<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
--------- ---------
COMMISSION FILE NUMBER 1-8634
TEMPLE-INLAND INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1903917
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 SOUTH TEMPLE DRIVE
DIBOLL, TEXAS 75941
(Address of principal executive offices, including Zip code)
Registrant's telephone number, including area code: (409) 829-2211
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 Par Value per Share, non-cumulative New York Stock Exchange
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. [ ]
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 7, 1997, was $2,645,982,943. For purposes of this
computation, all officers, directors, and 5 percent 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 percent beneficial owners are, in fact, affiliates of the registrant.
As of March 7, 1997, 55,437,073 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 25-34, 47, 49, and 50-61 of the Annual Report to
Shareholders for the fiscal year ended December 28, 1996 -- Parts I and II.
(b) The Company's definitive proxy statement, dated March 17, 1997, in
connection with the Annual Meeting of Shareholders to be held May 2,
1997 -- 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 Paper Group consists of the
corrugated container and bleached paperboard operations. The corrugated
container operation is vertically integrated and consists of four linerboard
mills, three corrugating medium mills, 43 box plants, and six specialty
converting plants. The bleached paperboard operation consists of one large mill
located in Evadale, Texas.
The Company's Building Products Group manufactures a wide range of building
products including lumber, plywood, particleboard, gypsum wallboard, and
fiberboard. Forest resources include approximately 2.2 million acres of
timberland in Texas, Louisiana, Georgia, and Alabama. The Company's Financial
Services Group consists of savings bank activities, mortgage banking, real
estate development, and insurance brokerage.
The Company is a Delaware corporation that was organized in 1983. Its
principal subsidiaries include Inland Paperboard and Packaging, Inc. ("Inland"),
Temple-Inland Forest Products Corporation ("Temple-Inland FPC"), Temple-Inland
Financial Services Inc. ("Financial Services"), Guaranty Federal Bank, F.S.B.
("Guaranty"), and Temple-Inland Mortgage Corporation ("Temple-Inland Mortgage").
The Company's principal executive offices are located at 303 South Temple
Drive, Diboll, Texas 75941. Its telephone number is (409) 829-2211.
1
<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
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Paper..................................... $2,082.3 $2,198.4 $1,740.7 $1,571.2 $1,609.9
Building products......................... 562.6 532.9 575.5 497.5 409.7
Other activities.......................... -- -- 19.2 58.4 77.1
-------- -------- -------- -------- --------
Manufacturing net sales................ 2,644.9 2,731.3 2,335.4 2,127.1 2,096.7
Financial services........................ 815.4 764.3 631.4 635.1 637.8
-------- -------- -------- -------- --------
Total revenues.................... $3,460.3 $3,495.6 $2,966.8 $2,762.2 $2,734.5
======== ======== ======== ======== ========
Income before taxes
Paper..................................... $ 113.0 356.6 $ 73.7 $ 5.6 $ 134.7
Building products......................... 102.0 67.0 138.8 102.4 40.4
Other activities.......................... -- -- 1.5 (1.9) (2.0)
-------- -------- -------- -------- --------
Operating profit....................... 215.0 423.6 214.0 106.1 173.1
Financial services........................ 63.1(a) 98.1 56.3 67.5 64.4
-------- -------- -------- -------- --------
278.1 521.7 270.3 173.6 237.5
Corporate expense......................... (17.2) (21.7) (13.7) (11.2) (15.3)
Parent company interest -- net............ (109.6) (72.7) (67.1) (69.4) (48.0)
Other income.............................. 4.6 3.7 3.8 3.2 2.8
-------- -------- -------- -------- --------
Income before taxes............... $ 155.9 $ 431.0 $ 193.3 $ 96.2 $ 177.0
======== ======== ======== ======== ========
</TABLE>
- ---------------
* Reclassified to conform to 1996 presentation related to the realignment into
three business segments, which includes (1) the consolidation of the
corrugated container and bleached paperboard operations into a single Paper
Group, and (2) the transfer of the Rome sawmill from the corrugated
container operation to the Building Products Group.
(a) Includes SAIF assessment of $43.9 million.
For more information with respect to identifiable assets, capital
expenditures, depreciation, and depletion on a business segment basis, see pages
33 and 59 of the Company's 1996 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
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Paper
Corrugated container..................... $1,676.5 $1,829.4 $1,441.3 $1,252.7 $1,257.3
Bleached paperboard...................... 300.5 249.0 217.4 228.7 249.4
Pulp..................................... 19.2 36.9 22.1 33.4 47.3
Food Service and other................... 86.1 83.1 59.9 56.4 55.9
-------- -------- -------- -------- --------
2,082.3 2,198.4 1,740.7 1,571.2 1,609.9
-------- -------- -------- -------- --------
Building products
Pine lumber.............................. 217.4 190.1 211.9 176.0 139.3
Fiber products........................... 73.3 59.7 66.3 62.9 55.8
Particleboard............................ 112.2 99.1 103.0 81.3 70.5
Plywood.................................. 52.1 49.3 56.8 54.0 45.2
Gypsum wallboard......................... 90.2 83.1 74.3 53.3 36.6
Retail distribution (a).................. 17.1 51.3 58.4 60.0 53.5
Other.................................... .3 0.3 4.8 10.0 8.8
-------- -------- -------- -------- --------
562.6 532.9 575.5 497.5 409.7
-------- -------- -------- -------- --------
Other activities (b)....................... -- -- 19.2 58.4 77.1
-------- -------- -------- -------- --------
Manufacturing net sales.................. 2,644.9 2,731.3 2,335.4 2,127.1 2,096.7
Financial services......................... 815.4 764.3 631.4 635.1 637.8
-------- -------- -------- -------- --------
Total revenues................... $3,460.3 $3,495.6 $2,966.8 $2,762.2 $2,734.5
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) In October 1995, the Company sold the largest two of its five retail
distribution outlets. Two more of these retail distribution outlets were
sold during December 1996.
(b) Includes the revenues from subsidiaries engaged in commercial, industrial,
and public works contracting until their operations were terminated in 1993
and the revenues from subsidiaries engaged in the construction and
maintenance of electrical distribution facilities until their operations
were terminated in 1994.
* Reclassified to conform to 1996 presentation related to the realignment into
three business segments, which includes (1) the consolidation of the
corrugated container and bleached paperboard operations into a single Paper
Group, and (2) the transfer of the Rome sawmill from the corrugated
container operation to the Building Products Group.
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 28, -----------------------------------------
1996 1996 1995 1994 1993 1992
------------ ----- ----- ----- ----- -----
(IN THOUSANDS OF TONS)
<S> <C> <C> <C> <C> <C> <C>
Paper
Corrugated container................. (a) 2,435 2,333 2,492 2,394 2,294
Bleached paperboard.................. (b) 524 400 430 426 414
Pulp................................. (b) 100 99 87 134 155
Building products (IN MILLIONS OF BOARD FEET)
Pine lumber*......................... 675 605 582 583 552 538
(IN MILLIONS OF SQUARE FEET)
Fiber products....................... 460 457 422 441 440 464
Particleboard (c).................... 535 399 329 347 319 326
Plywood.............................. 265 259 217 260 265 250
Gypsum wallboard..................... 840 838 813 796 782 621
</TABLE>
- ---------------
* Reclassified to conform to 1996 presentation related to the transfer of the
Rome sawmill from the corrugated container operation to the Building
Products Group.
(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 approximately 600,000 tons per year. The rated
annual capacity of the linerboard mills is approximately 2.1 million tons
per year.
(b) The annual capacity of the four paper machines in operation at the
paperboard and pulp mill is approximately 725,000 tons, which excludes the
capacity of a cylinder machine at the mill that the Company decided to shut
down late in 1993 due to market conditions for the grade it produced. Such
capacity may vary to some degree depending on product mix. The annual
capacity of Temple-Inland Food Service Corporation 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) The annual capacity for the particleboard plants includes the rated annual
capacity of the Hope, Arkansas, plant, which began operations late in 1995
but did not reach full production until the fourth quarter of 1996. The
capacity figures for 1996 reflect the increase at the Monroeville, Alabama,
plant that resulted from a renovation of this facility during the year.
NARRATIVE DESCRIPTION OF THE BUSINESS:
The business of the Company is divided among three groups: (1) the Paper
Group, which consists of the corrugated container and bleached paperboard
operations, (2) the Building Products Group, and (3) the Financial Services
Group. In the year ended December 28, 1996, the Paper Group, Building Products
Group, and Financial Services Group provided 60 percent, 16 percent, and 24
percent, respectively, of the total consolidated net revenues of the Company.
Paper Group. During 1996, the Company consolidated the management of its
paper operations under the leadership of William B. Howes, Executive Vice
President of the Company. This group is now comprised of two operations, the
results from which had previously been reported separately as corrugated
container and bleached paperboard.
4
<PAGE> 6
(i) Corrugated Container. The corrugated container operation of the Company
manufactures containerboard that it converts into a complete line of corrugated
boxes and containers. Approximately 83 percent of the containerboard produced by
Inland in 1996 was converted into corrugated containers at its box plants. The
Company'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 28, 1996, about 46 percent of the Company's box shipments
were sold directly for use in the food industry, including beverage containers.
Following an acquisition in 1994, the Company also manufactures
litho-laminate corrugated packaging and high graphics folding cartons. Other
products manufactured by the Company include bulk containers constructed of
multi-wall corrugated board for extra strength, which are used for bulk
shipments of various materials, paper sealing tape, and other tape specialties.
In the corrugated container operation, the Company services about 6,800
customers with approximately 11,000 shipping destinations. The largest single
customer accounted for approximately 4 percent and the 10 largest customers
accounted for approximately 28 percent of the 1996 corrugated container
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.
(ii) Bleached Paperboard. The bleached paperboard operation of the Company
produces 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 operation, with whom the Company has a
long-standing contractual relationship, accounted for approximately 14 percent
of bleached paperboard sales in 1996. 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 operation, it would not
have a material adverse effect on the Company taken as a whole. The 10 largest
customers accounted for approximately 50 percent of bleached paperboard sales in
1996. During 1996, sales were made to customers in 43 states, Mexico, and Puerto
Rico, as well as to independent distributors through which this operation's
products were exported to Asia, Japan, Central America, and South America.
Contracts specifying annual tonnage quantities are maintained with several major
customers.
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 to manufacture and market paper containers and products
primarily for the food service industry. Products manufactured include paper
plates and bowls, clamshells, carrying trays and boxes, nested food trays, fry
cartons, and pails. These products are sold to the fast food industry, retail
consumer stores, and restaurants and cafeterias for use in food service.
Building Products Group. 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
5
<PAGE> 7
managers and representatives to distributors, retailers, and O.E.M. (original
equipment manufacturer) accounts. Almost 75 percent of particleboard sales are
to commercial fabricators, such as manufacturers of cabinets and furniture. The
10 largest customers accounted for approximately 21 percent of the Building
Products Group's 1996 sales.
The building products business is heavily dependent upon the level of
residential housing expenditures, including the repair and remodeling market,
which is largely dependent upon the availability and cost of mortgage funds.
During the year, the Company completed an upgrade to its particleboard mill
in Monroeville, Alabama. Similar renovation projects are scheduled at the
Diboll, Texas, and Thomson, Georgia, particleboard plants during 1997. During
the year, this group entered into three joint ventures, in each of which it owns
a 50 percent interest. One of these joint ventures will produce medium density
fiberboard at a facility under construction in Arkansas. Another of these joint
ventures will produce cement fiberboard at a plant under construction in Texas.
The third joint venture was the acquisition of an existing facility for the
production of gypsum wallboard and a related quarry.
Financial Services Group. The Financial Services Group operates a savings
bank and engages in mortgage banking, real estate development, and insurance
activities.
(i) Savings Bank. Guaranty is a federally-chartered stock savings bank
operated by the Company through its financial services subsidiaries. Guaranty
conducts its business through 113 banking centers located primarily in the
eastern third of Texas, including Houston, Dallas, San Antonio, and Austin. The
primary activities of Guaranty include attracting savings deposits from the
general public, investing in loans secured by mortgages on residential real
estate, lending for the construction of real estate projects, and providing a
variety of loan products to consumers and businesses.
Guaranty derives its income primarily from interest earned on real estate
mortgages, commercial and business loans, consumer loans, and investment
securities, as well as fees received in connection with loans and deposit
services. Its major expense is the interest it pays on consumer deposits and
other borrowings. The operations of Guaranty, like those of other savings
institutions, are significantly influenced by general economic conditions, by
the monetary, fiscal, and regulatory policies of the federal government, and by
the policies of financial institution regulatory authorities. Deposit flows and
costs of funds are influenced by interest rates on competing investments and
general market rates of interest. Lending activities are affected by the demand
for mortgage financing and for other types of loans as well as market
conditions. Guaranty primarily seeks assets with interest rates that adjust
periodically rather than assets with long-term fixed rates.
During the fourth quarter of 1996, the Company entered into an Agreement
and Plan of Merger (the "Merger Agreement") with California Financial Holding
Company ("CFHC"), the parent corporation of Stockton Savings Bank, F.S.B.
("Stockton") headquartered in Stockton, California, by which CFHC will be merged
into the Company. The transaction, which is subject to approval by the CFHC
stockholders and by regulatory authorities, is expected to close during the
second quarter of 1997. Terms of the Merger Agreement provide for CFHC
stockholders to receive a combination of common stock of the Company and cash
valued at $30 per share, for a total consideration of approximately $150
million. Subject to certain limitations, each CFHC stockholder will be given the
election to have the consideration for their shares paid in Company common
stock, cash or a combination of the two. The Company, however, will issue no
more than 1,692,000 shares of common stock in the transaction. The Merger
Agreement permits CFHC to terminate the transaction if the price of the common
stock of the Company, as calculated, is below $40 per share, provided that the
number of shares of Company common stock issued in the transaction has not been
increased. When the transaction is completed, the operations of Stockton, which
has approximately $1.3 billion in assets and operates 23 branches in the Central
Valley of California, will be merged into Guaranty. In connection with execution
of the Merger Agreement, CFHC granted the Company an option, exercisable under
certain circumstances, to purchase 940,095 shares of CFHC common stock,
representing approximately 19.9 percent of the shares presently outstanding, at
a price of $27.25 per share.
6
<PAGE> 8
During 1996, Congress adopted legislation to recapitalize the Savings
Association Insurance Fund ("SAIF") and merge the SAIF with the Bank Insurance
Fund. This legislation imposed a one-time special assessment on SAIF members
equal to 67.5 basis points of insured deposits, or approximately $44 million in
the case of Guaranty. Under this legislation, Guaranty will not currently be
required to pay any deposit insurance premiums, but will be required to pay
approximately 6.5 basis points on insured deposits to fund certain Financial
Corporation (FICO) bond obligations. Based on the current level of Guaranty's
deposits, this legislation will ultimately reduce future assessments by
approximately $11 million per year.
The House and Senate are also discussing additional legislative proposals,
including changes to tax laws, related to the thrift industry. At this time, the
Company is not able to predict if any of these proposals will be adopted or, if
adopted, the ultimate impact they might have on the Company.
In addition to other minimum capital standards, regulations of the Office
of Thrift Supervision of the Department of the Treasury (the "OTS") currently
require savings institutions to maintain a leverage capital ratio of at least 3
percent of adjusted total assets. Guaranty, however, has agreed with the OTS
that at the time it makes any future acquisitions, it will maintain a leverage
capital ratio of at least 4 percent of adjusted total assets, and in order to
obtain the lowest level of FDIC insurance premiums, Guaranty must meet a
leverage capital ratio of at least 5 percent of adjusted total assets. At
December 31, 1996, Guaranty had a leverage capital ratio of 5.52 percent of
adjusted total assets. For additional information regarding regulatory capital
requirements, see Note L to Financial Services Group Summarized Financial
Statements on page 49 of the Company's 1996 Annual Report to Shareholders, which
is incorporated herein by reference.
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, 1996, Guaranty met or exceeded these tests and intends to continue
meeting or exceeding these tests.
(ii) Mortgage Banking. Temple-Inland Mortgage, a wholly-owned subsidiary of
Guaranty, headquartered in Austin, Texas, originates, warehouses, and services
FHA, VA, and conventional mortgage loans primarily on single family residential
property. Temple-Inland Mortgage originates mortgage loans for sale into the
secondary market. It typically retains the servicing rights on these loans, but
periodically sells some portion of its servicing to third parties. At December
31, 1996, Temple-Inland Mortgage was servicing $17.9 billion in mortgage loans,
including loans serviced for affiliates and approximately $2.4 billion in
mortgages serviced for a third party. Temple-Inland Mortgage produced $1.9
billion in mortgage loans during 1996 compared with $1.2 billion during 1995.
(iii) Real Estate Development and Income Properties. Subsidiaries of
Financial Services are involved in the development of 24 residential
subdivisions in Texas, Arizona, Colorado, Florida, Georgia, Missouri, and
Tennessee. The real estate group of the Company also owns 10 commercial
properties.
(iv) Insurance. Subsidiaries of Financial Services are engaged in the
brokerage of property, casualty, life, and group health insurance products. One
of these subsidiaries is an insurance agency that administers the marketing and
distribution of several mortgage-related personal life, accident, and health
insurance programs. This agency also acts as the risk management department of
the Company. An affiliate of the agency sells annuities through banks and
savings banks, including Guaranty.
(v) Statistical Disclosures. The following tables present various
statistical and financial information for Financial Services.
