TABLE>
NOTE H - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements were delivered to brokers/dealers,
who retained such securities as collateral for the borrowings and have agreed
to resell the same securities back to the Group at the maturities of the
agreements. The agreements generally mature within sixty days.
Information concerning borrowings under repurchase agreements is
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
(dollars in millions)
<S> <C> <C>
At year-end:
Weighted average interest rate 6.11% 3.25%
Mortgage-backed securities pledged
to secure the agreements:
Carrying value $1,502.8 $1,641.5
Estimated market value 1,426.3 1,629.6
During the year:
Average balance 1,598.0 2,734.2
Maximum month-end balance 2,300.2 2,437.2
---------------------------------------------------------------
</TABLE>
NOTE I - ADVANCES FROM FEDERAL
HOME LOAN BANK
Pursuant to collateral agreements with the Federal Home Loan Bank ("FHLB"),
advances are secured by a blanket floating lien on the Savings Bank's assets.
The weighted average interest rate of the advances was 6.72 percent and 5.02
percent at December 31, 1994 and 1993, respectively. At December 31, 1994, the
advances have calendar year maturity dates as follow (in millions):
1996--$100.0; 1997--$2.4; 1998--$2.6; 1999--$51.7.
NOTE J - OTHER BORROWINGS
Other borrowings, which represent borrowings of nonsaving bank entities,
consist of the following:
<TABLE>
<CAPTION>
At year end 1994 1993 1992
---------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Long-term debt at various
rates which approximate
prime, secured primarily
by real estate $81.7 $76.3 $99.1
---------------------------------------------------------------
</TABLE>
Aggregate maturities of the Group's long-term debt during the next five
years are as follows (in millions): 1995--$22.3; 1996--$40.6; 1997--$2.6;
1998--$.9; 1999--$.9; 2000 and thereafter--$14.4.
NOTE K - LOAN SERVICING
The Group services real estate loans that are owned by independent investors.
The Group serviced approximately 149,500 and 144,700 mortgage loans aggregating
$10.1 billion and $9.1 billion as of December 31, 1994 and 1993, respectively.
The Group is required to advance, from its company funds, escrow and
foreclosure costs for loans that it services. The majority of these advances
are recoverable, except for certain amounts on loans serviced for GNMA, which
are reserved. In addition, the Group assumes market risk of disposing of
certain foreclosed VA loans. No significant losses were incurred during 1994 in
connection with this risk.
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosure About Fair Value of Financial Instruments",
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Group.
44
<PAGE> 11
1 9 9 4 A N N U A L R E P O R T
CONSOLIDATED STATEMENTS OF INCOME
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the year 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
REVENUES
Manufacturing net sales . . . . . . . . . . . . . . . . . . . . . $2,306 $2,101 $2,075
Financial services revenues . . . . . . . . . . . . . . . . . . . 632 635 638
2,938 2,736 2,713
------------------------------------------------------
COSTS AND EXPENSES
Manufacturing costs and expenses . . . . . . . . . . . . . . . . 2,106 2,006 1,917
Financial services expenses . . . . . . . . . . . . . . . . . . . 576 567 574
2,682 2,573 2,491
------------------------------------------------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 256 163 222
Parent company interest--net . . . . . . . . . . . . . . . . . . (66) (69) (47)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 2
INCOME BEFORE TAXES AND ACCOUNTING CHANGES . . . . . . . . . . . . 193 96 177
Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . 62 29 30
INCOME BEFORE ACCOUNTING CHANGES . . . . . . . . . . . . . . . . . 131 67 147
Cumulative effect of accounting changes . . . . . . . . . . . . . - 50 -
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . $131 $117 $147
======================================================
EARNINGS PER SHARE:
Before Accounting Changes . . . . . . . . . . . . . . . . . . . . $2.35 $1.21 $2.65
Effect of Accounting Changes . . . . . . . . . . . . . . . . . . - .90 -
Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . $2.35 $2.11 $2.65
======================================================
</TABLE>
See the notes to the consolidated financial statements.
47
<PAGE> 12
T E M P L E - I N L A N D I N C.
