SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarterly Period
Ended July 4, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period
From ________________________ to _______________________
Commission File Number 001-08634
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 Number)
303 South Temple Drive, Diboll, Texas 75941
(Address of principal executive offices) (Zip Code)
(409) 829-5511
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate 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 the filing
requirements for the past 90 days.
Yes X No_____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Number of common shares outstanding
Class as of July 4, 1998
Common Stock (par
value $1.00 per share) 55,597,108
The Exhibit Index appears on page 22 of this report.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Summarized Statements of Income
Parent Company (Temple-Inland Inc.)
Unaudited
Second Quarter First Six Months
1998 1997 1998 1997
(in millions)
Revenues
Net sales $ 671.2 $ 687.1 $ 1,353.4 $ 1,336.1
Financial services
earnings 41.0 32.4 77.7 61.9
----- ----- ------- -------
712.2 719.5 1,431.1 1,398.0
Costs and Expenses
Cost of sales 562.8 602.2 1,147.0 1,169.3
Selling and
administrative 65.5 65.0 130.6 127.7
----- ----- ------- -------
628.3 667.2 1,277.6 1,297.0
Operating Income 83.9 52.3 153.5 101.0
Interest - net (27.0) (28.3) (53.3) (56.1)
Other 1.7 1.9 3.2 2.7
----- ----- ------- -------
Income Before Taxes 58.6 25.9 103.4 47.6
Taxes on income 24.0 10.3 42.4 18.8
----- ----- ------- -------
Net Income $ 34.6 $ 15.6 $ 61.0 $ 28.8
====== ====== ======== ========
See notes to consolidated financial statements.
<PAGE> 3
Summarized Balance Sheets
Parent Company (Temple-Inland Inc.)
Unaudited
July 4, January 3,
1998 1998
(in millions)
ASSETS
Current Assets
Cash $ 15 $ 13
Receivables, less allowances of
$10 million in 1998 and $9
million in 1997 318 281
Inventories:
Work in process and finished goods 101 109
Raw materials 238 230
----- -----
339 339
Prepaid expenses 18 15
----- -----
Total current assets 690 648
Investment in Financial Services 656 576
Property and Equipment
Buildings 557 554
Machinery and equipment 3,760 3,689
Less allowances for depreciation and
amortization (2,195) (2,086)
------- -------
2,122 2,157
Construction in progress 93 115
----- -----
2,215 2,272
Timber and timberlands--less depletion 508 507
Land 34 34
----- -----
Total property and equipment 2,757 2,813
Other Assets 180 163
----- -----
Total Assets $ 4,283 $ 4,200
===== =====
See notes to consolidated financial statements.
<PAGE> 4
Summarized Balance Sheets - Continued
Parent Company (Temple-Inland Inc.)
Unaudited
July 4, January 3,
1998 1998
(in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 130 $ 135
Accrued expenses 137 150
Employee compensation and benefits 18 23
Current portion of long-term debt 2 3
----- -----
Total current liabilities 287 311
Long-Term Debt 1,541 1,438
Deferred Income Taxes 268 252
Postretirement Benefits 143 140
Other Liabilities 14 14
Shareholders' Equity 2,030 2,045
----- -----
Total Liabilities and
Shareholders' Equity $ 4,283 $ 4,200
===== =====
See notes to consolidated financial statements.
<PAGE> 5
Summarized Statements of Cash Flows
Parent Company (Temple-Inland Inc.)
Unaudited
First Six Months
1998 1997
(in millions)
Cash Provided by (Used for) Operations
Net income $ 61.0 $ 28.8
Adjustments to reconcile
net income to net cash:
Depreciation and depletion 129.5 126.4
Deferred taxes 17.4 .7
Unremitted earnings of affiliates (59.0) (50.4)
Receivables (37.5) (26.8)
Inventories .6 (4.9)
Prepaid expenses (3.5) (4.2)
Accounts payable and accrued expenses (23.5) 10.0
Other (12.8) (25.8)
------- -------
72.2 53.8
Cash Provided by (Used for) Investments
Capital expenditures (76.2) (115.0)
Investment in joint ventures/
acquisitions (2.0) (7.8)
Sale of property and equipment 1.6 1.7
Capital contributions to financial
services (40.0) (24.6)
Dividends from financial services 25.0 125.0
Acquisition of California Financial Holding
Company, net of cash acquired - (22.7)
------- -------
(91.6) (43.4)
Cash Provided by (Used for) Financing
Change in debt, net 102.1 45.8
Purchase of stock for treasury (48.1) (25.5)
Cash dividends paid to shareholders (35.8) (35.5)
Other 2.6 5.3
------- -------
20.8 (9.9)
Net increase in cash and
cash equivalents 1.4 .5
Cash and cash equivalents at beginning
of period 13.4 14.3
------- -------
Cash and cash equivalents at end
of period $ 14.8 $ 14.8
======= ========
See notes to consolidated financial statements.