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 1994 through 1996:
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST SPREAD
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
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........... $ 32.1 $ 2.1 6.42% $ 41.4 $ 2.4 5.90% $ 26.0 $ 1.3 4.96%
Mortgage-backed and
investment securities.... 3,208.5 183.5 5.72% 3,650.4 208.6 5.72% 4,154.7 189.8 4.57%
Securities purchased under
agreements to resell,
agency discount notes,
federal funds sold, and
commercial paper......... 339.4 18.4 5.41% 324.2 19.1 5.88% 653.5 27.2 4.16%
Loans receivable and
mortgage loans held for
sale (1)................. 5,258.4 426.1 8.10% 4,490.2 368.6 8.21% 3,241.5 244.7 7.55%
Covered assets............. -- -- -- 298.5 18.3 6.14% 536.2 30.3 5.66%
Other...................... 26.0 .7 2.91% 25.6 1.9 7.42% 25.4 2.2 8.52%
-------- ------ -------- ------ -------- ------
Total
interest-earning
assets............. 8,864.4 $630.8 7.12% 8,830.3 $618.9 7.01% 8,637.3 $495.5 5.74%
====== ====== ======
Cash......................... 90.6 90.2 107.2
Other FSLIC receivables...... .8 (10.7) 17.4
Other assets................. 586.0 537.3 469.0
-------- -------- --------
Total assets......... $9,541.8 $9,447.1 $9,230.9
======== ======== ========
LIABILITIES AND SHAREHOLDER'S
EQUITY Interest-bearing
liabilities:
Deposits:
Interest-bearing
demand................. $1,087.2 $ 26.1 2.41% $1,212.7 $ 29.9 2.47% $1,549.4 $ 34.5 2.23%
Savings deposits......... 184.6 4.2 2.28% 216.2 4.9 2.25% 248.3 5.6 2.26%
Time deposits............ 5,013.6 278.0 5.54% 5,037.6 278.1 5.52% 4,615.6 213.7 4.63%
-------- ------ -------- ------ -------- ------
Total
interest-bearing
deposits........... 6,285.4 308.3 4.91% 6,466.5 312.9 4.84% 6,413.3 253.8 3.96%
Advances from the Federal
Home Loan Bank........... 69.2 5.9 8.55% 154.7 11.2 7.26% 154.3 9.5 6.13%
Securities sold under
repurchase agreements.... 2,044.2 111.6 5.46% 1,719.2 102.6 5.97% 1,598.0 66.6 4.17%
Other borrowings........... 131.9 9.5 7.24% 95.9 7.2 7.49% 64.4 4.5 6.90%
-------- ------ -------- ------ -------- ------
Total
interest-bearing
liabilities........ 8,530.7 $435.3 5.10% 8,436.3 $433.9 5.14% 8,230.0 $334.4 4.06%
====== ====== ======
Noninterest-bearing demand... 46.4 79.3 85.8
Other liabilities............ 361.8 331.3 363.0
Shareholder's equity......... 602.9 600.2 552.1
-------- -------- --------
Total liabilities and
shareholder's
equity............. $9,541.8 $9,447.1 $9,230.9
======== ======== ========
Net interest
income............. $195.5 $185.0 $161.1
====== ====== ======
Net yield on
interest-earning
assets............. 2.20% 2.10% 1.87%
======= ======= =======
</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>
1996 COMPARED WITH 1995 1995 COMPARED WITH 1994
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO(1) 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... $ (.5) $ .2 $ (.3) $ .9 $ .2 $ 1.1
Mortgage-backed and investment
securities.............................. (25.3) .2 (25.1) (24.9) 43.7 18.8
Securities purchased under agreements to
resell, agency discount notes, federal
funds sold, and commercial paper........ .9 (1.6) (.7) (16.0) 7.9 (8.1)
Loans receivable and mortgage loans held
for sale................................ 62.3 (4.8) 57.5 101.0 22.9 123.9
Covered assets............................. (18.3) -- (18.3) (14.4) 2.4 (12.0)
Other...................................... -- (1.2) (1.2) -- (.3) (0.3)
------ ----- ------ ------ ----- ------
Total interest income.............. $ 19.1 $(7.2) $ 11.9 $ 46.6 $76.8 $123.4
====== ===== ====== ====== ===== ======
Interest expense:
Deposits:
Interest-bearing demand................. $ (3.1) $ (.7) $ (3.8) $ (8.1) $ 3.5 $ (4.6)
Savings deposits........................ (.8) .1 (.7) (.7) -- (.7)
Time deposits........................... (1.3) 1.2 (.1) 20.7 43.7 64.4
------ ----- ------ ------ ----- ------
Total interest on deposits......... (5.2) .6 (4.6) 11.9 47.2 59.1
Advances from the Federal Home Loan Bank... (7.0) 1.7 (5.3) -- 1.7 1.7
Securities sold under repurchase
agreements.............................. 18.3 (9.3) 9.0 5.4 30.6 36.0
Other borrowings........................... 2.5 (.2) 2.3 2.3 .4 2.7
------ ----- ------ ------ ----- ------
Total interest expense............. $ 8.6 $(7.2) $ 1.4 $ 19.6 $79.9 $ 99.5
====== ===== ====== ====== ===== ======
Net interest income (expense).............. $ 10.5 $ -- $ 10.5 $ 27.0 $(3.1) $ 23.9
====== ===== ====== ====== ===== ======
</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.
9
<PAGE> 11
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,
------------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Held-to-Maturity:
Mortgage-backed securities................................ $2,083.7 $2,412.8 $3,760.4
Debt securities
U.S. Government securities (including agencies)........ -- .3 .3
Corporate securities...................................... -- -- 1.5
Other..................................................... -- .1 .1
-------- -------- --------
-- .4 1.9
-------- -------- --------
Available-for-Sale:
Mortgage-backed securities................................ 643.9 949.6 137.7
Debt securities
Corporate securities................................... 3.0 1.4 --
Equity securities
Federal Home Loan Bank stock........................... 52.6 57.7 63.2
Other.................................................. .3 1.7 1.0
-------- -------- --------
52.9 59.4 64.2
-------- -------- --------
$2,783.5 $3,423.6 $3,964.2
======== ======== ========
</TABLE>
The table below sets forth the maturities of mortgage-backed and investment
securities as of December 31, 1996:
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.... $ -- -- $ -- -- $ -- -- $ -- -- $2,083.7 5.51% $2,083.7
Available-for-Sale:
Mortgage-backed securities.... -- -- -- -- -- -- -- -- 643.9 5.88% 643.9
Debt securities
Corporate securities........ -- -- -- -- 2.0 6.34% 1.0 6.79% -- -- 3.0
Equity securities
Federal Home Loan Bank
stock..................... -- -- -- -- -- -- -- -- 52.6 5.85% 52.6
Other....................... -- -- -- -- -- -- -- -- .3 -- .3
---- ---- ---- ---- -------- --------
-- -- -- -- -- -- -- 52.9 52.9
---- ---- ---- ---- -------- --------
$ -- $ -- $2.0 $1.0 $2,780.5 $2,783.5
==== ==== ==== ==== ======== ========
</TABLE>
10
<PAGE> 12
The following table shows the loan distribution for Financial Services:
TYPES OF LOANS
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- --------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Real estate mortgage................... $4,198.5 $3,720.0 $3,137.5 $2,302.9 $1,153.3
Construction and development........... 2,152.4 1,500.6 1,022.6 643.7 274.6
Commercial and business................ 658.8 406.3 229.0 80.7 25.4
Consumer and other..................... 467.2 416.0 366.0 404.1 271.1
-------- -------- -------- -------- --------
7,476.9 6,042.9 4,755.1 3,431.4 1,724.4
Less:
Unfunded portion of loans............ 2,002.8 1,211.8 1,027.7 614.0 320.6
Unearned discounts................... -- -- .6 3.0 9.3
Unamortized purchase discounts....... (11.8) (1.8) (5.1) 8.9 28.1
Net deferred fees.................... 3.6 3.0 3.2 2.2 2.3
Allowance for loan losses............ 68.4 65.5 53.9 47.9 20.8
-------- -------- -------- -------- --------
2,063.0 1,278.5 1,080.3 676.0 381.1
-------- -------- -------- -------- --------
$5,413.9 $4,764.4 $3,674.8 $2,755.4 $1,343.3
======== ======== ======== ======== ========
</TABLE>
The table below presents the maturity distribution of loans (excluding real
estate mortgage and consumer loans) outstanding at December 31, 1996, 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 1 TO 5 AFTER 5
YEAR YEARS YEARS TOTAL
-------- -------- ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Construction and development........................... $1,354.5 $ 797.9 $ -- $2,152.4
Commercial and business................................ 318.4 334.3 6.1 658.8
-------- -------- ---- --------
$1,672.9 $1,132.2 $6.1 $2,811.2
======== ======== ==== ========
Loans maturing after 1 year with:
Variable interest rates.............................. $1,132.2 $6.1
======== ====
</TABLE>
Loans accounted for on a nonaccrual basis, accruing loans that are
contractually past due 90 days or more, and restructured or other potential
problem loans were less than two percent of total loans during 1996, 1995, 1994,
1993, and 1992. The aggregate amounts and the interest income foregone on such
loans, therefore, are immaterial and are not disclosed.
11
<PAGE> 13
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,
---------------------------------------------
1996 1995 1994 1993 1992
------ ----- ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................... $ 65.5 $53.9 $ 47.9 $20.8 $19.5
Charge-offs:
Real estate mortgages........................ (5.8) (3.9) (4.4)(a) (.7) (1.8)
Construction and development................. (.1) -- -- -- --
Commercial and business...................... (2.9) (.7) (1.1) -- --
Consumer and other........................... (4.4) (5.0) (4.7)(a) (1.8) (1.9)
------ ----- ------ ----- -----
(13.2) (9.6) (10.2) (2.5) (3.7)
Recoveries:
Real estate mortgages........................ 2.1 1.1 .6 .2 .2
Commercial and business...................... -- .5 .1 -- --
Consumer and other........................... .9 .8 1.4 .6 .8
------ ----- ------ ----- -----
3.0 2.4 2.1 .8 1.0
------ ----- ------ ----- -----
Net charge-offs........................... (10.2) (7.2) (8.1)(a) (1.7) (2.7)
Additions charged to operations................ 13.8 14.6 6.5 4.8 2.6
Additions related to bulk purchases of loans,
net of adjustments........................... (.7) 4.2 7.6 24.0(a) 1.4
------ ----- ------ ----- -----
Balance at end of year......................... $ 68.4 $65.5 $ 53.9 $47.9 $20.8
====== ===== ====== ===== =====
Ratio of net charge-offs during the year to
average loans outstanding during the year.... .20% .16% .27% .10% .22%
====== ===== ====== ===== =====
</TABLE>
- ---------------
(a) Principally related to the loan portfolio from the acquisition of American
Federal Bank, F.S.B.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES*
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
1996 1995 1994 1993
---------------------- ---------------------- ---------------------- ---------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT LOANS TO AMOUNT LOANS TO AMOUNT LOANS TO AMOUNT
OF TOTAL OF TOTAL OF TOTAL OF
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE
--------- ---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage...... $59.6 56% $57.9 61% $46.1 66% $39.4
Construction and
development............. 1.9 29% 1.7 25% 1.4 21% 1.0
Commercial and business... 2.5 9% 1.0 7% 1.5 5% 1.1
Consumer and other........ 4.4 6% 4.9 7% 4.9 8% 6.4
----- ---- ----- ---- ----- ---- -----
$68.4 100% $65.5 100% $53.9 100% $47.9
===== ==== ===== ==== ===== ==== =====
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992
---------- ----------------------
PERCENT OF PERCENT OF
LOANS TO AMOUNT LOANS TO
TOTAL OF TOTAL
LOANS ALLOWANCE LOANS
---------- --------- ----------
<S> <C> <C> <C>
Real estate mortgage...... 67% $16.3 67%
Construction and
development............. 19% .5..... 16%
Commercial and business... 2% -- 1%
Consumer and other........ 12% 4.0.... 16%
---- ----- ----
100% 20$.8... 100%
==== ===== ====
</TABLE>
- ---------------
* Reclassified to conform to 1996 presentation.
12
<PAGE> 14
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, 1996, are disclosed in Note F to Financial Services Group
Summarized Financial Statements on page 47 of the Company's 1996 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,
---------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Return on average assets............................... .41%* .75% .44%
Return on average equity............................... 6.43%* 11.79% 7.41%
Dividend payout ratio.................................. 128.96%* 70.66% 73.22%
Equity to assets ratio................................. 6.32% 6.35% 5.99%
</TABLE>
- ---------------
* Includes SAIF assessment of $43.9 million. If the SAIF assessment is excluded
from 1996, the operating and capital ratios for 1996 would have been .74%,
11.63%, and 70.48% for return on average assets, return on average equity, and
dividend payout ratio, respectively.
Short-term borrowings. The following table shows short-term borrowings
outstanding for Financial Services 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
SECURITIES SOLD UNDER END OF INTEREST DURING THE DURING THE DURING THE
AGREEMENTS TO REPURCHASE PERIOD RATE PERIOD PERIOD PERIOD
------------------------ ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1996......................... $1,936.9 5.5% $2,359.8 $2,044.2 5.5%
1995......................... $1,603.7 5.8% $1,914.1 $1,719.2 5.9%
1994......................... $1,365.2 6.1% $2,300.2 $1,598.0 4.1%
</TABLE>
Note: Securities sold under agreements to repurchase generally mature within
thirty days of the transaction date. Average borrowings during the year
were calculated based on daily average.
13
<PAGE> 15
RAW MATERIALS
The Company's main resource is timber, with approximately 2.2 million acres
of timberland located in Texas, Louisiana, Alabama, and Georgia. In 1996, wood
fiber required for the Company's paper and wood products operations was produced
from these lands and as a by-product of its solid wood operations to the extent
shown on the following chart:
WOOD FIBER REQUIREMENTS
<TABLE>
<CAPTION>
PERCENTAGE
SUPPLIED
RAW MATERIALS INTERNALLY
------------- ----------
<S> <C>
Sawtimber................................................... 58.6%
Pine Pulpwood............................................... 56.0%
Hardwood Pulpwood........................................... 26.2%
</TABLE>
The balance of the wood fiber required for these operations was purchased
from numerous landowners and other lumber companies. In an effort to meet its
projected need for hardwood fiber, the Company operates a eucalyptus plantation
in Mexico. The Company expects to begin receiving fiber from this project in
four to six years. During 1996, the bleached paperboard mill in Evadale, Texas,
purchased small amounts of recycled pulp. Now that the expansion program is
completed, this mill may purchase increasing amounts of recycled fiber.
Linerboard and corrugating medium are the principal materials used by
Inland to make corrugated boxes. The mills at Rome, Georgia, and Orange, Texas,
are solely linerboard mills. The Ontario, California, and Maysville, Kentucky,
mills are traditionally linerboard mills, but can be used to manufacture
corrugating medium. The Newport, Indiana, Newark, California, and New
Johnsonville, Tennessee, mills are solely corrugating medium mills. The
principal raw material used by the Rome, Georgia, and Orange, Texas, mills is
virgin fiber. The Ontario, California; Newark, California; Newport, Indiana; and
Maysville, Kentucky, mills use only old corrugated containers ("OCC"). The mill
at New Johnsonville, Tennessee, uses a combination of virgin fiber and OCC. In
1996, OCC represented approximately 43% of the total fiber needs of the
Company's containerboard operations. The price of OCC may exhibit volatility due
to normal supply and demand fluctuations for the raw material and for the
finished product. OCC is purchased by the Company and its competitors on the
open market from numerous suppliers. Price fluctuations reflect the
competitiveness of these markets. The Company's historical grade patterns
produce more linerboard and less corrugating medium than is converted at the
Company's box plants. The deficit of corrugating medium is obtained through open
market purchases and/or trades and the excess linerboard is sold in the open
market.
Temple-Inland FPC obtains the gypsum for its wallboard operations from its
own quarry near Fletcher, Oklahoma, and from one outside source through a
long-term purchase contract.
In the opinion of management, the sources outlined above will be sufficient
to supply the Company's raw material needs for the foreseeable future.
ENERGY
Energy requirements at the 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 13 percent of its energy requirements at its
mills in Rome, Georgia, and Orange, Texas, and Temple-Inland FPC generated
approximately 48 percent of its energy requirements during 1996. 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 Company's facilities 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 28, 1996, the Company and its subsidiaries had approximately
15,600 employees. Approximately 5,200 of these employees are covered by
collective bargaining agreements. These agreements generally run for a term of
three to six 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 DATES
-------- ------------------ ----------------- ----------------
<S> <C> <C> <C>
Bleached Paperboard Mill, United Paperworkers 520 Hourly Production August 1, 1998
Evadale, Texas International Union Employees, 209 Hourly
("UPIU"), Local 801, UPIU, Mechanical Maintenance
Local 825, and International Employees and 77 Electrical
Brothers of Electrical Maintenance Employees
Workers ("IBEW"), Local 390
Linerboard Mill, UPIU, Local 1398, and UPIU, 236 Hourly Production July 31, 1999
Orange, Texas Local 391 Employees and 104 Hourly
Maintenance Employees
Linerboard Mill, UPIU, Local 804, IBEW, Local 340 Hourly Production August 28, 2000
Rome, Georgia 613, United Association of Employees, 39 Electrical
Journeymen & Apprentices of Maintenance Employees and 141
the Plumbing & Pipefitting Hourly Maintenance Employees
Industry of the U.S. and
Canada, Local 766, and
International Association of
Machinists & Aerospace
Workers, Local 414
Evansville, Indiana, Louisville, UPIU, Local 1046, UPIU, 114 Hourly Production August 30, 2002
Kentucky, Middletown, Ohio, and Local 1737, UPIU, Local 114, Employees, 99 Hourly
Erie, Pennsylvania, Box Plants and UPIU, Local 954, Production Employees, 106
("Northern Multiple") respectively Hourly Production Employees,
and 82 Hourly Production
Employees, respectively
Rome, Georgia and Orlando, Florida, UPIU, Local 838 and UPIU, 162 and 112 Hourly Production December 1, 2003
Box Plants ("Southern Multiple") 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 $12 million
during 1996. 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.