CONSOLIDATING BALANCE SHEETS
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
Parent Financial
At year end 1994 Company Services Consolidated
-----------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 13 $ 302 $ 315
Mortgage loans held for sale . . . . . . . . . . . . . . - 130 130
Loans receivable . . . . . . . . . . . . . . . . . . . . - 3,675 3,675
Investments . . . . . . . . . . . . . . . . . . . . . . . - 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 . . . . . . . . . . . . . . . . . . . . . . 163 469 566
Investment in affiliates . . . . . . . . . . . . . . . . 555 - -
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
======================================================
</TABLE>
See the notes to the consolidated financial statements.
48
<PAGE> 13
1 9 9 4 A N N U A L R E P O R T
CONSOLIDATING BALANCE SHEETS
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
Parent Financial
At year end 1993 Company Services Consolidated
------------------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9 $ 156 $ 165
Mortgage loans held for sale . . . . . . . . . . . . . . - 630 630
Loans receivable . . . . . . . . . . . . . . . . . . . . - 2,755 2,755
Investments . . . . . . . . . . . . . . . . . . . . . . . - 4,407 4,407
Covered assets . . . . . . . . . . . . . . . . . . . . . - 664 664
Trade and other receivables . . . . . . . . . . . . . . . 199 - 199
Inventories . . . . . . . . . . . . . . . . . . . . . . . 258 - 258
Property and equipment . . . . . . . . . . . . . . . . . 2,346 37 2,383
Other assets . . . . . . . . . . . . . . . . . . . . . . 104 484 498
Investment in affiliates . . . . . . . . . . . . . . . . 488 - -
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $3,404 $9,133 $11,959
======================================================
LIABILITIES
Deposits . . . . . . . . . . . . . . . . . . . . . . . . $ - $6,362 $ 6,362
Securities sold under repurchase
agreements and Federal Home Loan
Bank advances . . . . . . . . . . . . . . . . . . . . . - 1,725 1,725
Other liabilities . . . . . . . . . . . . . . . . . . . . 361 458 812
Long-term debt . . . . . . . . . . . . . . . . . . . . . 1,045 76 1,121
Deferred income taxes . . . . . . . . . . . . . . . . . . 176 - 117
Postretirement benefits . . . . . . . . . . . . . . . . . 122 - 122
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . $1,704 $8,621 $10,259
------------------------------------------------------
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 . . . . . . . . . . . . . . . 297
Retained earnings . . . . . . . . . . . . . . . . . . . . 1,482
1,840
Cost of shares held in the treasury: 5,908,173 shares . . (140)
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . 1,700
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . $11,959
======================================================
</TABLE>
See the notes to the consolidated financial statements.
Certain amounts have been reclassified to conform with current year's
classification.
49
<PAGE> 14
T E M P L E - I N L A N D I N C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the year 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 131 $ 117 $ 147
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH: . . . .
Cumulative effect of accounting changes . . . . . . . . - (50) -
Depreciation and depletion . . . . . . . . . . . . . . 208 197 172
Deferred taxes and tax credits . . . . . . . . . . . . 47 (2) 20
Amortization and accretion . . . . . . . . . . . . . . 12 13 23
Receivable from FDIC . . . . . . . . . . . . . . . . . 19 (1) 119
Mortgage loans held for sale . . . . . . . . . . . . . 500 (174) (192)
Receivables . . . . . . . . . . . . . . . . . . . . . . (41) 15 (2)
Inventories . . . . . . . . . . . . . . . . . . . . . . (1) (10) (23)
Accounts payable and accrued expenses . . . . . . . . . (16) 49 22
Other . . . . . . . . . . . . . . . . . . . . . . . . . (210) 158 67
649 312 353
------------------------------------------------------
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures . . . . . . . . . . . . . . . . . . (483) (354) (370)
Sale of property and equipment, net . . . . . . . . . . . 19 19 12
Purchases of securities available-for-sale . . . . . . . (146) - -
Maturities of securities available-for-sale . . . . . . . 17 - -
Purchases of securities held-to-maturity . . . . . . . . (229) (295) (2,239)
Maturities of securities held-to-maturity . . . . . . . . 790 1,156 1,306
Loans originated net of principal collected . . . . . . . (823) (670) (135)
Proceeds from sale of securities
held-to-maturity and loans . . . . . . . . . . . . . . - 24 129
Reduction in Covered Assets . . . . . . . . . . . . . . . 244 127 473
SAVINGS BANK ACQUISITIONS, NET . . . . . . . . . . . . . 200 (76) -
Manufacturing acquisitions, net . . . . . . . . . . . . . (60) - (6)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4 (1)
(460) (65) (831)
------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt . . . . . . . . . . . . . . . . . . . . 348 132 308
Payments of debt . . . . . . . . . . . . . . . . . . . . (54) (87) (208)
Net increase (decrease) in securities sold
under repurchase agreements and short-term
borrowings . . . . . . . . . . . . . . . . . . . . . . (205) 111 1,274
Purchase of stock for treasury . . . . . . . . . . . . . (1) (3) (2)
Cash dividends paid to shareholders . . . . . . . . . . . (57) (55) (53)
Net decrease in deposits . . . . . . . . . . . . . . . . (92) (310) (891)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 22 5 4
(39) (207) 432
------------------------------------------------------
Net increase (decrease) in cash and cash equivalents . . . . 150 40 (46)
Cash and cash equivalents at beginning of year . . . . . . . 165 125 171
Cash and cash equivalents at end of year . . . . . . . . . . $ 315 $ 165 $ 125
======================================================
</TABLE>
See the notes to the consolidated financial statements.