<PAGE> 6
Summarized Statements of Income
Temple-Inland Financial Services
Unaudited
Second Quarter First Six Months
1998 1997 1998 1997
(in millions)
Interest Income
Loans receivable and
mortgage loans held
for sale $ 142.8 $ 122.4 $ 281.4 $ 240.8
Mortgage-backed and investment
securities 38.8 37.1 80.2 74.2
Other earning assets 1.2 5.2 2.0 10.2
----- ----- ----- -----
Total interest income 182.8 164.7 363.6 325.2
Interest Expense
Deposits 89.4 76.3 178.8 151.1
Borrowed funds 35.4 37.8 67.4 73.1
----- ----- ----- -----
Total interest expense 124.8 114.1 246.2 224.2
Net Interest Income 58.0 50.6 117.4 101.0
Provision for loan losses (.6) 1.4 1.3 .7
------ ----- ----- -----
Net Interest Income After
Provision For Loan Losses 58.6 49.2 116.1 100.3
Noninterest Income
Loan servicing fees 19.4 17.6 41.9 32.1
Loan origination and
marketing 27.9 9.6 49.9 16.4
Other 39.4 28.9 76.5 49.0
----- ----- ----- -----
86.7 56.1 168.3 97.5
Noninterest Expense
Compensation and benefits 41.9 29.5 83.2 56.8
Other 59.2 42.4 117.6 78.1
----- ----- ----- -----
Total noninterest expense 101.1 71.9 200.8 134.9
Income before taxes and
minority interest 44.2 33.4 83.6 62.9
Minority interest in income of
consolidated subsidiary (3.2) (1.0) (5.9) (1.0)
------ ------ ----- -----
Income before taxes 41.0 32.4 77.7 61.9
Taxes on income 9.1 (.1) 18.7 11.5
----- ----- ----- -----
Net Income $ 31.9 $ 32.5 $ 59.0 $ 50.4
====== ====== ====== ======
See notes to consolidated financial statements.
<PAGE> 7
Summarized Balance Sheets
Temple-Inland Financial Services
Unaudited
July 4, January 3,
1998 1998
(in millions)
ASSETS
Cash and cash equivalents $ 257 $ 175
Mortgage loans held for sale 502 439
Loans receivable 6,896 6,451
Mortgage-backed and investment
securities 2,555 2,806
Other assets 915 914
------ ------
TOTAL ASSETS $ 11,125 $ 10,785
======= ======
LIABILITIES
Deposits $ 7,384 $ 7,375
Securities sold under repurchase
agreements 66 270
Federal Home Loan Bank advances 2,000 1,685
Other borrowings 222 167
Other liabilities 572 562
Preferred stock issued by
subsidiary 225 150
------ ------
TOTAL LIABILITIES 10,469 10,209
SHAREHOLDER'S EQUITY 656 576
------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S
EQUITY $ 11,125 $ 10,785
======= ======
See notes to consolidated financial statements.