15
<PAGE> 17
The Company is committed to protecting the health and welfare of its
employees, the public, and the environment and strives to maintain compliance
with all state and federal environmental regulations in a manner that is also
cost effective. In the construction of new facilities and the modernization of
existing facilities, such as the modernization at the mill in Evadale, Texas,
the Company has used state of the art technology for its air and water
emissions. These forward-looking programs are intended to minimize the impact
that changing regulations have on capital expenditures for environmental
compliance.
Future expenditures for environmental control facilities will depend on new
laws and regulations and other changes in legal requirements and agency
interpretations thereof, as well as technological advances. The Company expects
the trend toward more stringent environmental regulation to continue for the
foreseeable future. The trend in interpretation and application of existing
regulations by regulatory authorities also appears to be toward increasing
stringency particularly under RCRA with respect to certain solid wastes
generated at kraft mills. Given these uncertainties, the Company currently
estimates that capital expenditures for environmental purposes during the period
1997 through 1999 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. 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 almost 1,500
box plants in the United States. Box plants operated by Inland and its
subsidiaries accounted for approximately 8.3 percent of total industry shipments
during 1996. 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
Bleached paperboard produced by the Paper 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 Group competes
with many companies that are substantially larger and have greater resources in
the manufacturing of commodity building materials.
Financial Services competes with commercial banks, savings and loan
associations, mortgage bankers, and other lenders in its mortgage banking and
consumer savings bank activities, and with real estate investment and management
companies in its development activities. Mortgage banking, real estate
development, and consumer savings banks are highly competitive businesses, and a
number of entities with which the Company competes have greater resources.
EXECUTIVE OFFICERS
Set forth below are the names, ages, and titles of the persons who serve as
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE
---- --- ------
<S> <C> <C>
Clifford J. Grum................... 62 Chairman of the Board and Chief Executive
Officer
William B. Howes................... 59 Executive Vice President
Kenneth M. Jastrow, II............. 49 Group Vice President and Chief Financial
Officer
Harold C. Maxwell.................. 56 Group Vice President
Ted A. Owens....................... 58 Group Vice President
Jack C. Sweeny..................... 50 Group Vice President
Joseph E. Turk..................... 53 Group Vice President
David H. Dolben.................... 61 Vice President and Chief Accounting Officer
M. Richard Warner.................. 45 Vice President, General Counsel, and Secretary
David W. Turpin.................... 46 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 of the Board of Guaranty, and a Director of
Financial Services.
William B. Howes, who was named Executive Vice President and a Director in
August 1996, 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.
Kenneth M. Jastrow, II became a Group Vice President of the Company in 1995
and the Chief Financial Officer of the Company in November 1991. He also serves
as Chairman of the Board and Chief Executive Officer of Financial Services,
President and Chief Executive Officer of Guaranty, and Chairman of the Board and
Chief Executive Officer of Temple-Inland Mortgage.
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.
Ted A. Owens became a Group Vice President of the Company in August 1996.
He also serves as Executive Vice President of Inland. Mr. Owens has been
employed by Inland since 1976. During that time he has served in various
positions, including Group Vice President -- Containerboard, and Vice President
Sales, Administration, and Engineering.
17
<PAGE> 19
Jack C. Sweeny became a Group Vice President of the Company in May 1996. He
also serves as Group Vice President -- Forests Division of Temple-Inland FPC.
From November 1982 through May 1996, Mr. Sweeny served as Vice
President -- Operations of the Building Products Division of Temple-Inland FPC.
Joseph E. Turk became a Group Vice President of the Company in August 1996.
He also serves as Executive Vice President of Inland. Mr. Turk has been employed
by Inland since 1967 and has served in various capacities including Group Vice
President -- Container Division and Division Vice President Manufacturing
Services.
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.
M. Richard Warner became Vice President, General Counsel and Secretary of
the Company in June 1994. From 1991 to 1994, Mr. Warner was an attorney in
private practice in Lufkin, Texas. Mr. Warner served as Treasurer of the Company
from January 1986 to 1990 and as Vice Chairman of Guaranty from 1990 to 1991.
David W. Turpin became Treasurer of the Company in June 1991. Mr. Turpin
also serves as the Executive Vice President and Chief Financial Officer of
Lumbermen's Investment Corporation, a real estate subsidiary of the Company. Mr.
Turpin was first employed by the Company in December 1990 as the Senior Vice
President and Treasurer of Lumbermen's Investment Corporation.
Officers are elected at the Company's Annual Meeting of Directors to serve
until their successors have been elected and have qualified or as otherwise
provided in the Company's Bylaws.
ITEM 2. PROPERTIES
The Company owns and operates plants, mills, and manufacturing facilities
throughout the United States, three box plants in Mexico, and box plants in
Argentina, Chile, and Puerto Rico. Additional descriptions as of year-end of
selected properties are set forth in the following charts:
CONTAINERBOARD MILLS
<TABLE>
<CAPTION>
RATED
NO. OF ANNUAL 1996*
LOCATION PRODUCT MACHINES CAPACITY PRODUCTION
-------- ---------- -------- -------- ----------
(IN TONS)
<S> <C> <C> <C> <C>
Ontario, California................................. Linerboard 1 300,000 273,000
Rome, Georgia....................................... Linerboard 2 820,000 790,000
Orange, Texas....................................... Linerboard 2 645,000 621,000
Maysville, Kentucky................................. Linerboard 1 350,000 324,000
Newark, California.................................. Medium 2 70,000 64,000
Newport, Indiana.................................... Medium 1 280,000 257,000
New Johnsonville, Tennessee......................... Medium 1 255,000 248,000
</TABLE>
- ---------------
* Production during the first half of 1996 was curtailed due to economic
conditions in the industry.
18
<PAGE> 20
BLEACHED PAPERBOARD MILL
<TABLE>
<CAPTION>
RATED
NO. OF ANNUAL 1996
LOCATION PRODUCT MIX MACHINES CAPACITY PRODUCTION
-------- --------------- -------- -------- ----------
(IN TONS)
<S> <C> <C> <C> <C> <C>
Evadale, Texas........................... Bleached Pulp 3% 4 725,000 19,099
Food Service 40% 253,055
Packaging 29% 183,465
Office Supplies 18% 113,875
Specialties 5% 33,514
Nodular Pulp 5% 29,630
---- ------- -------
100% 4 725,000* 632,638
==== ======= =======
</TABLE>
- ---------------
* Such capacity may vary to some degree depending on product mix. Due to market
conditions for the grade it was designed to produce, the Company has decided
to no longer operate a cylinder machine at the mill.
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
Farmersville, Louisiana(1).................................. 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) These facilities are owned by the Company. The other converting plants are
leased.
Additionally, Food Service rents, from time to time, warehouse space near
its converting plants primarily to store finished products awaiting shipment.
19
<PAGE> 21
CORRUGATED CONTAINER PLANTS*
<TABLE>
<CAPTION>
DATE
CORRUGATOR ACQUIRED OR
LOCATION SIZE CONSTRUCTED
-------- ---------- -----------
<S> <C> <C>
Fort Smith, Arkansas........................................ 87" 1978
Fort Smith, Arkansas(1)***.................................. None 1996
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................................ 98" 1972
Santa Fe Springs, California(1)**........................... 87" 1990
Santa Fe Springs, California***............................. None 1990
Tracy, California**......................................... 87" 1986
Wheat Ridge, Colorado....................................... 87" 1977
Orlando, Florida............................................ 98" 1955
Rome, Georgia**............................................. 87" & 98" 1955
Chicago, Illinois........................................... 87" 1957
Crawfordsville, Indiana..................................... 98" 1971
Evansville, Indiana......................................... 98" 1958
Indianapolis, Indiana....................................... 87" 1990
Garden City, Kansas......................................... 96" 1981
Kansas City, Kansas......................................... 87" 1981
Louisville, Kentucky........................................ 87" 1958
Minden, Louisiana........................................... 98" 1986
Minneapolis, Minnesota...................................... 87" 1986
Hattiesburg, Mississippi.................................... 87" 1965
St. Louis, Missouri......................................... 87" 1963
Spotswood, New Jersey....................................... 87" 1963
Middletown, Ohio............................................ 98" 1930
Biglerville, Pennsylvania................................... 98" 1955
Erie, Pennsylvania(2)....................................... 85" 1952
Hazleton, Pennsylvania...................................... 98" 1976
Vega Alta, Puerto Rico...................................... 87" 1977
Lexington, South Carolina................................... 98" 1980
Rock Hill, South Carolina................................... 87" 1972
Elizabethton, Tennessee..................................... 98" 1982
Elizabethton, Tennessee(1)***............................... None 1990
Dallas, Texas............................................... 98" 1962
Edinburg, Texas............................................. 87" 1989
Petersburg, Virginia........................................ 87" 1991
San Jose Iturbide, Mexico................................... 87" 1994
Monterrey, Mexico........................................... 87" 1994
Los Mochis, Sinaloa, Mexico***.............................. None 1995
Buenos Aires, Argentina..................................... 98" 1994
Santiago, Chile............................................. 87" 1995
</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) In February 1997, the Company announced its intention to close this box
plant by the end of 1997.
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 50 warehouses located throughout much of
the United States. Inland owns a specialty converting plant in Harrington,
Delaware, and leases specialty converting plants in Ontario, California,
Leominster, Massachusetts, and Rural Hall, North Carolina.
BUILDING PRODUCTS
<TABLE>
<CAPTION>
RATED
ANNUAL
DESCRIPTION LOCATION CAPACITY
----------- -------- ----------------
(IN MILLIONS OF
BOARD FEET)
<S> <C> <C>
Lumber................................................ Diboll, Texas 150*
Lumber................................................ Pineland, Texas 95
Lumber................................................ Buna, Texas 170
Lumber................................................ Rome, Georgia 115
Lumber................................................ DeQuincy, Louisiana 145
</TABLE>
- ---------------
* Includes separate finger jointing capacity of 10 million board feet.
<TABLE>
<CAPTION>
RATED
ANNUAL
DESCRIPTION LOCATION CAPACITY
----------- -------- ----------------
(IN MILLIONS OF
SQUARE FEET)
<S> <C> <C>
Fiberboard............................................ Diboll, Texas 460
Particleboard......................................... Monroeville, Alabama 125
Particleboard......................................... Thomson, Georgia 120
Particleboard......................................... Diboll, Texas 120
Particleboard......................................... Hope, Arkansas 170
Plywood............................................... Pineland, Texas 265
Gypsum Wallboard...................................... West Memphis, Arkansas 400
Gypsum Wallboard...................................... Fletcher, Oklahoma 440
</TABLE>
TIMBER AND TIMBERLANDS*
(IN ACRES)
<TABLE>
<S> <C>
Pine Plantations............................................ 1,519,188
Natural Pine................................................ 317,469
Hardwood.................................................... 234,605
Special Use / Non-Forested.................................. 98,755
---------
TOTAL............................................. 2,170,017
=========
</TABLE>
- ---------------
* Includes approximately 243,000 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, approximately 130,000 square feet in
Indianapolis, Indiana, and 270,000 square feet of office space in Austin, Texas.
The Company also owns 361,000 mineral acres in Texas and Louisiana. Revenue
from lease and production activities on these acres totaled $8.3 million in
1996. Additionally, the Company owns 395,830 mineral acres in Alabama and
Georgia, which produced no lease or production revenue in 1996.
21
<PAGE> 23
At year end 1996, property and equipment having a net book value of
approximately $54.3 million were subject to liens in connection with $72.5
million of debt.
ITEM 3. LEGAL PROCEEDINGS
General:
The Company and its subsidiaries are involved in various legal proceedings
that have arisen from time to time in the ordinary course of business. In the
opinion of the Company's management, such proceedings will not be material to
the business or financial condition of the Company and its subsidiaries.
Environmental:
The facilities of the Company are periodically inspected by environmental
authorities and must file periodic reports on the discharge of pollutants with
these authorities. Occasionally, one or more of these facilities have operated
in violation of applicable pollution control standards, which could subject the
facilities to fines or penalties in the future. Management believes that any
fines or penalties that may be imposed as a result of these violations will not
have a material adverse effect on the Company's earnings or competitive
position. The Company, however, has noticed an increase in the number and dollar
amount of fines and penalties imposed by environmental authorities. No assurance
can be given, therefore, that any fines levied against the Company in the future
for any such violations will not be material.
Subsidiaries of the Company are involved in regulatory enforcement actions
concerning the management of solid wastes at various facilities. These
proceedings are 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. Management believes, however, that these matters will not result in
liability to an extent that would have a material adverse effect on the business
or financial condition of the Company.
Under CERCLA, liability for the cleanup of a Superfund site may be imposed
on waste generators, site owners and operators, and others regardless of fault
or the legality of the original waste disposal activity. While joint and several
liability is authorized under CERCLA, as a practical matter, the cost of cleanup
is generally allocated among the many waste generators. Subsidiaries of the
Company are parties to numerous proceedings relating to the cleanup of hazardous
waste sites under CERCLA and similar state laws. The subsidiaries have conducted
investigations of the sites and in certain instances believe that there is no
basis for liability and have so informed the governmental entities. The internal
investigations of the remaining sites reveal that the portion of the remediation
costs for these sites to be allocated to the Company should be relatively small
and will have no material impact on the Company. There can be no assurance that
subsidiaries of the Company will not be 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.
All litigation has an element of uncertainty and the final outcome of any
legal proceeding cannot be predicted with any degree of certainty. With these
limitations in mind, the Company presently believes that any ultimate liability
from the legal proceedings discussed herein would not have a material adverse
effect on the business or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its shareholders during
the fourth quarter of its last fiscal year.
22
<PAGE> 24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information:
The information concerning market prices of the Company's Common Stock
required by this item is incorporated by reference from page 34 of the Company's
1996 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 7, 1997,
there were approximately 7,250 holders of record of the Common Stock.
Dividend Policy:
On February 7, 1997, the Board of Directors declared a quarterly dividend
on the Common Stock of $.32 per share payable on March 14, 1997, to shareholders
of record on February 28, 1997. During the first three quarters of 1994, the
Company paid a quarterly dividend of $.25 per share. The quarterly dividend was
increased to $.27 per share beginning with the dividend payable December 15,
1994, was again increased to $.30 per share beginning with the dividend payable
September 15, 1995, and was increased again to $.32 per share beginning with the
dividend payable September 13, 1996. The Board will review its dividend policy
periodically, and the declaration of dividends will necessarily depend upon
earnings and financial requirements of the Company and other factors within the
discretion of its Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated by reference from
page 34 of the Company's 1996 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 33 of the Company's 1996 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.
23
<PAGE> 25
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
pages 10 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 3 and 4 of the Company's Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
pages 7 and 8 of the Company's Definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Report.
1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER
---- ------
<S> <C>
Temple-Inland Inc. and Subsidiaries
Report of Independent Auditors*........................ 61
Consolidated Statements of Income -- three years ended
December 28, 1996*.................................... 50
Consolidating Balance Sheets at December 28, 1996, and
December 30, 1995*.................................... 52-53
Consolidated Statements of Shareholders' Equity -- three
years ended December 28, 1996*........................ 54
Consolidated Statements of Cash Flows -- three years
ended December 28, 1996*.............................. 51
Notes to Consolidated Financial Statements*............ 55-60
</TABLE>
- ---------------
* Incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended December 28, 1996, and filed for
purposes of those portions so incorporated as Exhibit 13. Page numbers refer
to page numbers in the Company's 1996 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 28, 1996, is filed herewith at the page indicated.