Certain amounts have been reclassified to conform with current year's
classification.
50
<PAGE> 15
1 9 9 4 A N N U A L R E P O R T
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
Additional
Common Paid-in Other Equity Retained Treasury
Stock Capital Adjustments Earnings Stock
-------------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 28, 1991 . . . . . . . . . $61 $295 $ - $1,326 $(151)
Net income . . . . . . . . . . . . . . . . - - - 147 -
Dividends paid on common
stock--$.96 per share . . . . . . . . . . - - - (53) -
Stock issued for stock plans--
384,192 shares reissued from
treasury at cost . . . . . . . . . . . . - - - - 9
Stock reacquired for treasury--
47,431 shares at cost . . . . . . . . . . - - - - (2)
BALANCE AT JANUARY 2, 1993 . . . . . . . . . . $61 $295 $ - $1,420 $(144)
------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . - - - 117 -
Dividends paid on common
stock--$1.00 per share . . . . . . . . . - - - (55) -
Stock issued for stock plans--
310,088 shares reissued from
treasury at cost . . . . . . . . . . . . - 2 - - 7
Stock reacquired for treasury--
79,377 shares at cost . . . . . . . . . . - - - - (3)
BALANCE AT JANUARY 1, 1994 . . . . . . . . . . $61 $297 $ - $1,482 $(140)
------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . . . - - - 131 -
Translation and other
adjustments . . . . . . . . . . . . . . . - - (10) - -
Dividends paid on common
stock--$1.02 per share . . . . . . . . . - - - (57) -
Stock issued for stock plans--
608,713 shares reissued from
treasury at cost . . . . . . . . . . . . - 8 - - 14
Stock reacquired for treasury--
71,516 shares at cost . . . . . . . . . . - - - - (3)
BALANCE AT DECEMBER 31, 1994 . . . . . . . . . $61 $305 $(10) $1,556 $(129)
========================================================================
</TABLE>
51
<PAGE> 16
T E M P L E - I N L A N D I N C.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements are prepared and presented in accordance
with generally accepted accounting principles and with current financial
reporting requirements. However, because certain assets and liabilities are in
separate corporate entities, the consolidated assets are not available to
satisfy all consolidated liabilities.
The consolidated financial statements include the accounts of
Temple-Inland Inc. (the "Company") and all subsidiaries in which the Company
has more than a 50 percent equity ownership. All material intercompany amounts
and transactions have been eliminated. 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 period. The
weighted average shares outstanding was 55,890,000, 55,528,000 and 55,535,000
in 1994, 1993 and 1992, 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 highly liquid instruments with original maturities of three months
or less.
TRANSLATION OF INTERNATIONAL CURRENCIES
Balance sheets of the Company's international operations are translated into
U.S. dollars at year end exchange rates, while statements of earnings are
translated at average rates. Adjustments resulting from financial statement
translations are reported as a component of shareholders' equity. Gains and
losses resulting from foreign currency transactions are included in earnings.
NOTE B - STOCK OPTION AND PURCHASE PLANS
The Company has established stock option plans for key employees and directors.