<TABLE>
<CAPTION>
PAGE
ITEM NUMBER
---- ------
<S> <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)
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
4.01 -- Form of Specimen Common Stock Certificate of the
Company(4)
4.02 -- Indenture dated as of September 1, 1986, between the
Registrant and Chemical Bank, as Trustee(5), as amended
by First Supplemental Indenture dated as of April 15,
1988, as amended by Second Supplemental Indenture dated
as of December 27, 1990(12), and as amended by Third
Supplemental Indenture dated as of May 9, 1991(13)
4.03 -- Form of Specimen Medium-Term Note of the Company(5)
4.04 -- Form of Fixed-rate Medium Term Note, Series B, of the
Company(12)
4.05 -- Form of Floating-rate Medium Term Note, Series B, of the
Company(12)
4.06 -- Form of 9% Note due May 1, 2001, of the Company(15)
4.07 -- Form of Fixed-rate Medium Term Note, Series D, of the
Company(14)
4.08 -- Form of Floating-rate Medium Term Note, Series D, of the
Company(14)
4.09 -- Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, dated
February 16, 1989(6)
4.10 -- Rights Agreement, dated February 3, 1989, between the
Company and NCNB Texas National Bank, Dallas, Texas, as
Rights Agent(7)
4.11 -- Form of 7.25% Note due September 15, 2004, of the
Company(16)
4.12 -- Form of 8.25% Debenture due September 15, 2022, of the
Company(16)
10.01* -- 1988 Stock Option Plan for Key Employees and Directors of
Temple-Inland Inc. and its Subsidiaries(8)
10.02* -- Form of Incentive Option Agreement under the 1988 Stock
Option Plan(8)
10.03* -- Form of Nonqualified Option Agreement under the 1988
Stock Option Plan(8)
10.04* -- Temple-Inland Inc. Incentive Stock Plan(1), as amended
May 6, 1988(9), as amended February 7, 1992(18)
10.05* -- Form of Incentive Shares Agreement(10)
10.06* -- 1988 Performance Unit Plan for Key Employees of
Temple-Inland Inc. and its Subsidiaries(9), as amended
February 4, 1994(20)
10.07* -- Form of Performance Unit Rights Agreement under the
Performance Unit Plan(6)
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)
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
10.14 -- Second Amendment to Stock Purchase Agreement and
Agreement and Plan of Reorganization by and among
Guaranty, GHI, LST and LSST Financial, dated as of August
31, 1993(19)
10.15 -- Third Amendment to Stock Purchase Agreement and Agreement
and Plan of Reorganization by and among Guaranty, GHI,
LST and LSST Financial, dated as of September 30,
1993(19)
10.16 -- Holdback Escrow Agreement by and among LST, Guaranty, and
Bank One, Texas, N.A. dated as of November 12, 1993(19)
10.17 -- Termination Agreement by and among Federal Deposit
Insurance Corporation, as Manager of the FSLIC Resolution
Fund, Guaranty Federal Bank, F.S.B., Guaranty Holdings
Inc. I, and Temple-Inland Inc., dated as of October 31,
1995(21)
10.18 -- GFB Tax Agreement by and among Federal Deposit Insurance
Corporation, as Manager of the FSLIC Resolution Fund,
Guaranty Federal Bank, F.S.B., Guaranty Holdings Inc. I,
and Temple-Inland Inc., dated as of October 31, 1995(21)
10.19 -- Termination Agreement by and among Federal Deposit
Insurance Corporation, as Manager of the FSLIC Resolution
Fund, Guaranty Federal Bank, F.S.B., the surviving
institution resulting from the merger of American Federal
Bank, F.S.B. with and into Guaranty, which subsequently
became the successor-in-interest to LSST Financial
Services Corporation, Guaranty Holdings Inc. I, and
Temple-Inland Inc., dated as of October 31, 1995(21)
10.20 -- AFB Tax Agreement by and among Federal Deposit Insurance
Corporation, as Manager of the FSLIC Resolution Fund,
Guaranty Federal Bank, F.S.B., the surviving institution
resulting from the merger of American Federal Bank,
F.S.B. with and into Guaranty, which subsequently became
the successor-in-interest to LSST Financial Services
Corporation, Guaranty Holdings Inc. I, and Temple-Inland
Inc., dated as of October 31, 1995(21)
10.21 -- Agreement and Plan of Merger by and among Temple-Inland
Inc., California Financial Holding Company, Guaranty
Federal Bank, F.S.B., and Stockton Savings Bank, F.S.B.,
dated as of December 8, 1996(22)
10.22* -- Temple-Inland Inc. 1997 Stock Option Plan(23)
10.23* -- Temple-Inland Inc. 1997 Restricted Stock Plan(23)
11 -- Statement re: Computation of Per Share Earnings for the
three years ended December 28, 1996(24)
13 -- Annual Report to Shareholders for the year ended December
28, 1996. 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.(24)
21 -- Subsidiaries of the Company(24)
23 -- Consent of Ernst & Young LLP(24)
27 -- Financial Data Schedule(24)
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to Registration Statement No. 2-87570 on Form S-1
filed by the Company with the Commission.
26
<PAGE> 28
(2) Incorporated by reference to Post-effective Amendment No. 2 to Registration
Statement No. 2-88202 on Form S-1 filed by the Company with the Commission.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-25650 on Form S-8 filed by the Company with the
Commission.
(4) Incorporated by reference to Registration Statement No. 33-27286 on Form
S-8 filed by the Company with the Commission.
(5) Incorporated by reference to Registration Statement No. 33-8362 on Form S-1
filed by the Company with the Commission.
(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1988.
(7) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 16, 1989.
(8) Incorporated by reference to Registration Statement No. 33-23132 on Form
S-8 filed by the Company with the Commission.
(9) Incorporated by reference to the Company's Definitive Proxy Statement filed
with the Commission on March 18, 1988.
(10) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1983.
(11) Incorporated by reference to the Company's Form 8-K filed with the
Commission on October 14, 1988.
(12) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 27, 1990.
(13) Incorporated by reference to Registration Statement No. 33-40003 on Form
S-3 filed by the Company with the Commission.
(14) Incorporated by reference to Registration Statement No. 33-43978 on Form
S-3 filed by the Company with the Commission.
(15) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 2, 1991.
(16) Incorporated by reference to Registration Statement No. 33-50880 on Form
S-3 filed by the Company with the Commission.
(17) Incorporated by reference to the Company's Definitive Proxy Statement in
connection with the Annual Meeting of Shareholders to be held May 6, 1994,
and filed with the Commission on March 21, 1994.
(18) Incorporated by reference to the Company's Form 10-K for the year ended
January 2, 1993.
(19) Incorporated by reference to the Company's Form 8-K filed with the
Commission on November 24, 1993.
(20) Incorporated by reference to the Company's Form 10-K for the year ended
January 1, 1994.
(21) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(22) Incorporated by reference to Registration Statement on Form S-4 (No.
333-21937) filed by the Company with the Commission.
(23) Incorporated by reference to the Company's Definitive Proxy Statement in
connection with the Annual Meeting of Shareholders to be held May 2, 1997,
and filed with the Commission on March 17, 1997.
(24) Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter of 1996.
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 17,
1997.
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
--------- -------- ----
<C> <S> <C>
/s/ CLIFFORD J. GRUM Director, Chairman of the March 17, 1997
- ----------------------------------------------------- Board, and Chief Executive
Clifford J. Grum Officer
/s/ KENNETH M. JASTROW, II Group Vice President and Chief March 17, 1997
- ----------------------------------------------------- Financial Officer
Kenneth M. Jastrow, II
/s/ DAVID H. DOLBEN Vice President and Chief March 17, 1997
- ----------------------------------------------------- Accounting Officer
David H. Dolben
/s/ PAUL M. ANDERSON Director March 17, 1997
- -----------------------------------------------------
Paul M. Anderson
/s/ ROBERT CIZIK Director March 17, 1997
- -----------------------------------------------------
Robert Cizik
/s/ ANTHONY M. FRANK Director March 17, 1997
- -----------------------------------------------------
Anthony M. Frank
/s/ WILLIAM B. HOWES Director March 17, 1997
- -----------------------------------------------------
William B. Howes
/s/ BOBBY R. INMAN Director March 17, 1997
- -----------------------------------------------------
Bobby R. Inman
/s/ HERBERT A. SKLENAR Director March 17, 1997
- -----------------------------------------------------
Herbert A. Sklenar
/s/ WALTER P. STERN Director March 17, 1997
- -----------------------------------------------------
Walter P. Stern
/s/ ARTHUR TEMPLE III Director March 17, 1997
- -----------------------------------------------------
Arthur Temple III
/s/ CHARLOTTE TEMPLE Director March 17, 1997
- -----------------------------------------------------
Charlotte Temple
/s/ LARRY E. TEMPLE Director March 17, 1997
- -----------------------------------------------------
Larry E. Temple
</TABLE>
28
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Temple-Inland Inc.
as of December 28, 1996 and December 30, 1995, and for each of the three years
in the period ended December 28, 1996, and have issued our report thereon dated
January 31, 1997 which is incorporated by reference in this Annual Report (Form
10-K) from the 1996 Annual Report to Shareholders of Temple-Inland Inc. Our
audits also included the financial statement schedule listed in Item 14(a) of
this Form 10-K. This schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Houston, Texas
January 31, 1997
29
<PAGE> 31
SCHEDULE II
TEMPLE-INLAND INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE CHARGED CHARGED BALANCE
AT TO TO OTHER AT END
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- OF
OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
---------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 28, 1996:
Deducted from accounts receivable:
Allowance for doubtful accounts....................... $ 8.3 $ 3.1 $ -- $ 2.0(A) $ 9.4
Reserve for discounts and allowances.................. 1.5 -- 7.0(B) 7.1(C) 1.4
Allowance for loan losses............................. 65.5 13.8 -- 10.9(A) 68.4
Allowance for unrealized (gains)/losses on
available-for-sale securities....................... (1.7) -- 13.9(E) -- 12.2
Allowance for unrealized losses on mortgage loans held
for sale............................................ .3 -- -- .3(A) --
----- ----- ----- ----- -----
Totals............................................ $73.9 $16.9 $20.9 $20.3 $91.4
===== ===== ===== ===== =====
Year ended December 30, 1995:
Deducted from accounts receivable:
Allowance for doubtful accounts....................... $ 8.4 $ 1.9 $ -- $ 2.0(A) $ 8.3
Reserve for discounts and allowances.................. .7 -- 7.9(B) 7.1(C) 1.5
Allowance for loan losses............................. 53.9 14.6 4.2(D) 7.2(A) 65.5
Allowance for unrealized (gains)/losses on
available-for-sale securities....................... .7 (.7) (1.7)(E) -- (1.7)
Allowance for unrealized losses on mortgage loans held
for sale............................................ .8 -- -- .5(A) .3
----- ----- ----- ----- -----
Totals............................................ $64.5 $15.8 $10.4 $16.8 $73.9
===== ===== ===== ===== =====
Year ended December 31, 1994:
Deducted from accounts receivable:
Allowance for doubtful accounts....................... $ 7.4 $ 1.9 $ -- $ .9(A) $ 8.4
Reserve for discounts and allowances.................. 1.0 2.7 5.1(B) 8.1(C) .7
Allowance for loan losses............................. 47.9 6.5 7.6(D) 8.1(A) 53.9
Allowance for unrealized losses on available-for-sale
securities.......................................... -- .7 -- -- .7
Allowance for unrealized losses on mortgage loans held
for sale............................................ 1.6 (.3) -- .5(A) .8
----- ----- ----- ----- -----
Totals............................................ $57.9 $11.5 $12.7 $17.6 $64.5
===== ===== ===== ===== =====
</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.
(E) Unrealized (gains)/losses.
30
<PAGE> 32
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<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)
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)
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12 -- Stock Purchase Agreement and Agreement and Plan of
Reorganization by and among Guaranty, Guaranty Holdings
Inc. I ("GHI"), Lone Star Technologies, Inc. ("LST"), and
LSST Financial Services Corporation ("LSST Financial"),
dated as of February 16, 1993(19)
10.13 -- First Amendment to Stock Purchase agreement and Agreement
and Plan of Reorganization by and among Guaranty, GHI,
LST and LSST Financial, dated as of April 2, 1993(19)
10.14 -- Second Amendment to Stock Purchase Agreement and
Agreement and Plan of Reorganization by and among
Guaranty, GHI, LST and LSST Financial, dated as of August
31, 1993(19)
10.15 -- Third Amendment to Stock Purchase Agreement and Agreement
and Plan of Reorganization by and among Guaranty, GHI,
LST and LSST Financial, dated as of September 30,
1993(19)
10.16 -- Holdback Escrow Agreement by and among LST, Guaranty, and
Bank One, Texas, N.A. dated as of November 12, 1993(19)
10.17 -- Termination Agreement by and among Federal Deposit
Insurance Corporation, as Manager of the FSLIC Resolution
Fund, Guaranty Federal Bank, F.S.B., Guaranty Holdings
Inc. I, and Temple-Inland Inc., dated as of October 31,
1995(21)
10.18 -- GFB Tax Agreement by and among Federal Deposit Insurance
Corporation, as Manager of the FSLIC Resolution Fund,
Guaranty Federal Bank, F.S.B., Guaranty Holdings Inc. I,
and Temple-Inland Inc., dated as of October 31, 1995(21)
10.19 -- Termination Agreement by and among Federal Deposit
Insurance Corporation, as Manager of the FSLIC Resolution
Fund, Guaranty Federal Bank, F.S.B., the surviving
institution resulting from the merger of American Federal
Bank, F.S.B. with and into Guaranty, which subsequently
became the successor-in-interest to LSST Financial
Services Corporation, Guaranty Holdings Inc. I, and
Temple-Inland Inc., dated as of October 31, 1995(21)
10.20 -- AFB Tax Agreement by and among Federal Deposit Insurance
Corporation, as Manager of the FSLIC Resolution Fund,
Guaranty Federal Bank, F.S.B., the surviving institution
resulting from the merger of American Federal Bank,
F.S.B. with and into Guaranty, which subsequently became
the successor-in-interest to LSST Financial Services
Corporation, Guaranty Holdings Inc. I, and Temple-Inland
Inc., dated as of October 31, 1995(21)
10.21 -- Agreement and Plan of Merger by and among Temple-Inland
Inc., California Financial Holding Company, Guaranty
Federal Bank, F.S.B., and Stockton Savings Bank, F.S.B.,
dated as of December 8, 1996(22)
10.22* -- Temple-Inland Inc. 1997 Stock Option Plan(23)
10.23* -- Temple-Inland Inc. 1997 Restricted Stock Plan(23)
11 -- Statement re: Computation of Per Share Earnings for the
three years ended December 28, 1996(24)
13 -- Annual Report to Shareholders for the year ended December
28, 1996. 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. (24)
21 -- Subsidiaries of the Company(24)
23 -- Consent of Ernst & Young LLP(24)
27 -- Financial Data Schedule(24)
</TABLE>
<PAGE> 34
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to Registration Statement No. 2-87570 on Form S-1
filed by the Company with the Commission.
(2) Incorporated by reference to Post-effective Amendment No. 2 to Registration
Statement No. 2-88202 on Form S-1 filed by the Company with the Commission.
(3) Incorporated by reference to Post-Effective Amendment No. 1 to Registration
Statement No. 33-25650 on Form S-8 filed by the Company with the
Commission.
(4) Incorporated by reference to Registration Statement No. 33-27286 on Form
S-8 filed by the Company with the Commission.
(5) Incorporated by reference to Registration Statement No. 33-8362 on Form S-1
filed by the Company with the Commission.
(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1988.
(7) Incorporated by reference to the Company's Form 8-K filed with the
Commission on February 16, 1989.
(8) Incorporated by reference to Registration Statement No. 33-23132 on Form
S-8 filed by the Company with the Commission.
(9) Incorporated by reference to the Company's Definitive Proxy Statement filed
with the Commission on March 18, 1988.
(10) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1983.
(11) Incorporated by reference to the Company's Form 8-K filed with the
Commission on October 14, 1988.
(12) Incorporated by reference to the Company's Form 8-K filed with the
Commission on December 27, 1990.
(13) Incorporated by reference to Registration Statement No. 33-40003 on Form
S-3 filed by the Company with the Commission.
(14) Incorporated by reference to Registration Statement No. 33-43978 on Form
S-3 filed by the Company with the Commission.
(15) Incorporated by reference to the Company's Form 8-K filed with the
Commission on May 2, 1991.
(16) Incorporated by reference to Registration Statement No. 33-50880 on Form
S-3 filed by the Company with the Commission.
(17) Incorporated by reference to the Company's Definitive Proxy Statement in
connection with the Annual Meeting of Shareholders to be held May 6, 1994,
and filed with the Commission on March 21, 1994.
(18) Incorporated by reference to the Company's Form 10-K for the year ended
January 2, 1993.
(19) Incorporated by reference to the Company's Form 8-K filed with the
Commission on November 24, 1993.
(20) Incorporated by reference to the Company's Form 10-K for the year ended
January 1, 1994.
(21) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995.
(22) Incorporated by reference to Registration Statement on Form S-4 (No.
333-21937) filed by the Company with the Commission.
(23) Incorporated by reference to the Company's Definitive Proxy Statement in
connection with the Annual Meeting of Shareholders to be held May 2, 1997,
and filed with the Commission on March 17, 1997.
(24) Filed herewith.
<PAGE> 1
EXHIBIT (11)
TEMPLE-INLAND INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Primary
Average common shares outstanding....................... 55.5 56.0 55.8
Net effect of dilutive stock options based on treasury
stock method using average market price............... -- .1 .1
------ ------ ------
Weighted average shares outstanding................... 55.5 56.1 55.9
====== ====== ======
Net income.............................................. $132.8 $281.0 $131.4
====== ====== ======
Earnings per share...................................... $ 2.39 $ 5.01 $ 2.35
====== ====== ======
Fully Diluted
Average common shares outstanding....................... 55.5 56.0 55.8
Net effect of dilutive stock options based on treasury
stock method using the closing market price, if higher
than average market price............................. .1 .1 .1
------ ------ ------
Weighted average shares outstanding................... 55.6 56.1 55.9
====== ====== ======
Net income.............................................. $132.8 $281.0 $131.4
====== ====== ======
Earnings per share...................................... $ 2.39 $ 5.01 $ 2.35
====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations and Financial Condition
Results of operations, including information regarding the principal business
segments, are shown below.
BUSINESS SEGMENTS(*)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Paper $2,082 $2,198 $1,740 $1,572 $1,610 $1,519 $1,517 $1,506 $1,429 $1,257 $ 987
Building products 563 533 575 497 409 311 305 320 312 323 281
Other activities -- -- 20 58 77 68 70 68 33 23 28
- --------------------------------------------------------------------------------------------------------------------------------
Manufacturing
net sales 2,645 2,731 2,335 2,127 2,096 1,898 1,892 1,894 1,774 1,603 1,296
Financial services 815 764 632 635 638 609 509(b) 49 40 39 47
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues $3,460 $3,495 $2,967 $2,762 $2,734 $2,507 $2,401 $1,943 $1,814 $1,642 $1,343
================================================================================================================================
INCOME BEFORE TAXES
Paper $ 113 $ 357 $ 74 $ 6 $ 135 $ 156 $ 250 $ 323 $ 304 $ 204 $ 68
Building products 102 67 139 102 40 5 9 24 25 37 36
Other activities -- -- 1 (2) (2) 1 (2) (1) 1 -- (6)
- --------------------------------------------------------------------------------------------------------------------------------
Operating profit 215 424 214 106 173 162 257 346 330 241 98
Financial services 63(a) 98 56 68 64 54 52(b) (2) -- 5 13
- --------------------------------------------------------------------------------------------------------------------------------
278 522 270 174 237 216 309 344 330 246 111
Corporate expense (17) (22) (14) (11) (15) (16) (21) (13) (20) (12) (13)
Parent Company
interest - net (110) (73) (67) (69) (48) (38) (26) (26) (23) (23) (19)
Other income 5 4 4 2 3 5 7 7 17 9 30(c)
- --------------------------------------------------------------------------------------------------------------------------------
Income before taxes $ 156 $ 431 $ 193 $ 96 $ 177 $ 167 $ 269 $ 312 $ 304 $ 220 $ 109
================================================================================================================================
</TABLE>
* Reclassified to conform to 1996 presentation related to the realignment into
three business segments, which include (1) the consolidation of the
corrugated container and the bleached paperboard operations into a single
Paper Group, and (2) the transfer of the Rome sawmill from the corrugated
container operations to the Building Products Group
(a)Includes a one-time assessment of $44 million to recapitalize the Savings
Association Insurance Fund (SAIF)
(b)Includes operating results from the consolidation of Guaranty Federal Bank,
F.S.B., beginning January 1, 1990
(c)Includes $15.3 million income net of federal income taxes from life
insurance operations that were discontinued in 1990
25
<PAGE> 2
PAPER
[PHOTO]
During 1996, the company consolidated the management of its paper operations.