The plans provide for the granting of incentive stock options and/or
nonqualified stock options, and prior to 1994, the plans permitted the grant of
stock appreciation rights with all or part of any options so granted.
Options for 643,201, 741,379 and 733,501 shares were exercisable at
year end 1994, 1993 and 1992, respectively. An additional 1,737,930, 1,990,000
and 1,262,665 shares of common stock were available for grants at year end
1994, 1993 and 1992, respectively.
A summary of activity under the option plans is presented below:
<TABLE>
<CAPTION>
Common Stock
-------------------------
Number Price Range
of Shares Per Share
-----------------------------------------------------------------
<S> <C> <C>
Outstanding at December 28, 1991 1,527,999 $ 8-$46
Granted 204,519 $36-$54
Exercised (359,972) $ 8-$36
Forfeited (41,287) $22-$54
Outstanding at January 2, 1993 1,331,259 $12-$54
Granted 288,312 $37-$51
Exercised (213,043) $15-$36
Forfeited (12,072) $28-$54
Outstanding at January 1, 1994 1,394,456 $12-$54
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
-----------------------------------------------------------------
</TABLE>
Additionally, a Restricted Stock Plan provides for a maximum of 300,000
shares of common stock to be reserved for awards at the discretion of the Board
of Directors. At year end 1994, awards of 101,047 shares of common stock were
outstanding at an average price of $49.24 per share.
The Company has Savings and Stock Purchase Plans which permit
participating employees to invest in the Company's common stock and other
funds.
In February 1995, options to purchase 317,983 shares of stock at an
average price of $46.88 were granted and 42,166 shares were awarded under the
Restricted Stock Plan.
NOTE C - PENSION PLANS
The Company and its subsidiaries have several pension plans covering
substantially all employees. Plans covering salaried and nonunion hourly
employees provide benefits based on compensation and years of service, while
union hourly plans are based on negotiated benefits and years of service. The
Company's policy is to fund amounts as are necessary on an actuarial basis to
provide assets sufficient to meet the benefits to be paid to plan members in
accordance with the requirements of ERISA.
A summary of the components of net pension cost in 1994, 1993 and 1992
follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------
CHARGES (CREDITS) (in millions)
<S> <C> <C> <C>
Service cost--benefits
earned during the period $ 12.7 $ 9.6 $ 9.5
Interest cost on projected
benefit obligation 28.0 25.7 24.7
Actual return on plan assets (3.7) (59.0) (28.4)
Net amortization and deferral (38.6) 19.3 (10.1)
Net pension (credit) charge $ (1.6) $ (4.4) $ (4.3)
----------------------------------------------------------------
</TABLE>
52
<PAGE> 17
1 9 9 4 A N N U A L R E P O R T
The following assumptions were used to measure net periodic pension
cost for the defined benefit pension plans:
<TABLE>
<CAPTION>
For the years 1994 1993 1992
---------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.25% 7.25% 8.50%
Expected long-term rate of return 9.00% 9.00% 9.00%
Average increase in compensation
levels 5.25% 4.25% 5.50%
---------------------------------------------------------------
</TABLE>
The impact of increasing the discount rate will not have a material
effect on future earnings. The funded status of employee pension benefit plans
at year end 1994 and 1993 is summarized below, based on valuation date of
September 30:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
(in millions)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefits $ 322.5 $ 327.2
Nonvested benefits 19.0 29.5
Accumulated benefit obligation $ 341.5 $ 356.7
---------------------------------------------------------------
Projected benefit obligation for
service rendered to date $(380.7) $(389.6)
Plan assets at fair value, primarily
stocks and bonds 420.3 435.0
Plan assets in excess of projected
benefit obligation 39.6 45.4
Prior service cost not yet recognized
in net periodic pension cost .3 (.2)
Unrecognized net loss from
past experience different from that
assumed 27.0 23.8
Unrecognized net asset at beginning
of period, less amortization to date (26.0) (31.4)
Net pension asset included in the
balance sheet $ 40.9 $ 37.6
---------------------------------------------------------------
</TABLE>
The assets of the plans at December 31, 1994 include 380,998 shares of
common stock of the Company having a market value of $17.2 million at that
date.
NOTE D - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In 1993 the Company adopted FASB Statement No. 106, "Employer Accounting for
Postretirement Benefits Other than Pensions". The Company elected to
immediately recognize the cumulative effect of the change in accounting for
postretirement benefits of $75 million ($115 million liability net of a
deferred tax asset of $40 million), or $1.35 per share, which represents the
accumulated postretirement benefit obligation (APBO) existing at adoption. The
Company provides these benefits to eligible salaried and hourly employees who
reach retirement age while employed by the Company.
Summary information on the Company's plan as of year end 1994 and 1993
is as follows, based on valuation date of September 30:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
(in millions)
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation
Retirees $ 61.8 $ 64.1
Active participants, eligible to retire 14.6 7.9
All other participants 32.7 31.3
Accrued postretirement benefit cost 109.1 103.3
Plus unrecognized net gains 18.8 18.6
Unrecognized prior service cost (2.4) -
Postretirement benefit liability $125.5 $121.9
---------------------------------------------------------------
</TABLE>
The components of net postretirement benefit costs for 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
(in millions)
<S> <C> <C>
Service cost for benefits $1.9 $ 1.7
Interest cost 7.3 9.2
Net amortization and deferral (.8) -
Net postretirement charge $8.4 $10.9
---------------------------------------------------------------
</TABLE>
The discount rate used in determining the APBO as of December 31, 1994
was 8.25 percent. The assumed health care cost trend rate used in measuring the
APBO was 11 percent in 1994, grading down to 6 percent in years 2010 and later.
The assumptions as of January 1, 1994 included a 7.25 percent discount rate and
health care trend rates beginning at 12 percent and declining to 6.75 percent
in 2007 and thereafter. If the health care cost trend rate assumptions were
increased by one percent, the APBO as of December 31, 1994 would be increased
by 11 percent. The effect of the change on the components of service cost and
interest cost of the net periodic postretirement cost for 1994 would be an
increase of 11 percent.
NOTE E - TAXES ON INCOME
Taxes on income from continuing operations consisted of the following:
<TABLE>
<CAPTION>
Current Deferred
---------------------------------------------------------------
(in millions)
<S> <C> <C>
1994
Federal $10.7 $ 46.7
Investment tax credit deferred - (2.4)
State and other 6.8 -
$17.5 $ 44.3
---------------------------------------------------------------
1993
Federal $67.9 $(45.1)
Investment tax credit deferred - (3.0)
State and other 9.1 -
$77.0 $(48.1)
---------------------------------------------------------------
1992
Federal $17.5 $ 10.0
Investment tax credit deferred - (3.5)
State and other 6.0 -
$23.5 $ 6.5
---------------------------------------------------------------
</TABLE>
53
<PAGE> 18
T E M P L E - I N L A N D I N C.
Significant components of the Company's consolidated deferred tax
assets and liabilities as of year end 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
(in millions)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Depreciation $267.9 $234.4
Depletion 39.6 39.0
Pensions 13.8 12.3
Total deferred tax liabilities 321.3 285.7
DEFERRED TAX ASSETS:
Alternative minimum tax credits 121.0 128.6
Assets with excess tax basis - 115.5
Net operating loss carryforwards 204.0 102.1
OPEB obligations 43.9 42.7
Other 7.9 11.5
Total deferred tax assets 376.8 400.4
Valuation allowance for deferred
tax assets (219.0) (231.5)
Net deferred tax assets 157.8 168.9
Net deferred tax liabilities $163.5 $116.8
---------------------------------------------------------------
</TABLE>
The components of the provision for deferred income taxes prior to the
adoption of FASB 109 were as follows:
<TABLE>
<CAPTION>
1992
---------------------------------------------------------------
(in millions)
<S> <C>
Depreciation $15.7
Investment tax credits (3.5)
Pension expense 1.2
Other employee benefit plans (.6)
Other--net (6.3)
$6.5
---------------------------------------------------------------
</TABLE>
The differences between the consolidated effective income tax rate and
the federal statutory income tax rates include the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Taxes on income at
statutory rate $67.7 $33.7 $60.2
Book benefit of FDIC
assistance and other
permanent items (10.3) (10.9) (32.7)
Investment tax credits (2.4) (3.0) (3.5)
State and foreign taxes 6.8 9.1 6.0
$61.8 $28.9 $30.0
---------------------------------------------------------------
</TABLE>
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. As
permitted under the new rules, prior years' financial statements have not been
restated.