This consolidation allows the company to develop improved products and
services, continue to benefit from operational efficiencies, and capitalize on
and leverage the strengths of both operations.
The Paper Group is now comprised of two operations: corrugated container and
bleached paperboard. The results from these two operations had previously been
reported separately.
The following table provides information on the operating earnings for the
Paper Group.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Corrugated container $164.3 $387.5 $129.5
Bleached paperboard (6.9) 23.5 (15.6)
Group administration (44.4) (54.4) (40.2)
- --------------------------------------------------------
Operating earnings $113.0 $356.6 $73.7
========================================================
</TABLE>
CORRUGATED CONTAINER
The corrugated container operation manufactures linerboard and corrugating
medium at seven paper mills and converts it into shipping containers at 43 box
plants located throughout the United States, Puerto Rico, Mexico and South
America. In addition, it operates six specialty converting plants. Operation of
the Macon, Georgia, box plant was discontinued in the first quarter of 1996. In
early 1997, the company announced that operations of its box plant in Erie,
Pennsylvania, would be discontinued in 1997.
Before administrative costs, the corrugated container operation earned $164.3
million in 1996, down 58 percent from the $387.5 million earned in 1995.
Despite significantly lower product prices, revenues for this operation
declined only 8 percent in 1996 compared with 1995, because increased volume
somewhat offset lower product prices. Revenues were up 27 percent in 1995
compared with 1994, primarily because of higher product pricing.
The weak demand for boxes in late 1995 carried over into 1996, putting downward
pressure on pricing. Demand from both domestic and export markets improved in
the second half of the year resulting in higher operating rates. This improved
demand was not sufficient to allow price improvement for containerboard and
boxes. By year end, box prices had eroded 19 percent from a year earlier. As a
result of lower prices for containerboard and boxes, earnings as a percent of
revenues declined after having improved significantly in 1995.
Tons of boxes sold were up 3.5 percent in 1996 after being relatively flat in
1995. The 1996 earnings decline was moderated somewhat by the higher sales
volume and the lower cost of old corrugated containers (OCC), the principal raw
material used in approximately 43 percent of the group's containerboard
production. The cost of OCC was down $71 per ton in 1996 compared with 1995.
This decline followed a $55 per ton increase in 1995 versus 1994.
As indicated in the table below, mill production, curtailed by 120,000 tons to
control inventory levels, totaled 2,577,000 tons in 1996. This represented a
63,000 ton increase in production over 1995, which had 132,000 tons of
inventory-related downtime. Production of containerboard exceeded internal box
plant usage by 275,000 tons in 1996; 317,000 tons in 1995 and 376,000 tons in
1994. Excess production was sold in the domestic and export markets.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------
<S> <C> <C> <C>
Mill production
(in tons) 2,577,000 2,514,000 2,603,000
========================================================
</TABLE>
Box production at the Mexican, Puerto Rican and South American converting
facilities increased by 34,000 tons to 124,000 tons in 1996.
In May 1994, the company purchased the stock of Rand-Whitney Packaging
Corporation for $57.5 million. Included in the purchase were three
manufacturing plants specializing in litho-laminate corrugated packaging and
high-graphics folding cartons. In 1995, the company expanded this operation
with an additional plant in Ontario, California, and acquired CB Displays of
Rural Hall, North Carolina, a producer of point-of-sale packaging. As a result,
the company has improved its ability to service the national litho-laminate
market. Also in 1995, the company acquired a controlling interest in Wesland
Container L.L.C. in Little Rock, Arkansas, a producer of medical-waste boxes.
Operation of the Montville, Connecticut, Rand-Whitney plant was discontinued in
the first quarter of 1996.
The following table shows the quarterly sales of the corrugated container
operation in tons and dollars. The totals presented include not only boxes sold
but also open market sales of linerboard and related products. The decrease in
unit sales in 1995 compared with 1994 was primarily due to weak demand for
containerboard and boxes, which continued into mid-1996.
26
<PAGE> 3
CORRUGATED CONTAINER
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------
UNIT SALES
(in thousands of tons)
<S> <C> <C> <C>
1st Quarter 575 602 628
2nd Quarter 608 614 648
3rd Quarter 636 564 622
4th Quarter 616 553 594
- -------------------------------------------------------
For the year 2,435 2,333 2,492
=======================================================
NET SALES
(in millions)
1st Quarter $448.0 $434.4 $327.6
2nd Quarter 430.3 477.3 354.8
3rd Quarter 402.9 466.4 371.9
4th Quarter 395.3 451.3 387.0
- -------------------------------------------------------
For the year $1,676.5 $1,829.4 $1,441.3
=======================================================
</TABLE>
BLEACHED PAPERBOARD
The bleached paperboard operation manufactures bleached paperboard at one mill
in Evadale, Texas. Its products are sold to commercial printers and paperboard
converters, including those serving packaging, food service and office product
markets.
The mill completed a major modernization and expansion program during 1995. The
cornerstone of this project was a new 550 ton-per-day paperboard machine
capable of producing low-density, lightweight bleached paperboard and bleached
bristols. Other key elements of the expansion project included major
technological upgrades on three existing paperboard machines, a pine fiberline,
a coating plant, a power boiler, an extruder plant, a lime kiln and a
concentrator. One of the mill's recovery boilers was also rebuilt.
Before administrative costs, the bleached paperboard operation reported a loss
of $6.9 million in 1996 compared with income of $23.5 million in 1995.
Primarily a result of weakening demand, average prices for bleached paperboard
declined by 12 percent in 1996 after having improved by 30 percent in 1995.
Sales volume increased by 25 percent in 1996 as the company accelerated its
efforts to market the increased mill production capacity. Manufacturing costs
per ton for 1996 were relatively unchanged from 1995 levels. However, with the
efficiencies of an increased level of production and the effect of a mid-1996
cost-reduction program, manufacturing costs per ton in the second half of 1996
were 13 percent below first-half costs. Manufacturing costs per ton were up 10
percent in 1995 compared with 1994 because of disruptions related to the
various construction projects.
The year was one of generally weak demand and, accordingly, prices were under
pressure throughout much of the year. By the fourth quarter, bleached
paperboard prices had declined by 18 percent from fourth-quarter 1995 levels.
Prices stabilized late in the year.
Temple-Inland Food Service Corporation (Food Service) is an integrated paper
converter that manufactures and markets paper containers and products for the
food service industry. This operation has converting plants in Carlisle, Ohio;
Sacramento and El Cajon, California; Denver, Colorado; and Farmersville,
Louisiana. Products manufactured are sold to the fast-food industry, retail
consumer stores, restaurants and cafeterias. Food Service enhances the bleached
paperboard operation's ability to develop and market paper products for the
food service industry. Food Service converted 68,737 tons and 65,583 tons of
bleached paperboard and recorded revenues of $84.1 million and $80.9 million
for 1996 and 1995, respectively.
The table below lists the quarterly sales of the bleached paperboard operation
by product in tonnage and dollars. Changes in product mix from period to
period may make historical comparisons difficult.
BLEACHED PAPERBOARD
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------
UNIT SALES
(in thousands of tons)
<S> <C> <C> <C>
PAPERBOARD
1st Quarter 108 120 106
2nd Quarter 125 97 109
3rd Quarter 149 83 112
4th Quarter 142 100 103
- -------------------------------------------------------
For the year 524 400 430
=======================================================
PULP
1st Quarter 31 16 20
2nd Quarter 38 28 25
3rd Quarter 16 20 24
4th Quarter 15 35 18
- -------------------------------------------------------
For the year 100 99 87
=======================================================
NET SALES
(in millions)
PAPERBOARD
1st Quarter $ 66.1 $ 70.7 $ 51.1
2nd Quarter 73.6 56.8 54.4
3rd Quarter 83.3 54.4 56.3
4th Quarter 77.5 67.1 55.6
- -------------------------------------------------------
For the year $300.5 $249.0 $217.4
=======================================================
PULP
1st Quarter $ 7.0 $ 5.3 $ 4.4
2nd Quarter 5.8 12.8 5.3
3rd Quarter 3.2 7.1 6.6
4th Quarter 3.2 11.7 5.8
- -------------------------------------------------------
For the year $ 19.2 $ 36.9 $ 22.1
=======================================================
FOOD SERVICE
AND OTHER
1st Quarter $ 22.0 $ 18.7 $ 14.2
2nd Quarter 23.5 22.7 16.3
3rd Quarter 21.1 22.2 16.2
4th Quarter 19.5 19.5 13.2
- -------------------------------------------------------
For the year $ 86.1 $ 83.1 $ 59.9
=======================================================
</TABLE>
Primarily because the company paid significantly lower bonuses to its managers
in 1996 as a result of the lower level of profitability, the administrative
costs related to the Paper Group were $44.4 million in 1996 compared with $54.4
million in 1995.
27
<PAGE> 4
BUILDING
PRODUCTS
[PHOTO]
The Building Products Group manufactures a diversified line of construction and
commercial grade building materials at 13 facilities located in Texas,
Louisiana, Oklahoma, Arkansas, Alabama and Georgia. In 1996, almost 80 percent
of its revenues were generated from wood-based materials made from Southern
Pine logs or log residues. These products, sold to both residential and
commercial market segments, include lumber, plywood, fiber products and
particleboard.
The non-wood-based business unit manufactures a variety of gypsum wallboard
products that are sold to the same market segments as wood-based materials. In
the second quarter of 1996, the company acquired a 50 percent equity position
in Standard Gypsum L.L.C. located in McQueeney, Texas. Under the terms of the
joint venture agreement with its partner, the Building Products Group has the
responsibility for managing plant operations and marketing the gypsum
wallboard.
During 1996, the group, through a joint venture, began construction on a new
medium density fiberboard (MDF) plant in El Dorado, Arkansas. The $90 million
facility is designed to produce 150 million square feet of MDF annually. MDF
products are high-grade composite panels that serve as suitable alternatives to
high-quality millwork lumber and as flooring substrates.
The Building Products Group entered into a joint venture agreement during the
year for the construction of a cement fiberboard plant in Waxahachie, Texas.
Cement fiberboard is a weather-stable product with increasing acceptance for
applications such as exterior sidings, tile backing and roofing. Both the MDF
and cement fiberboard plants are anticipated to begin production during the
first quarter of 1998.
During 1996, the group continued its strategy to exit the retail business,
which sells various building materials to the contractor and retail markets.
Retail operations accounted for only 3 percent of group net revenues in 1996,
compared with about 10 percent in each of the two preceding years. In the
fourth quarter of 1995, the group began its exit from this business by selling
its two major Houston-area retail locations, which historically accounted for
about 80 percent of these revenues. Late in 1996, two of the three remaining
locations were also sold.
The group earned $102 million in 1996, the third-highest earnings level in its
history, following earnings of $67 million in 1995 and record earnings of $139
million in 1994. Net manufacturing revenues in 1996 increased $30 million, or 6
percent, over 1995. This 6 percent increase followed a 7 percent decline in
1995, compared with the record year of 1994. As a result of improved
residential and commercial construction levels, prices advanced in 1996 across
all product lines, except particleboard and plywood.
The following table provides information on unit sales volumes and net sales
for each business unit.
BUILDING PRODUCTS
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
UNIT SALES
(in millions of board feet)
Pine lumber 605 582(a) 583(a)
(in millions of square feet)
Fiber products 457 422 441
Particleboard 399 329 347
Plywood 259 217 260
Gypsum wallboard 838 813 796
- ---------------------------------------------------------
NET SALES
(in millions)
Pine lumber $217.4 $ 190.1(a) $211.9(a)
Fiber products 73.3 59.7 66.3
Particleboard 112.2 99.1 103.0
Plywood 52.1 49.3 56.8
Gypsum wallboard 90.2 83.1 74.3
Retail distribution 17.1 51.3 58.4
Other .3 .3 4.8
- ---------------------------------------------------------
For the year $562.6 $ 532.9 $575.5
=========================================================
</TABLE>
(a) Reclassified to include the Rome, Georgia, lumber operation
28
<PAGE> 5
Pine lumber shipments of 605 million board feet increased 4 percent over 1995.
Lumber prices improved during the year and by the fourth quarter were 20
percent above the same period in 1995, which was the low for that year. In
1995, reduced building activity resulted in oversupplied markets with the
market imbalance further aggravated by Canadian lumber imports that had
captured in excess of 35 percent of U.S. markets. In 1996, as the United
States-Canadian lumber agreement took effect and the pace of housing starts
increased, supply/demand ratios improved and lumber prices recovered
accordingly.
Plywood revenues in 1996 increased 6 percent over 1995 due to increased
shipments and an improved mix of products. Revenues in 1995 declined 13
percent from 1994 due to reduced sales volume. In 1995, the group's plywood
plant was involved in a $3.8 million modernization project to upgrade its
veneer process capability. This project negatively affected production
schedules. Further, a construction-related fire during 1995 resulted in an
outage, accounting for more than one-third of the lower shipment levels
compared with 1994. Plywood pricing in 1995 advanced almost 5 percent over 1994
levels as the plant increased its complement of higher grade panels. In 1996,
however, price levels declined 13 percent.
Fiber products revenues increased 23 percent over 1995 due to price increases
averaging almost 13 percent and an 8 percent increase in shipments. Shipments
were higher due to strong demand for fiber products coupled with a high level
of supply resulting from a 7 percent increase in production and a high
inventory position at the first of the year that was liquidated during the
year. In 1995, siding prices decreased due to a low rate of housing starts
coupled with increased competition from alternative vinyl and cement fiberboard
products. TrimCraft(TM), the company's alternative lumber trim product,
continued to gain market acceptance, and shipments of this product advanced
almost 30 percent over 1995 levels. The group further adjusted the complement
of roof and wall insulation board in its product mix as demand for siding and
TrimCraft improved.
Using by-products of lumber processing, the group manufactures particleboard at
four plants in Texas, Alabama, Arkansas and Georgia. The Arkansas plant,
completed late in the fourth quarter of 1995 at a cost of $65 million,
increased capacity by about 50 percent. With the new plant's production,
particleboard shipments in 1996 increased 21 percent over 1995, despite lost
production at the Alabama plant, which incurred a 10-week outage for a major
modernization project. Particleboard price levels declined about 6 percent
from 1995 levels. In 1995, shipments were 5 percent below 1994, although prices
increased about 2 percent. However, prices at the end of 1995 had begun to
decline due to excessive customer inventory accumulations that affected demand
into the first quarter of 1996.
Record earnings were achieved by the group's gypsum wallboard operation in 1996
as prices continued the improvement begun in 1994 and the mix of products
manufactured continued to improve. Gypsum wallboard shipments of 838 million
square feet increased 3 percent over 1995 and revenues were up 9 percent
following a 12 percent increase in revenues for 1995 compared with 1994. Gypsum
wallboard demand basically responds to the pace of single-family and
multifamily housing activity, which advanced 7 percent over 1995 levels. In
addition to a strong market, the group's Stretch 54(R) product, pre-sized to
reduce material waste and application labor in houses with 9-foot ceilings,
continued to enhance margins within its specialty product mix. Specialty panels
in 1996 accounted for 38 percent of total shipments, an increase of 12 percent
over 1995.
The company controls approximately 2.2 million acres of timberland in Texas,
Louisiana, Georgia and Alabama. In 1996, this renewable resource provided
approximately 59 percent of the company's sawtimber requirements and roughly 55
percent of the virgin fiber necessary to operate its paper, particleboard and
fiberboard converting operations.
29
<PAGE> 6
FINANCIAL
SERVICES
[PHOTO]
The Financial Services Group includes a savings bank, mortgage banking, real
estate development and insurance. The following selected financial information
provides a detailed description of these operations.
FINANCIAL SERVICES
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(in millions)
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Savings bank $ 37.5(a) $ 78.1 $ 37.2
Mortgage banking 23.0 20.3 15.9
Real estate (1.7) (3.8) (.6)
Insurance 4.3 3.5 3.8
- ------------------------------------------------------------------------
Income before taxes 63.1 98.1 56.3
Taxes on income 24.3 27.3 15.3
- ------------------------------------------------------------------------
Net income $ 38.8 $ 70.8 $ 41.0
========================================================================
ASSETS
Savings bank $8,945.9 $8,881.7 $8,707.8
Mortgage banking 241.4 157.0 122.2
Real estate 287.4 238.4 214.7
Insurance 26.3 19.1 21.4
Other activities .1 1.6 1.6
Eliminations (166.0) (86.7) (60.0)
- ------------------------------------------------------------------------
Total assets $9,335.1 $9,211.1 $9,007.7
========================================================================
LIABILITIES
Savings bank $8,509.9 $8,405.2 $8,281.7
Mortgage banking 177.1 113.5 91.8
Real estate 204.7 156.2 130.8
Insurance 17.7 13.2 15.9
Other activities (.1) 4.6 4.6
Eliminations (166.0 (86.7) (60.0)
- ------------------------------------------------------------------------
Total liabilities $8,743.3 $8,606.0 $8,464.8
========================================================================
EQUITY
Savings bank $ 436.0 $ 476.5 $ 426.1
Mortgage banking 64.3 43.5 30.4
Real estate 82.7 82.2 83.9
Insurance 8.6 5.9 5.4
Other activities .2 (3.0) (2.9)
- ------------------------------------------------------------------------
Total equity $ 591.8 $ 605.1 $ 542.9
========================================================================
</TABLE>
(a) Includes SAIF assessment of $43.9 million
SAVINGS BANK
The company's savings bank, Guaranty Federal Bank, F.S.B. (Guaranty), conducts
its business through 113 banking centers located throughout Texas, including
Houston, Dallas/Fort Worth, San Antonio, Austin and the east Texas area. The
primary activities of Guaranty include attracting savings deposits from the
public, investing in loans secured by real estate mortgages, lending for the
commercial and residential real estate construction industry, and providing a
variety of loan products to consumers.