As a result of the Omnibus Budget Reconciliation Act of 1993, the
Company paid the government $47 million in 1994 for 1991 and 1992 deductions
that this legislation eliminated. Income tax payments, net of refunds received,
were $58 million, $19 million and $(2) million during 1994, 1993 and 1992,
respectively.
Investment tax credits were deferred and are being amortized as a
reduction of income tax expense over the estimated useful lives of the related
assets.
Temple-Inland and Guaranty have net operating loss carryforwards which,
if utilized, could result in tax savings of $164 million and $40 million,
respectively, at December 1994. If unused, these carryforwards expire through
the year 2009. The realization of Guaranty's loss carryforwards is limited to
the future taxable income of Guaranty. The Company's alternative minimum tax
credits may be carried forward indefinitely.
Deferred taxes are not provided for earnings of non-U.S. subsidiaries
that are intended to be permanently reinvested.
NOTE F - BUSINESS SEGMENT INFORMATION
Refer to "Business Segments" on page 25 for information relating to Revenues
and Income Before Taxes, and page 31 for information relating to Capital
Expenditures for the principal segments of business for the three years 1994,
1993 and 1992.
Additional business segment information is presented below:
<TABLE>
<CAPTION>
For the year 1994 1993 1992
---------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Corrugated container $ 1,688.4 $ 1,575.7 $ 1,615.2
Bleached paperboard 696.5 523.2 450.7
Building products 432.5 300.0 216.8
Timber and timberlands 465.1 453.7 419.8
Corporate and other
activities 26.2 63.6 84.3
3,308.7 2,916.2 2,786.8
Financial services 9,007.7 9,133.3 7,978.7
Reclassifications and
eliminations (65.7) (90.2) -
TOTAL $12,250.7 $11,959.3 $10,765.5
---------------------------------------------------------------
DEPRECIATION AND DEPLETION
Corrugated container $ 120.6 $ 112.5 $ 97.5
Bleached paperboard 43.3 40.1 32.1
Building products 23.2 22.6 22.7
Timber and timberlands 11.2 12.7 12.0
Other activities 2.0 3.2 3.2
200.3 191.1 167.5
Financial services 7.8 5.8 4.8
TOTAL $ 208.1 $ 196.9 $ 172.3
---------------------------------------------------------------
</TABLE>
54
<PAGE> 19
1 9 9 4 A N N U A L R E P O R T
NOTE G - SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected quarterly financial results for the years 1994 and 1993 are summarized
below:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------------------------------------------------------
(in millions except per share amounts)
<S> <C> <C> <C> <C>
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
---------------------------------------------------------------
1993
Total revenues $682.8 $702.6 $681.0 $669.4
Manufacturing net sales 536.7 543.7 518.6 501.7
Manufacturing gross profit 87.7 76.6 67.3 62.1
Financial services
operating income
before taxes and
accounting change 17.0 18.5 16.5 15.5
Net income:
Net income before
accounting changes 28.0 20.9 11.4 7.0
Cumulative effect of
accounting changes 50.0 - - -
Net income 78.0 20.9 11.4 7.0
Earnings per share:
Before accounting
changes .50 .38 .21 .12
Effect of accounting
changes .90 - - -
Earnings per Share 1.40 .38 .21 .12
---------------------------------------------------------------
</TABLE>
NOTE H - SHAREHOLDER RIGHTS PLAN
During 1989, the Board of Directors adopted a Shareholder Rights Plan in which
one preferred stock purchase right ("the Right") was declared as a dividend for
each common share outstanding. Each one-half Right entitles shareholders to
purchase, under certain conditions, one-hundredth of a share of newly issued
Series A Junior Participating Preferred Stock at an exercise price of $200. The
Rights will be exercisable only if a person or group acquires beneficial
ownership of 20 percent or more of the common shares or commences a tender or
exchange offer, upon consummation of which such person or group would
beneficially own 25 percent or more of the common shares. The Company will
generally be entitled to redeem the Rights at $.01 per Right at any time until
the 10th business day following public announcement that a 20 percent position
has been acquired. The Rights will expire on February 20, 1999.