Presented below is selected financial information for Guaranty.
GUARANTY
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(dollars in millions)
1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME AND EXPENSE
Net interest income $ 193.0 $ 179.5 $ 149.2
Noninterest income 22.2 37.7 25.0
Noninterest expense 163.9(a) 124.6 130.5
Income before taxes 37.5 78.1 37.2
AVERAGE BALANCE SHEET
Total earning assets 8,889.0 8,819.5 8,544.7
Loans receivable and
mortgage loans held
for sale 5,215.1 4,453.6 3,147.6
Mortgage-backed and
investment securities 3,204.3 3,647.1 4,151.3
Securities purchased
under resell agreements -- -- 551.3
Covered assets -- 298.6 536.2
Deposits 6,423.9 6,721.3 6,681.6
Securities sold
under repurchase
agreements and
FHLB advances 2,113.5 1,873.0 1,714.2
KEY RATIOS
Yield on earning assets 6.96% 6.87% 5.59%
Cost of funds 4.91% 4.96% 3.91%
- ------------------------------------------------------------------------
Net spread 2.05% 1.91% 1.68%
========================================================================
</TABLE>
(a) Includes SAIF assessment of $43.9 million
When Guaranty was acquired in September 1988, its primary assets were mortgage
loans, properties and notes receivable, all of which were guaranteed by
agencies of the federal government. Corresponding liabilities were largely
consumer deposits. Additional acquisitions in the next two years were primarily
cash assets offset by consumer deposit liabilities. The cash assets were
converted to mortgage-backed securities, the interest rate on which was indexed
to the cost of funds in the Federal Home Loan Bank Eleventh District Cost of
Funds Index (EDCOF), which is primarily comprised of California institutions.
30
<PAGE> 7
The long-term target was to convert these securities to adjustable-rate
mortgage loans. By December 31, 1996, loans receivable comprised 67 percent of
earning assets, up from 57 percent in the prior year. Over the next few years,
this percentage should approach 80 percent of earning assets.
Guaranty can fund its asset base with consumer deposits or short-ter
borrowings, including repurchase agreements. Since the earnings of a large
portion of its assets are indexed to the EDCOF, the comparative cost of
Guaranty's deposit liabilities is important to profitability. In 1996, the nine
basis point improvement in comparative cost from 1995 increased income by
approximately $4 million.
Although the average balance of total earning assets remained virtually
constant with 1995, the improved mix of loans receivable, rather than
securities, improved net interest income by $13.5 million in 1996. This
improved asset mix accounted for a portion of the 14 basis point increase in
the net interest spread.
In 1995, on similar asset balance, the better mix improved earnings by $30.3
million and the interest spread by 23 basis points over 1994.
Noninterest income is comprised primarily of fees collected, including service
charges on deposits. In 1995, Guaranty recognized a $9 million gain,
representing its portion of gains on certain asset dispositions (see Note C on
page 44 for additional information). Excluding the gain recognized in 1995,
noninterest income decreased by $6.5 million in 1996 and increased by $3.7
million in 1995.
Excluding $43.9 million related to a one-time Savings Association Insurance
Fund (SAIF) assessment discussed below, noninterest expense decreased by $4.6
million in 1996 and by $5.9 million in 1995.
BIF/SAIF Legislation
On September 30, 1996, President Clinton signed the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 (the Act). Among its many
provisions, the Act provided for (i) the recapitalization of the SAIF to an
amount sufficient to increase the SAIF's net worth to 1.25 percent of
SAIF-insured deposits, (ii) the reduction of SAIF insurance assessments to
parity with those of the Bank Insurance Fund (BIF), and (iii) the eventual
merger of the SAIF and BIF. Specifically, the statute required a one-time
special assessment of SAIF members, calculated at 65.7 basis points of insured
deposits, or $43.9 million for Guaranty.
Based on its current risk classification, beginning January 1, 1997, Guaranty
will not be required to pay any deposit insurance assessments but will be
required to pay approximately 6.5 basis points on its insured deposits annually
to repay certain Financial Corporation (FICO) bond obligations. Prior to the
special assessment, Guaranty was paying 23 basis points of insured deposits for
insurance premiums as compared to the approximate 6.5 basis points of deposits
currently being paid to repay FICO bond obligations. Based on the current level
of Guaranty's deposits, this legislation will reduce assessments by
approximately $11 million per year.
Acquisitions
On December 9, 1996, the company and Guaranty signed a definitive agreement to
acquire all of the outstanding stock of California Financial Holding Company
(CFHC) for $30 per share. Total assets, the majority of which are held by its
subsidiary, Stockton Savings Bank, F.S.B., are approximately $1.3 billion and
consist primarily of residential, consumer and construction loans,
mortgage-backed securities, and short-term investments. Stockton Savings
operates 23 branches. The purchase price of approximately $150 million will
consist of company stock and cash. The transaction, subject to the approval of
regulatory authorities and CFHC shareholders, is anticipated to close in the
second quarter of 1997.
In June 1994, Guaranty purchased substantially all of the net assets of First
Federal Savings Bank of San Antonio (FFSB) for approximately $43 million. FFSB
was a savings bank with 10 banking centers in San Antonio, Texas, with assets
at acquisition totaling approximately $363 million, consisting primarily of
mortgage loans and cash.
Liquidity, Interest Rate Risk
Management and Capital
Guaranty is required by the Office of Thrift Supervision (OTS) to maintain
minimum 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, 1996, Guaranty exceeded the
required liquidity ratios.
The operations of Guaranty are subject to a risk of interest rate fluctuation
to the extent that interest-earning assets and interest-bearing liabilities
mature or reprice at different times or in differing amounts. Since
approximately 74 percent of Guaranty's assets have adjustable rates, this risk
is significantly mitigated. A substantial portion of Guaranty's investments in
adjustable-rate, mortgage-backed securities have annual or lifetime caps that
could subject Guaranty to interest rate risk should rates rise above certain
levels. To optimize net interest income while maintaining acceptable levels of
interest rate and liquidity risk, Guaranty from time to time will enter into
various interest rate contracts for purposes other than trading. See Note K on
page 48 for additional information.
31
<PAGE> 8
OTS regulations require savings institutions to maintain certain minimum levels
of capital. Guaranty's regulatory capital exceeded all applicable capital
requirements at December 31, 1996. Note L on page 49 contains additional
information concerning Guaranty's capital requirements.
MORTGAGE BANKING
Mortgage banking is conducted through Temple-Inland Mortgage Corporation
(TIMC), a full-service mortgage banker. TIMC arranges financing of
single-family mortgage loans, then sells the loans into the secondary market
(primarily FNMA, FHLMC and GNMA securities). TIMC generally retains the
servicing of these loans.
A summary of selected financial information is provided below.
MORTGAGE BANKING
OPERATIONS SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(dollars in millions)
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 95 $ 71 $ 73
Income before taxes 23 20 16
====================================================================================
PORTFOLIO
ROLL-FORWARD
(INCLUDING
LOANS SERVICED
FOR AFFILIATES)
Beginning
servicing portfolio $ 13,460 $ 10,068 $ 9,067
Purchased servicing 4,888 3,782 1,650
New loans added,
net of servicing
released 2,265 948 540
Run-off (2,762) (1,338) (1,189)
- ------------------------------------------------------------------------------------
Ending
servicing portfolio $ 17,851 $ 13,460 $ 10,068
====================================================================================
Portfolio growth rate 32.6% 33.7% 11.0%
Run-off factor 15.9% 10.9% 13.1%
Ending number of
loans serviced 225,700 184,800 149,500
====================================================================================
</TABLE>
The servicing portfolio grew from both internal production and acquisition to a
record $17.9 billion during 1996. Servicing totaling $4.9 billion was acquired
during the year, a portion of which was acquired subject to a call option. The
call option price, if exercised, would exceed book value. At the end of 1996,
$2.4 billion of the servicing portfolio was subject to the call option. The
mortgage origination network increased during 1996 from 22 to 41 branch
offices. The volume of originations increased to $1.9 billion.
REAL ESTATE
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 24 residential
subdivisions, in Austin, Houston, San Antonio and Dallas, Texas; as well as
Kansas City, Missouri; Nashville, Tennessee; Denver, Colorado; and Tampa,
Florida. At the end of 1996, land development inventory included 1,997
residential lots (1,210 under contract) and 5,163 acres of land. Lot sales for
1996 were 1,082 compared with 467 in 1995 and 461 in 1994.
The company owns 10 commercial properties, including hotels, office buildings,
apartments and parcels of commercial land.
Selected financial information related to these activities is shown below.
REAL ESTATE
OPERATIONS SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(in millions)
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Residential $35.9 $12.7 $ 8.4
Commercial 18.2 19.4 21.1
Interest and other 7.0 4.9 4.6
- ------------------------------------------------------------------------------------
Total $61.1 $37.0 $34.1
====================================================================================
INCOME (LOSS)
BEFORE TAXES
Residential $ 3.0 $(1.9) $(2.6)
Commercial 2.2 2.0 2.1
Interest and other (6.9) (3.9) (.1)
- ------------------------------------------------------------------------------------
Total $(1.7) $(3.8) $ (.6)
====================================================================================
</TABLE>
INSURANCE
Timberline Insurance Managers, Inc., (Timberline) one of the largest insurance
agencies in Texas, operates as a general agency selling a full range of
insurance products, including automobile, homeowners, business insurance,
annuities, and life and health products. The agency also acts as the risk
management department of the company. Timberline currently has offices in
Austin, Houston, El Paso and San Antonio, Texas.
A summary of revenues and income before taxes is shown below.
INSURANCE
OPERATIONS SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
(in millions)
1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $24.9 $16.5 $18.4
Income before taxes 4.3 3.5 3.8
====================================================================================
</TABLE>
32
<PAGE> 9
Environmental Matters
The company is committed to protecting the health and welfare of its employees,
the public, and the environment, and strives to maintain compliance with all
state and federal environmental regulations in a cost-effective manner. In
recent modernization programs at some of its mills, including the bleached
paperboard mill at Evadale, Texas, the company installed state-of-the-art
technology for controlling air and water emissions. These forward-looking
programs should 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 1997 through 1999 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 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 should be less, assuming the company's recovery boilers
meet the new standards.
CAPITAL RESOURCES AND LIQUIDITY
The company's financial condition continues to be strong. Internally generated
funds, existing credit facilities and the capacity to issue long-term debt are
sufficient to fund projected capital expenditures, to service existing debt, to
pay dividends and to meet normal working capital requirements.
A summary of capital expenditures is shown below.
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Paper $147.7 $299.1 $390.0
Building products 52.0 67.6 43.4
Timber
and timberlands 74.7 19.1 28.5
Other activities .9 .3 1.2
- ------------------------------------------------------------------------------------
Total manufacturing group $275.3 $386.1 $463.1
====================================================================================
</TABLE>
Capital expenditures of approximately $285 million are projected for 1997.
Commitments on construction projects totaled $53 million at the end of 1996.
Net interest expense incurred by the Parent Company is shown below.
<TABLE>
<CAPTION>
(in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
PARENT COMPANY
INTEREST - NET
Interest expense $112.9 $111.3 $94.8
Capitalized interest (3.3) (38.6) (27.7)
- ------------------------------------------------------------------------------------
Interest expense - net $109.6 $72.7 $67.1
====================================================================================
</TABLE>
Interest expense increased in 1996 and 1995 due to the higher levels of debt
outstanding. The increase in capitalized interest in 1995 and 1994 was due to
higher levels of construction in progress associated primarily with the
modernization and expansion project at Evadale, Texas. Since this project was
completed in 1995, capitalized interest in 1996 decreased to $3.3 million.
Parent Company interest paid during 1996, 1995 and 1994 was $105.9 million,
$95.4 million and $89.2 million, respectively.
In August 1995, the board of directors approved a stock repurchase program
authorizing the company to repurchase up to 2.5 million shares. By January 31,
1997, the company had repurchased 900,100 shares under this program.
33
<PAGE> 10
SELECTED FINANCIAL DATA(*)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(in millions,
except per share data)
Total revenues $ 3,460 $ 3,495 $ 2,967 $ 2,762 $ 2,734 $ 2,507 $ 2,401(a)$ 1,943 $ 1,814 $1,642 $1,343
Manufacturing net sales 2,645 2,731 2,335 2,127 2,096 1,898 1,892 1,894 1,774 1,603 1,296
Net income 133 281 131 117(b) 147 138 232(a) 207 199 141 81
Capital expenditures:
Manufacturing 275 386 463 340 359 378 324 260 219 139 103
Financial services 15 34 20 14 11 9 4 9 4 1 1
Depreciation and
depletion:
Manufacturing 244 208 200 191 167 158 140 126 112 94 79
Financial services 10 8 8 6 5 4 5 2 2 1 1
Earnings per share 2.39 5.01 2.35 2.11(b) 2.65 2.51 4.20(a) 3.75 3.58 2.34 1.32
Dividends per
common share 1.24 1.14 1.02 1.00 .96 .88 .80 .58 .42 .35 .29
Average shares
outstanding 55.1 56.1 55.9 55.5 55.5 55.2 55.4 55.3 55.7 60.3 61.1
Common shares
outstanding at
year end 55.4 55.7 56.0 55.5 55.2 54.9 54.6 54.9 55.2 55.3 60.7
- ------------------------------------------------------------------------------------------------------------------------------------
AT YEAR END
Total assets $12,947 $12,764a $12,251 $11,959 $10,766 $10,068 $ 7,834(c)$ 2,380 $ 2,247 $2,020 $1,894
Long-term debt:
Parent Company 1,522 1,489 1,316 1,045 964 864 501 399 417 416 366
Financial services 133 113 82 76 99 76 94 30 25 30 25
Ratio of total debt to
total capitalization-
Parent Company 43% 43% 43% 38% 38% 36% 26% 24% 29% 31% 28%
Shareholders' equity 2,015 1,975 1,783 1,700 1,633 1,532 1,439 1,259 1,096 927 929
====================================================================================================================================
</TABLE>
(*)Certain reclassifications were made to conform with current year's
classification
(a)Includes operating results from consolidation of Guaranty Federal Bank,
F.S.B., beginning January 1, 1990
(b)Includes a credit of $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
COMMON STOCK PRICES AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------
Price Range Price Range
High Low Dividends High Low Dividends
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter $48-1/4 $39-3/4 $.30 $51-1/8 $43-3/8 $.27
2nd Quarter 51-7/8 45-1/2 .30 48-1/4 41-1/2 .27
3rd Quarter 53-1/8 47 .32 55-3/4 47-1/4 .30
4th Quarter 55-3/8 48-3/8 .32 53-1/4 42-1/4 .30
----- -----
Year $55-3/8 $39-3/4 $1.24 $55-3/4 $41-1/2 $1.14
===================================================================================
</TABLE>
34
<PAGE> 11
NOTE F - DEPOSITS
Deposits consisted of the following:
<TABLE>
<CAPTION>
AT YEAR END 1996 1995
- ---------------------------------------------------------------
Rate Amount Rate Amount
===============================================================
(dollars in millions)
<S> <C> <C> <C> <C>
Noninterest bearing
demand -- $ 123.7 -- $ 128.3
Interest bearing
demand 2.70% 970.6 2.75% 1,028.4
Savings deposits 2.29% 174.8 2.25% 198.9
Time deposits 5.53% 4,992.8 5.74% 5,017.9
- ---------------------------------------------------------------
6,261.9 6,373.5
Deposit premium 1.2 3.5
- ---------------------------------------------------------------
$6,263.1 $6,377.0
===============================================================
</TABLE>
Scheduled maturities of time deposits at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
$100,000 Less than
TIME DEPOSITS or more $100,000 Total
- ---------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
3 months or less $212.8 $1,248.5 $1,461.3
Over 3 through 6 months 119.4 789.2 908.6
Over 6 through 12 months 134.5 1,028.1 1,162.6
Over 12 months 169.1 1,291.2 1,460.3
- ---------------------------------------------------------------
$635.8 $4,357.0 $4,992.8
===============================================================
</TABLE>
At December 31, 1996, time deposits maturity dates were as follows (in
millions): 1997 -- $3,532.6; 1998 -- $544.9; 1999 -- $446.2; 2000 -- $179.9;
2001-- $284.2; and 2002 and thereafter-- $5.0.
A summary of interest paid by the group is shown below.
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- ---------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Interest on deposits $310.8 $317.7 $262.9
Interest on borrowed funds 128.7 115.9 79.0
- ---------------------------------------------------------------
$439.5 $433.6 $341.9
===============================================================
</TABLE>
47
<PAGE> 12
NOTE L - Regulatory Capital Matters
Guaranty is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possible additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on
Guaranty's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, Guaranty must meet specific
capital guidelines that involve quantitative measures of Guaranty's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. Guaranty's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors. The payment of dividends from Guaranty is subject
to proper regulatory notification.
Quantitative measures established by regulation to ensure capital adequacy
require Guaranty to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I capital to risk-weighted assets, and of Tier I
capital to adjusted tangible assets. As of December 31, 1996, Guaranty met all
its capital adequacy requirements.
As of December 31, 1996 and 1995, the most recent notification from regulators
categorized Guaranty as well capitalized under the regulatory framework for
prompt corrective action. To be so categorized, Guaranty must maintain minimum
Total risk-based, Tier I (Core) risk-based and Tier I (Core) leverage capital
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed Guaranty's category.
Guaranty's actual capital amounts and ratios are also presented in the table
below. No amounts were deducted from capital for interest rate risk at December
31, 1996 or 1995.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
====================================================================================================================================
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
AT YEAR END 1996
Total risk-based ratio Greater than Greater than Greater than Greater than
(Risk-based capital/total or equal to or equal to or equal to or equal to
risk-weighted assets) $533.8 10.39% $411.1 8.0% $513.8 10.0%
Greater than Greater than Greater than Greater than
Tier I (Core) risk-based ratio or equal to or equal to or equal to or equal to
(Core capital/total risk-weighted assets) $498.2 9.70% $205.5 4.0% $308.3 6.0%
Greater than Greater than Greater than Greater than
Tier I (Core) leverage ratio or equal to or equal to or equal to or equal to
(Core capital/adjusted tangible assets) $498.2 5.52% $361.1 4.0% $451.4 5.0%
Greater than Greater than
Tangible ratio or equal to or equal to
(Tangible capital/tangible assets) $498.2 5.52% $135.4 1.5% N/A N/A
AT YEAR END 1995
Total risk-based ratio Greater than Greater than Greater than Greater than
(Risk-based capital/total risk-weighted or equal to or equal to or equal to or equal to
assets) $508.0 11.08% $366.8 8.0% $458.5 10.0%
Greater than Greater than Greater than Greater than
Tier I (Core) risk-based ratio or equal to or equal to or equal to or equal to
(Core capital/total risk-weighted assets) $485.8 10.59% $183.4 4.0% $275.1 6.0%
Greater than Greater than Greater than Greater than
Tier I (Core) leverage ratio or equal to or equal to or equal to or equal to
(Core capital/adjusted tangible assets) $485.8 5.44% $357.3 4.0% $446.6 5.0%
Greater than Greater than
Tangible ratio or equal to or equal to
(Tangible capital/tangible assets) $485.8 5.44% $134.0 1.5% N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 13
CONSOLIDATED STATEMENTS OF INCOME
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- ----------------------------------------------------------------------------------------------
(in millions, except per share data)
<S> <C> <C> <C>
REVENUES
Manufacturing $2,645 $2,731 $2,335
Financial services 815 764 632
- ----------------------------------------------------------------------------------------------
3,460 3,495 2,967
- ----------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Manufacturing 2,447 2,329 2,135
Financial services 752 666 576
- ----------------------------------------------------------------------------------------------
3,199 2,995 2,711
- ----------------------------------------------------------------------------------------------
OPERATING INCOME 261 500 256
Parent Company interest expense - net (110) (73) (67)
Other 5 4 4
- ----------------------------------------------------------------------------------------------
INCOME BEFORE TAXES 156 431 193
Taxes on income 23 150 62
- ----------------------------------------------------------------------------------------------
NET INCOME $ 133 $ 281 $ 131
==============================================================================================
EARNINGS PER SHARE $ 2.39 $ 5.01 $ 2.35
==============================================================================================
</TABLE>
See the notes to the consolidated financial statements
50
<PAGE> 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- -------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income $ 133 $ 281 $ 131
Adjustments to reconcile net income to net cash:
Depreciation and depletion 254 216 208
Deferred taxes (11) 53 47
Amortization and accretion 23 18 12
Receivable from FDIC 7 (18) 19
Mortgage loans held for sale (88) 24 500
Receivables (11) (42) (41)
Inventories 23 (71) (1)
Accounts payable and accrued expenses (31) (51) (2)
Collections and remittances on loans
serviced for others - net (7) 96 (164)
Other (66) (31) (46)
- -------------------------------------------------------------------------------------
226 475 663
=====================================================================================
CASH PROVIDED BY (USED FOR) INVESTMENTS
Capital expenditures (290) (420) (483)
Proceeds from sale of property and equipment 7 16 19
Purchases of securities available-for-sale (4) (54) (146)
Maturities of securities available-for-sale 98 12 17
Purchases of securities held-to-maturity -- -- (229)
Maturities of securities held-to-maturity 322 391 790
Loans originated or acquired - net of principal
collected on loans (672) (1,009) (823)
Proceeds from sale of securities available-
for-sale 206 192 --
Reduction in covered assets -- 343 244
Acquisitions and joint ventures (38) (2) 140
Other (1) (23) 11
- -------------------------------------------------------------------------------------
(372) (554) (460)
=====================================================================================
CASH PROVIDED BY (USED FOR) FINANCING
Additions to debt 281 356 334
Payments of debt (349) (165) (54)
Securities sold under repurchase agreements
and short-term borrowings - net 285 239 (205)
Purchase of stock for treasury (16) (24) (1)
Cash dividends paid to shareholders (69) (64) (57)
Net decrease in deposits (112) (217) (92)
Other (4) (3) 22
- -------------------------------------------------------------------------------------
16 122 (53)
- -------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (130) 43 150
Cash and cash equivalents at beginning of year 358 315 165
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 228 $ 358 $ 315
=====================================================================================
</TABLE>
See the notes to the consolidated financial statements
51
<PAGE> 15
CONSOLIDATING BALANCE SHEETS
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
PARENT FINANCIAL
AT YEAR END 1996 COMPANY SERVICES CONSOLIDATED
- -------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 14 $ 214 $ 228
Mortgage loans held for sale -- 244 244
Loans receivable -- 5,414 5,414
Mortgage-backed and investment
securities -- 2,783 2,783
Trade and other receivables 295 -- 292
Inventories 327 -- 327
Property and equipment 2,850 81 2,931
Other assets 174 599 728
Investment in Financial Services 592 -- --
- -------------------------------------------------------------------------------------
TOTAL ASSETS $4,252 $9,335 $12,947
=====================================================================================
LIABILITIES
Deposits $ -- $6,263 $ 6,263
Securities sold under repurchase
agreements and Federal Home Loan
Bank advances -- 1,992 1,992
Other liabilities 345 355 685
Long-term debt 1,522 133 1,655
Deferred income taxes 234 -- 201
Postretirement benefits 136 -- 136
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES $2,237 $8,743 $10,932
- -------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock - par value $1 per share: authorized
25,000,000 shares; none issued --
Common stock - par value $1 per share: authorized
200,000,000 shares; issued 61,389,552 shares
including shares held in the treasury 61
Additional paid-in capital 305
Translation and other adjustments (24)
Retained earnings 1,837
- -------------------------------------------------------------------------------------
2,179
Cost of shares held in the treasury: 5,940,802 shares (164)
- -------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,015
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,947
=====================================================================================
</TABLE>
See the notes to the consolidated financial statements
52
<PAGE> 16
CONSOLIDATING BALANCE SHEETS
Temple-Inland Inc. and Subsidiaries
<TABLE>
<CAPTION>
PARENT FINANCIAL
AT YEAR END 1995 COMPANY SERVICES CONSOLIDATED
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 15 $ 343 $ 358
Mortgage loans held for sale -- 106 106
Loans receivable -- 4,764 4,764
Mortgage-backed and
investment securities -- 3,424 3,424
Trade and other receivables 285 -- 283
Inventories 338 -- 338
Property and equipment 2,788 76 2,864
Other assets 182 498 627
Investment in Financial Services 605 -- --
- -------------------------------------------------------------------------------------
TOTAL ASSETS $4,213 $9,211 $12,764
====================================================================================
LIABILITIES
Deposits $ -- $6,377 $ 6,377
Securities sold under repurchase
agreements and Federal Home Loan
Bank advances -- 1,759 1,759
Other liabilities 358 357 702
Long-term debt 1,489 113 1,602
Deferred income taxes 259 -- 217
Postretirement benefits 132 -- 132
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES $2,238 $8,606 $10,789
- -------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock - par value $1 per share: authorized
25,000,000 shares; none issued --
Common stock - par value $1 per share: authorized
200,000,000 shares; issued 61,389,552 shares
including shares held in the treasury 61
Additional paid-in capital 306
Translation and other adjustments (14)
Retained earnings 1,773
- -------------------------------------------------------------------------------------
2,126
Cost of shares held in the treasury: 5,731,411 shares (151)
- -------------------------------------------------------------------------------------
Total Shareholders' Equity 1,975
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,764
====================================================================================
</TABLE>
See the notes to the consolidated financial statements
53
<PAGE> 17
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 TOTAL
- -------------------------------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 $61 $297 $ -- $1,482 $(140) $1,700
Net income -- -- -- 131 -- 131
Translation and other
adjustments -- -- (10) -- -- (10)
Dividends paid on common
stock -- $1.02 per share -- -- -- (57) -- (57)
Stock issued for stock plans --
608,713 shares -- 8 -- -- 14 22
Stock reacquired for treasury --
71,516 shares -- -- -- -- (3) (3)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $61 $305 $(10) $1,556 $(129) $1,783
=========================================================================================================================
Net income -- -- -- 281 -- 281
Translation and other
adjustments -- -- (4) -- -- (4)
Dividends paid on common
stock -- $1.14 per share -- -- -- (64) -- (64)
Stock issued for stock plans --
154,109 shares -- 1 -- -- 2 3
Stock reacquired for treasury --
514,544 shares -- -- -- -- (24) (24)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 30, 1995 $61 $306 $(14) $1,773 $(151) $1,975
=========================================================================================================================
Net income -- -- -- 133 -- 133
Translation and other
adjustments -- -- (10) -- -- (10)
Dividends paid on common
stock -- $1.24 per share -- -- -- (69) -- (69)
Stock issued for stock plans --
149,232 shares -- (1) -- -- 3 2
Stock reacquired for treasury --
358,623 shares -- -- -- -- (16) (16)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 28, 1996 $61 $305 $(24) $1,837 $(164) $2,015
=========================================================================================================================
</TABLE>
See the notes to the consolidated financial statements
54
<PAGE> 18
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Temple-Inland
Inc. and all subsidiaries in which the company has more than a 50 percent
equity ownership. However, because certain assets and liabilities are in
separate corporate entities, the consolidated assets are not available to
satisfy all consolidated liabilities. All material intercompany amounts and
transactions have been eliminated. Certain amounts have been reclassified to
conform with current year's classification.
Management is required to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
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 of shares outstanding,
including common stock equivalents, during the year. The weighted average
shares outstanding were (in millions): 1996--55.5; 1995--56.1; and 1994--55.9.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, amounts due from banks,
commercial paper, agency discount notes, federal funds sold and other
short-term liquid instruments with original maturities of three months or less.
TRANSLATION OF INTERNATIONAL CURRENCIES
Balance sheets of the company's international operations where the functional
currency is other than the U.S. dollar are translated into U.S. dollars at
year-end exchange rates. Adjustments resulting from financial statement
translation are reported as a component of shareholders' equity. For other
international operations where the functional currency is the U.S. dollar,
inventories, property, plant and equipment are translated at the rate of
exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for these operations are included in earnings and are not material.
Income and expense items are translated into U.S. dollars at average rates of
exchange prevailing during the year. Gains and losses resulting from foreign
currency transactions are included in earnings and are not material.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for tax purposes.
STOCK BASED COMPENSATION
In 1996, the company adopted SFAS No. 123, "Accounting for Stock Based
Compensation," which permits the company to recognize compensation cost related
to stock options, using the intrinsic value method or the fair value method.
The company elected to continue to use the intrinsic value method.
LONG-LIVED ASSETS
In 1996, the company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Impairment
losses are recognized when indicators of impairment are present and the
estimated undiscounted cash flows are not sufficient to recover the assets
carrying amount. Assets held for disposal are measured at the lower of carrying
value or estimated fair value, less costs to sell. The effect of adopting SFAS
No. 121 was not material to the financial statements.
PENDING ACCOUNTING POLICY CHANGES
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
requires an entity, after a transfer of financial assets that meets the
criteria to be accounted for as a sale, to recognize the financial and
servicing assets it controls and the liabilities it has incurred and to
derecognize financial assets when control has been surrendered. The company
will apply the new rules prospectively beginning in the first quarter of 1997
and, based on current circumstances, does not believe the application of the
new rules will have a material impact on the financial statements.
NOTE 2 - TAXES ON INCOME
Taxes on income from continuing operations consisted of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C>
1996
FEDERAL $27.2 $(16.5)
STATE AND OTHER 6.5 5.9
- ------------------------------------------------------------------------
$33.7 $(10.6)
========================================================================
1995
Federal $87.2 $ 48.2
State and other 11.9 2.7
- ------------------------------------------------------------------------
$99.1 $ 50.9
========================================================================
1994
Federal $10.7 $ 43.7
State and other 6.8 .6
- ------------------------------------------------------------------------
$17.5 $ 44.3
========================================================================
</TABLE>
55
<PAGE> 19
Significant components of the company's consolidated deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
AT YEAR END 1996 1995
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Depreciation $346.3 $297.8
Depletion 36.8 37.7
Pensions 18.5 18.0
Other 42.2 30.7
- -----------------------------------------------------------------------
Total deferred tax liabilities 443.8 384.2
- -----------------------------------------------------------------------
DEFERRED TAX ASSETS
Alternative minimum tax credits 215.6 169.7
Net operating loss carryforwards 96.7 80.6
OPEB obligations 47.8 46.2
Other 30.0 4.2
- -----------------------------------------------------------------------
Total deferred tax assets 390.1 300.7
VALUATION ALLOWANCE (147.4) (133.0)
- -----------------------------------------------------------------------
Net deferred tax liability $201.1 $216.5
=======================================================================
</TABLE>
The differences between the consolidated effective income tax rate and the
federal statutory income tax rates include the following:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Taxes on income
at statutory rate $54.6 $150.9 $67.7
FDIC tax-sharing
settlement (31.5) -- --
Book benefit of FDIC
assistance and other
permanent items (8.1) (9.8) (10.3)
State and other taxes 8.1 8.9 4.4
- ------------------------------------------------------------------------------------
$23.1 $150.0 $61.8
====================================================================================
</TABLE>
Income tax payments, net of refunds received, were $38 million, $74 million and
$58 million during 1996, 1995 and 1994, respectively.
The company has net operating loss carryforwards that expire from the year 2000
through the year 2009. Alternative minimum tax credits may be carried forward
indefinitely.
In connection with the acquisition of Guaranty in 1988, the company entered
into an assistance agreement (Assistance Agreement) with the Federal Savings
and Loan Insurance Corporation. Pursuant to the Assistance Agreement, the
company received various tax benefits to be shared with the FDIC when the cash
benefits were realized by the company. During the term of the Assistance
Agreement, the company recorded these tax-sharing liabilities on an
undiscounted basis. The company and the FDIC terminated the Assistance
Agreement. As a part of this termination, the company and the FDIC agreed to a
one-time payment that was based on the present value of the future liabilities.
The company recognized a credit to its tax provision of $31.5 million as a
result of the completion of this transaction.
The valuation allowance represents accruals for deductions that are uncertain
and, accordingly, have not been recognized for financial reporting purposes.
The increase in the valuation allowance is the result of management's
refinement of these uncertainties.
NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments were as follows:
<TABLE>
<CAPTION>
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Loans receivable $5,413.9 $5,417.0 $4,764.4 $4,798.7
Mortgage-backed
and investment
securities 2,783.5 2,707.2 3,423.6 3,368.4
================================================================================================
FINANCIAL
LIABILITIES
Deposits 6,263.1 6,262.7 6,377.0 6,627.4
FHLB advances 55.3 58.9 155.0 160.3
Long-term debt 1,654.9 1,717.1 1,601.6 1,701.3
================================================================================================
OFF-BALANCE-
SHEET
INSTRUMENTS
Commitments
to extend credit -- (1.8) -- (1.3)
================================================================================================
</TABLE>
Differences between fair value and carrying amounts are primarily due to
instruments that provide fixed interest rates or contain fixed interest rate
elements. Inherently, such instruments are subject to fluctuations in fair
value due to subsequent movements in interest rates. The fair value of cash and
cash equivalents, trade and other receivables, securities sold under agreements
to repurchase, and mortgage loans held for sale consistently approximate the
carrying amount due to their short-term nature and are excluded from the above
table. The fair value of mortgage-backed and investment securities and
off-balance-sheet instruments are based on quoted market prices. Other
financial instruments are valued using discounted cash flows. The discount
rates used represent current rates for similar instruments.
56
<PAGE> 20
NOTE 4 - SHAREHOLDER RIGHTS PLAN
During 1989, the board of directors adopted a Shareholder Rights Plan in which
one preferred stock purchase right (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 5 - EMPLOYEE BENEFIT PLANS
PENSIONS
The company has pension plans covering substantially all employees. Plans
covering salaried and nonunion hourly employees provide benefits based on
compensation and years of service, while union hourly plans are based on
negotiated benefits and years of service. The company's policy is to fund
amounts on an actuarial basis to accumulate assets sufficient to meet the
benefits to be paid in accordance with the requirements of ERISA. Contributions
to the plans are made to trusts for the benefit of plan participants.