NOTE I - COMMITMENTS AND CONTINGENCIES
There are pending against the Company and its subsidiaries lawsuits, claims and
environmental matters arising in the regular course of business.
In the opinion of management, recoveries, if any, by plaintiffs or
claimants that may result from the foregoing litigation and claims will not be
material in relation to the consolidated financial position of the Company and
its subsidiaries.
See page 31 for a discussion of commitments on construction projects.
55
<PAGE> 20
T E M P L E - I N L A N D I N C.
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 31, 1994 and January 1, 1994, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Temple-Inland Inc. and subsidiaries at December 31, 1994 and January 1, 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes D and E to the consolidated financial statements,
in 1993 the Company changed its method of accounting for postretirement
benefits other than pensions and income taxes.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 3, 1995
56
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF TEMPLE-INLAND INC.
(State of Incorporation) (Percentage of Ownership by Immediate Parent)
INLAND CONTAINER CORPORATION I (DELAWARE) (100%)
Inland Container Corporation (Delaware) (100%)
El Morro Corrugated Box Corporation (Delaware) (100%)
El Morro Corrugated Box Corporation (Puerto Rico) (100%)
Georgia Kraft Company (Delaware) (100%)
Sabine River & Northern Railway Company (Texas) (100%)
IC Holding, Inc. (Delaware) (100%)
Rand-Whitney Packaging Corporation (Massachusetts) (100%)
Delmar Packaging, Inc. (Delaware) (100%)
Rand-Whitney Robertson Corporation (Delaware) (100%)
Inland Argentina, Inc. (Delaware) (100%)
Inland Chile I, Inc. (Delaware) (100%)
Inland Chile II, Inc. (Delaware) (100%)
Inland Container FSC, Inc. (U.S. Virgin Islands) (100%)
Inland International Holding Company (Delaware) (100%)
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 Monterey, S.A. de C.V. (Mexico) (100%)
Inland Paper Company, Inc. (Indiana) (100%)
Inland Real Estate Investments, Inc. (Indiana) (100%)
Crockett Container Corporation (California) (100%)
King Container Company (California) (100%)
Pakway Container Corporation (Indiana) (100%)
TEMPLE-INLAND FOREST PRODUCTS CORPORATION (DELAWARE) (100%)
The Angelina Free Press, Inc. (Texas) (100%)
Big Tin Barn Inc. (Delaware) (100%)
Eastex Incorporated (Texas) (100%)
Evadale Realty Company (Delaware) (100%)
Bestile Manufacturing Company (California) (100%)
Home Owners Trust Company (Texas) (100%)
Sabine Investment Company of Texas, Inc. (Texas) (100%)
Scotch Investment Company (Texas) (100%)
Scotch Properties Management Inc. (Delaware) (100%)
Southern Pine Lumber Company (Texas) (100%)
Southern Pine Plywood Co. (Texas) (100%)
Templar Essex Inc. (Delaware) (100%)
Temple Associates, Inc. (Texas) (100%)
Temple-Eastex Incorporated (Delaware) (100%)
Temple Industries, Inc. (Texas) (100%)
Temple-Inland Food Service Corporation (Delaware) (100%)
Temple-Inland Forest Products of Canada Inc. (New Brunswick, Canada) (100%)
Temple-Inland Forest Products International Inc. (Delaware) (100%)
Temple-Inland Paperboard Specialty Company (Delaware) (100%)
Temple-Inland Recaustisizing Company (Delaware) (100%)
Temple-Inland Recovery Company (Delaware) (100%)
Temple-Inland Stores Company (Delaware) (100%)
Temple Lumber Company (Texas) (100%)
Texas Southeastern Railroad Company (Texas) (100%)
Topaz Oil Company (Texas) (100%)
<PAGE> 2
EXHIBIT 21
PAGE 2
SUBSIDIARIES OF TEMPLE-INLAND INC.