Net pension cost includes the following:
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- ------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
CHARGES (CREDITS)
Service cost - benefits
earned during the period $ 12.8 $ 11.6 $ 12.7
Interest cost on projected
benefit obligation 32.2 30.6 28.0
Actual return on plan assets (71.2) (72.0) (3.7)
Net amortization and deferral 19.5 31.0 (38.6)
- ------------------------------------------------------------------------------------
Net pension cost (credit) $ (6.7) $ 1.2 $ (1.6)
====================================================================================
</TABLE>
Significant assumptions used to develop net pension cost for the defined
benefit pension plans follows:
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for
determining projected
benefit obligation 8.00% 7.75% 8.25%
Expected long-term rate of
return on plan assets 9.00% 9.00% 9.00%
Average increase in
compensation levels 5.00% 4.75% 5.25%
====================================================================================
</TABLE>
The funded status of employee pension plans follows:
<TABLE>
<CAPTION>
AT YEAR END 1996 1995
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C>
Actuarial present value of projected
benefit obligations:
Vested $379.4 $360.6
Nonvested 28.5 28.1
- ------------------------------------------------------------------------
Accumulated projected
benefit obligation $407.9 $388.7
========================================================================
Plan assets at fair value,
primarily stocks and bonds $528.2 $472.8
Projected benefit obligation
for service rendered to date (455.0) (426.5)
- ------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 73.2 46.3
Unrecognized prior service cost 1.3 .4
Unrecognized net loss from past
experience different from that assumed (9.6) 15.1
Unrecognized net asset at beginning
of period, less amortization to date (17.0) (21.4)
- ------------------------------------------------------------------------
Net pension asset included in the
consolidated balance sheet $ 47.9 $ 40.4
========================================================================
</TABLE>
POSTRETIREMENT BENEFITS
The company provides medical and insurance benefits to certain eligible
salaried and hourly employees who reach retirement age while employed by the
company.
Net postretirement benefit cost includes the following:
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- ------------------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Service costs for benefits $ 2.7 $ 2.6 $ 1.9
Interest cost 8.5 8.7 7.3
Net amortization and deferral (.4) (.4) (.8)
- ------------------------------------------------------------------------------------
Net postretirement cost $10.8 $10.9 $8.4
====================================================================================
</TABLE>
Significant assumptions used to develop net postretirement cost for the
postretirement benefit plan follows:
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for
determining
postretirement
benefit obligation 8.00% 7.75% 8.25%
Health care cost trend rate 10.00% 11.00% 11.00%
====================================================================================
</TABLE>
57
<PAGE> 21
Summary information for the plan follows:
<TABLE>
<CAPTION>
AT YEAR END 1996 1995
- ------------------------------------------------------------------------
(in millions)
<S> <C> <C>
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION
Retirees $ 53.4 $ 63.4
Active participants,
eligible to retire 19.1 16.8
All other participants 32.4 41.5
- ------------------------------------------------------------------------
Accrued postretirement
benefit obligation 104.9 121.7
Unrecognized net gains 22.4 12.0
Unrecognized prior service cost 9.1 (2.1)
- ------------------------------------------------------------------------
Postretirement benefit
obligation included
in the consolidated balance sheet $136.4 $131.6
========================================================================
</TABLE>
The health care trend rate of 10 percent in 1996 is expected to decline to 6
percent by 2010 and remain constant thereafter. If such rate increased by 1
percent, the accumulated postretirement obligation would increase by 7.5
percent and the 1996 net postretirement cost would increase by 10.2 percent.
NOTE 6 - STOCK OPTION PLANS
The company has established stock option plans for key employees and directors.
The plans provide for the granting of nonqualified stock options and/or
incentive stock options, and prior to 1994, the plans permitted the grant of
stock appreciation rights with all or part of any options so granted. Options
granted after 1995 have primarily a 10-year term and become exercisable in
steps from one to five years.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICES
- ------------------------------------------------------------------------
(shares in thousands)
<S> <C> <C>
OUTSTANDING BEGINNING OF 1996 YEAR 1,404 $45
Granted 456 43
Exercised (144) 32
Forfeited (90) 48
- ------------------------------------------------------------------------
Outstanding end of 1996 year 1,626 $45
- ------------------------------------------------------------------------
Weighted average fair value
of options granted during
the 1996 year $13.07
========================================================================
Outstanding beginning of 1995 year 1,275 $43
Granted 326 46
Exercised (146) 30
Forfeited (51) 48
- ------------------------------------------------------------------------
Outstanding end of 1995 year 1,404 $45
- ------------------------------------------------------------------------
Weighted average fair value
of options granted during
the 1995 year $13.55
========================================================================
Outstanding beginning of 1994 year 1,394 $37
Granted 268 52
Exercised (319) 25
Forfeited (68) 46
- ------------------------------------------------------------------------
Outstanding end of 1994 year 1,275 $43
========================================================================
</TABLE>
Options exercisable at year end were (in thousands): 1996--769; 1995--718; and
1994--643. The weighted average price for options exercisable at December 28,
1996, was $44 per share. Exercise prices for options outstanding at December
28, 1996, range from $12 to $54. The weighted average remaining contractual
life of these options is seven years. An additional 1,065,422 shares of common
stock were available for grants at December 28, 1996. A restricted stock plan
also provides for a maximum of 300,000 shares of restricted common stock to be
reserved for awards. At year end 1996, awards of 158,661 shares of common stock
were outstanding at an average price of $47.34 per share.
Pro forma net income and earnings per share, assuming that the company had
accounted for its employee stock options using the fair value method and
amortized such to expense over the options' vesting period, would not be
materially different from those reported.
58
<PAGE> 22
The fair value of the options granted in 1996 and 1995 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995
========================================================================
<S> <C> <C>
Expected dividend yield 2.6% 2.3%
Expected stock price volatility 26.5% 27.0%
Risk-free interest rate 6.5% 6.7%
Expected life of options 7.0 years 5.25 years
========================================================================
</TABLE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES
There are pending against the company and its subsidiaries lawsuits, claims and
environmental matters arising in the regular course of business. In the opinion
of management, recoveries, if any, by plaintiffs or claimants that may result
from the foregoing litigation and claims will not be material in relation to
the consolidated financial statements of the company and its subsidiaries.
See page 33 for a discussion of commitments on construction projects.
NOTE 8 - BUSINESS SEGMENT INFORMATION
Refer to "Business Segments" on page 25 for information relating to Revenues
and Income Before Taxes, and page 33 for information relating to Capital
Expenditures for the business segments for the three years 1996, 1995 and 1994.
Identifiable assets by business segment are those assets specifically used in
each segment's operations. The results of the timber and timberlands operations
are allocated to the manufacturing groups based upon fiber usage. Corporate
assets are principally cash and office buildings.
Additional business segment information is presented below.
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995* 1994*
- ------------------------------------------------------------------------------------
(in millions)
<S> <C> <C>
IDENTIFIABLE ASSETS
Paper $ 2,715.7 $ 2,762.4 $ 2,536.9
Building products 346.4 297.8 259.2
Timber and
timberlands 538.1 490.6 466.1
Corporate and other
activities 49.0 44.7 46.5
- ------------------------------------------------------------------------------------
3,649.2 3,595.5 3,308.7
Financial services 9,335.1 9,211.1 9,007.7
Reclassifications and
eliminations (37.2) (42.2) (65.7)
- ------------------------------------------------------------------------------------
Total $12,947.1 $ 12,764.4a $12,250.7
====================================================================================
DEPRECIATION AND
DEPLETION
Paper $ 197.6 $ 171.0 $ 163.9
Building products 29.4 24.0 23.2
Timber and
timberlands 16.9 12.2 11.2
Corporate and other
activities .5 .4 2.0
- ------------------------------------------------------------------------------------
244.4 207.6 200.3
Financial services 9.6 8.1 7.8
- ------------------------------------------------------------------------------------
Total $ 254.0 $ 215.7 $ 208.1
====================================================================================
</TABLE>
*Reclassified to conform with current year's classification
59
<PAGE> 23
NOTE 9 - SUMMARY OF QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
Selected unaudited quarterly financial results for the years 1996 and 1995 are
summarized below.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------
(in millions except per share data)
<S> <C> <C> <C> <C>
1996
Total revenues $868.7 $883.4 $862.5 $845.7
Manufacturing net sales 670.4 677.9 658.1 638.5
Manufacturing gross profit 137.3 124.6 97.5 87.5
Financial services
operating income
before taxes 24.7 29.7 (17.6) 26.3
Net income 46.4 35.4 32.7 18.3
Earnings per share .84 .63 .59 .33
================================================================================================
1995*
Total revenues $843.3 $898.1 $879.2 $875.0
Manufacturing net sales 669.4 706.6 683.2 672.1
Manufacturing gross profit 151.9 168.5 188.8 154.6
Financial services
operating income
before taxes 14.2 24.0 24.9 35.0
Net income 58.3 72.9 84.8 65.0
Earnings per share 1.04 1.30 1.51 1.16
================================================================================================
</TABLE>
*Reclassified to conform with current year's classification
60
<PAGE> 24
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 28, 1996, and December 30, 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 28, 1996. 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 mis-statement. 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 28, 1996, and December 30, 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 28, 1996, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Houston, Texas
January 31, 1997
61
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF TEMPLE-INLAND INC.
(STATE OF INCORPORATION) (PERCENTAGE OF OWNERSHIP BY IMMEDIATE PARENT)
(FEDERAL TAX I.D. NUMBER)
INLAND CONTAINER CORPORATION I(DELAWARE)(100%)(75-2042862)
Inland Paperboard and Packaging, Inc.(Delaware)(100%)(13-2946332)
C.B. Displays, Inc.(Delaware)(100%)(56-1924238)
El Morro Corrugated Box Corporation(Delaware)(100%)(35-1323144)
El Morro Corrugated Box Corporation(Puerto Rico)(100%)(66-0274059)
Georgia Kraft Company (Delaware)(100%)(75-2212491)
Sabine River & Northern Railroad Company
(Texas)(100%)(34-0969790)
IC Holding, Inc.(Delaware)(100%)(75-2559834)
Rand-Whitney Packaging Corporation
(Massachusetts)(100%)(04-2424252)
Delmar Packaging, Inc. (Delaware)(100%)(59-0981827)
Rand-Whitney Robertson Corporation
(Delaware)(100%)(04-2938624)
Inland Argentina, Inc. (Delaware)(100%)(75-2559834)
Inland Massuh S.A. (Argentina)(100%)
Inland Chile I, Inc. (Delaware)(100%)(75-2559831)
Manufacturas y Embalajes Inland Chile Limitada (90%; 10% Inland
Chile II)(Chile)
Inland Chile II, Inc. (Delaware)(100%)(75-2559773)
Inland Container FSC, Inc. (U.S. Virgin Islands)(100%)(66-0412023)
Inland International Holding Company (Delaware)(100%)(75-2559772)
Inland Corrugados de Mexico, S.A. de C.V. (Mexico)(100%)
Inland Corrugados de Guanajato, S.A. de C.V. (Mexico)(100%)
Inland Corrugados de Monterrey, S.A. de C.V. (Mexico)(100%)
Inland Corrugados de Sinaloa, S.A. de C.V. (Mexico)(100%)
TinCorr S.A. (Uruguay)(100%)
Inland Paper Company, Inc. (Indiana)(100%)(35-1343720)
Inland Real Estate Investments, Inc. (Indiana)(100%)(35-6019135)
Crockett Container Corporation (California)(100%)(95-2692965)
King Container Company (California)(100%)(95-3420258)
Pakway Container Corporation (Indiana)(100%)(35-1142085)
Wesland Container LLC (Arkansas)(50%)
TEMPLE-INLAND FOREST PRODUCTS CORPORATION (DELAWARE)(100%)(75-1462427)
The Angelina Free Press, Inc. (Texas)(100%)(75-1080101)
Big Tin Barn Inc. (Delaware)(100%)(75-2450632)
Del-Tin Fiber, L.L.C. (Arkansas)(50%)(71-0772548)
Eastex Incorporated (Texas)(100%)(74-1180064)
Evadale Realty Company (Delaware)(100%)(74-6047398)
Bestile Manufacturing Company (California)(100%)(95-1608040)
Home Owners Trust Company (Texas)(100%)(74-1482976)
Sabine Investment Company of Texas, Inc. (Texas)(100%)(75-1308206)
Scotch Investment Company (Texas)(100%)(74-1463738)
Scotch Properties Management Inc. (Delaware)(100%)(75-2242094)
Southern Pine Lumber Company (Texas)(100%)(75-1183646)
Southern Pine Plywood Co. (Texas)(100%)(75-1159301)
Standard Gypsum L.L.C. (Texas)(50%)
Syntal, Inc. (Texas)(50%)
Templar Essex Inc. (Delaware)(100%)(75-2459426)
Temple Associates, Inc. (Texas)(100%)(75-0777257)
<PAGE> 2
EXHIBIT 21 -- (CONTINUED)
Temple-Eastex Incorporated (Delaware)(100%)(75-2248412)
Temple Industries, Inc. (Texas)(100%)(75-0571180)
Temple-Inland Food Service Corporation (Delaware)(100%)(75-2285370)
Temple-Inland Forest Products of Canada Inc. (New Brunswick, Canada)(100%)
Temple-Inland Forest Products International Inc.
(Delaware)(100%)(75-1462427)
Planfosur S. de R.L. de C.V. (Mexico)(100%)
Temple-Inland Paperboard Specialty Company (Delaware)(100%)(75-2504953)
Temple-Inland Recaustisizing Company (Delaware)(100%)(75-2468479)
Temple-Inland Recovery Company (Delaware)(100%)(75-2468476)
Temple-Inland Stores Company (Delaware)(100%)(75-2468477)
Temple-Inland Trading Company (Delaware)(100%)(75-2604111)
Temple Lumber Company (Texas)(100%)(75-6018597)
Temple/Re-Con Inc. (Delaware)(100%)
Texas Southeastern Railroad Company (Texas)(100%)(75-6002614)
Topaz Oil Company (Texas)(100%)(75-1053707)
TEMPLE-INLAND FINANCIAL SERVICES INC.(DELAWARE)(50%;
50% BY TEMPLE-INLAND FOREST PRODUCTS CORPORATION)(74-2421034)
Guaranty Holdings Inc. I (Delaware)(100%)(75-2244180)
Guaranty Federal Bank, F.S.B. (Federal)(100%)
Guaranty Group Inc. (Texas)(100%)(75-2515512)
Guaranty Investment Advisory, Inc. (Texas)(100%)(75-2406252)
Participation Purchase Corporation (Nevada)(100%)(74-2676327)
Temple-Inland Mortgage Corporation (Nevada)(100%)(74-1878850)
Western Cities Mortgage Corporation
(California)(100%)(95-3836552)
Temple-Inland Properties Inc. (Delaware)(100%)(74-2431999)
Stanford Realty Advisors, Inc. (Delaware)(100%)(75-2426395)
LIC Investments Inc. (Delaware)(100%)(74-2366105)
Lumbermen's Investment Corporation (Delaware)(100%)(74-1213624)
LIC Financial Corporation (Delaware)(100%)(74-2553548)
LIC Ventures, Inc.(100%) (Delaware)
Tampa Palms Apartments, Ltd. (Florida)(69%)
Onion Creek Wastewater Corporation (Texas)(100%)(74-2733721)
Sunbelt Insurance Company (Texas)(100%)(74-1950814)
TEEC Inc. (Texas)(100%)(75-1962795)
Timberline Insurance Managers, Inc. (Texas)(100%)(74-1550763)
Capline Marketing Group (Texas)(50%)(74-2577835)
Premium Acceptance Corporation (Texas)(100%)
Rubiola, Blair & Associates, Inc. (Texas)(100%)
The Insurance Marketplace, Inc. (Texas)(100%)
Temple-Inland Capital Inc. (Delaware)(100%)(75-2555146)
Temple-Inland Life Inc. (Nevada)(100%)(74-2387096)
Temple-Inland Insurance Corporation (Delaware)(100%)(75-2045626)
Temple-Inland Realty Inc. (Delaware)(100%)(75-2370575)
<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 January 31, 1997, included in
the 1996 Annual Report to Shareholders of Temple-Inland Inc.
We consent to the incorporation by reference in each of the following
Registration Statements filed by Temple-Inland Inc. and in each related
Prospectus of our report dated January 31, 1997, with respect to the
consolidated financial statements of Temple-Inland Inc. incorporated by
reference in the Annual Report (Form 10-K) for the year ended December 28, 1996,
and our report dated January 31, 1997, with respect to the financial statement
schedule included in this Annual Report (Form 10-K) for the year ended December
28, 1996.
<TABLE>
<CAPTION>
REGISTRATION
STATEMENT NO. PURPOSE
------------- -------
<S> <C>
No. 2-88202 Post-Effective Amendment Number 3 on Form S-8
No. 33-23132 Registration Statement on Form S-8
No. 33-25650 Post-Effective Amendment Number 1 on Form S-8
No. 33-27286 Post-Effective Amendment Number 1 on Form S-8
No. 33-32124 Post-Effective Amendment Number 2 on Form S-8
No. 33-43802 Registration Statement on Form S-8
No. 33-48034 Registration Statement on Form S-8
No. 33-54388 Registration Statement on Form S-8
No. 33-63104 Registration Statement on Form S-8
No. 333-21937 Registration Statement on Form S-4
</TABLE>
/s/ ERNST & YOUNG LLP
Houston, Texas
March 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<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> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 228
<SECURITIES> 0
<RECEIVABLES> 292
<ALLOWANCES> 0
<INVENTORY> 327
<CURRENT-ASSETS> 0
<PP&E> 2,931
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,947
<CURRENT-LIABILITIES> 0
<BONDS> 1,655
0
0
<COMMON> 61
<OTHER-SE> 1,954
<TOTAL-LIABILITY-AND-EQUITY> 12,947
<SALES> 2,645
<TOTAL-REVENUES> 3,460
<CGS> 2,447
<TOTAL-COSTS> 3,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 156
<INCOME-TAX> 23
<INCOME-CONTINUING> 133
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.39
</TABLE>