(State of Incorporation) (Percentage of Ownership by Immediate Parent)
Temple-Inland Financial Services Inc. (Delaware) (50%; 50% by Temple-Inland
Forest Products Corporation)
Guaranty Holdings Inc. I (Delaware) (100%)
Guaranty Federal Bank, F.S.B. (Federal) (100%)
AFB Group, Inc. (Texas) (100%)
Big D Cold Storage, Inc. (Texas) (100%)
Com-Tex Financial Services, Inc. (Texas) (100%)
First Service Corporation (Texas) (100%)
IMRE, Inc. (Texas) (100%)
GSC Realty Corporation (Texas) (100%)
GSC Housing Corporation (Texas) (100%)
Fort Wayne Mortgage Co. (Michigan) (100%)
General Realty Corporation of Kentucky (Kentucky) (100%)
Guaranty Group Inc. (Texas) (100%)
Guaranty Investment Advisory, Inc. (Texas) (100%)
Guaranty Resources, Inc. (Texas) (100%)
Guaranty Land Company (Texas) (100%)
MMJ-Stoneybrook Land Corporation (Texas) (100%)
MSA Financial, Inc. (Texas) (100%)
Mercury Flight, Inc. (Texas) (100%)
A.G. Aircraft Corporation (Texas)
J.R. Aircraft Corporation (Texas)
L.J. Aircraft Corporation (Texas)
T.H. & M.A. Corporation (Oregon)
Mercury Investment Corporation (Texas) (100%)
Milam Investment Corporation (Texas) (100%)
Milam Mortgage Corporation (Colorado) (100%)
Paris Development Corporation (Texas) (100%)
Paris Service Corporation (Texas) (100%)
Parker Town Square, Inc. (Texas) (100%)
Participation Purchase Corporation (Nevada) (100%)
Providence Park, Inc. (Texas) (100%)
Columbine Title Company (Colorado) (100%)
Heritage Oldsmobile, Inc. (Texas) (100%)
Hotchkiss Title Services (Colorado) (100%)
Lawyers Title of Boulder County, Inc. (Colorado) (100%)
Lawyers Title of Central Colorado, Inc. (Colorado) (100%)
Vertically Specialized Office Products, Inc. (Texas) (100%)
Skyline Financial, Inc. (Texas) (100%)
TCCN Corporation (Texas) (100%)
Temple-Inland Mortgage Corporation (Nevada) (100%)
Temple-Inland Properties Inc. (Delaware) (100%)
Wichita Realty Investments, Inc. (Texas) (100%)
Stanford Realty Advisors, Inc. (Delaware) (100%)
LIC Investments Inc. (Delaware) (100%)
Lumbermen's Investment Corporation (Delaware) (100%)
Austin Crest Hotel, Inc. (Texas) (100%)
LIC Financial Corporation (Delaware) (100%)
Sunbelt Insurance Company (Texas) (100%)
TEEC Inc. (Texas) (100%)
Timberline Insurance Managers, Inc. (Texas) (100%)
Capline Marketing Group (Texas) (50%)
Timberline Securities, Inc. (Texas) (100%)
Temple-Inland Life Inc. (Nevada) (100%)
Temple-Inland Insurance Corporation (Delaware) (100%)
Temple-Inland Realty Inc. (Delaware) (100%)
TIFS Financial Corporation (Delaware) (100%)
<PAGE> 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 3, 1995, included in
the 1994 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
audit. 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 3, 1995, 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 22, 1995
<TABLE> <S> <C>
<ARTICLE> 5<F1>
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 315
<SECURITIES> 0
<RECEIVABLES> 244
<ALLOWANCES> 0
<INVENTORY> 268
<CURRENT-ASSETS> 0
<PP&E> 2,671
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,251
<CURRENT-LIABILITIES> 0
<BONDS> 1,398
<COMMON> 61
0
0
<OTHER-SE> 1,722
<TOTAL-LIABILITY-AND-EQUITY> 12,251
<SALES> 2,306
<TOTAL-REVENUES> 2,938
<CGS> 2,106
<TOTAL-COSTS> 2,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 193
<INCOME-TAX> 62
<INCOME-CONTINUING> 131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 131
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.35
<FN>
<F1>ALTHOUGH THE COMPANY OWNS A LARGE SAVINGS BANK, THE COMPANY IS PRIMARILY AN
INDUSTRIAL COMPANY. THEREFORE, IT PRESENTS THIS FINANCIAL DATA SCHEDULE IN
ACCORDANCE WITH ARTICLE 5 OF REGULATION S-X.
</FN>
</TABLE>