<PAGE> 8
Summarized Statements of Cash Flows
Temple-Inland Financial Services
Unaudited
First Six Months
1998 1997
(in millions)
Cash Provided by (Used for) Operations
Net income $ 59.0 $ 50.4
Adjustments to reconcile net income
to net cash:
Amortization, accretion and depreciation 39.8 16.5
Provision for loan losses 1.3 .7
Mortgage loans held for sale (63.5) (4.6)
Collections and remittances on loans
serviced for others, net (41.1) 68.7
Other (48.1) (12.5)
----- -----
(52.6) 119.2
Cash Provided by (Used for) Investments
Purchases of securities available-for-sale (33.0) -
Maturities of securities available-for-sale 154.7 28.0
Purchases of securities held-to-maturity - (19.2)
Maturities of securities held-to-maturity 156.9 163.0
Proceeds from sale of securities available-
for-sale 52.3 172.4
Loans originated or acquired - net of
principal collected on loans (532.1) (784.0)
Other 37.5 (2.9)
------ -----
(163.7) (442.7)
Cash Provided by (Used for) Financing
Net increase in deposits 9.8 33.8
Securities sold under repurchase agreements
and short-term borrowings - net 110.8 (48.3)
Change in debt, net 53.9 195.3
Capital contributions from parent 40.0 24.6
Proceeds from sale of subsidiary
preferred stock 75.0 150.1
Dividends paid to parent (25.0) (125.0)
Net increase in advances from borrowers for
taxes and insurance 33.4 52.4
----- -----
297.9 282.9
Net increase (decrease) in cash and cash
equivalents 81.6 (40.6)
Cash and cash equivalents at beginning
of period 175.1 214.4
----- -----
Cash and cash equivalents at end
of period $ 256.7 $ 173.8
====== ======
See notes to consolidated financial statements.
<PAGE> 9
Consolidated Statements of Income
Temple-Inland Inc. and Subsidiaries
Unaudited
Second Quarter First Six Months
1998 1997 1998 1997
(In millions, except for per share data)
Revenues
Manufacturing net
sales $ 671.2 $ 687.1 $ 1,353.4 $ 1,336.1
Financial services
revenues 269.5 220.8 531.9 422.7
----- ----- ------- -------
940.7 907.9 1,885.3 1,758.8
Costs and Expenses
Manufacturing costs
and expenses 628.3 667.2 1,277.6 1,297.0
Financial services
expenses 228.5 188.4 454.2 360.8
----- ----- ------- -------
856.8 855.6 1,731.8 1,657.8
Operating Income 83.9 52.3 153.5 101.0
Parent Company Interest
- net (27.0) (28.3) (53.3) (56.1)
Other 1.7 1.9 3.2 2.7
----- ----- ------- -------
Income Before Taxes 58.6 25.9 103.4 47.6
Taxes on Income 24.0 10.3 42.4 18.8
----- ----- ------- -------
Net Income $ 34.6 $ 15.6 $ 61.0 $ 28.8
====== ====== ======== ========
Weighted Average Shares
Outstanding:
Basic 55.8 55.4 55.9 55.4
====== ====== ===== =====
Diluted 56.0 55.6 56.1 55.6
====== ====== ===== =====
Earnings per share:
Basic $ .62 $ .28 $1.09 $ .52
==== ==== ==== ====
Diluted $ .62 $ .28 $1.09 $ .52
==== ==== ==== ====
Dividends Paid Per Share of
Common Stock $ .32 $ .32 $ .64 $ .64
==== ==== ==== ====
See notes to consolidated financial statements.
<PAGE> 10
Consolidated Balance Sheets
Temple-Inland Inc. and Subsidiaries
July 4, 1998
Unaudited
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 15 $ 257 $ 272
Mortgage loans held for sale - 502 502
Loans receivable - 6,896 6,896
Mortgage-backed and investment
securities - 2,555 2,555
Trade and other receivables 318 - 312
Inventories 339 - 339
Property & equipment 2,757 112 2,869
Other assets 198 803 950
Investment in financial
services 656 - -
----- ------ ------
TOTAL ASSETS $ 4,283 $ 11,125 $14,695
====== ======= =======
LIABILITIES
Deposits $ - $ 7,384 $ 7,384
Securities sold under repurchase
agreements and Federal Home
Loan Bank advances - 2,066 2,066
Other liabilities 301 572 839
Long-term debt 1,541 222 1,763
Deferred income taxes 268 - 245
Postretirement benefits 143 - 143
Preferred stock issued by
subsidiary - 225 225
----- ------ ------
TOTAL LIABILITIES $ 2,253 $ 10,469 12,665
----- ------
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 356
Accumulated other comprehensive income (loss) (15)
Retained earnings 1,842
------
2,244
Cost of shares held in the treasury:
5,792,444 shares (214)
------
TOTAL SHAREHOLDERS' EQUITY 2,030
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,695
=======
See notes to the consolidated financial statements.
<PAGE> 11
Consolidated Balance Sheets
Temple-Inland Inc. and Subsidiaries
January 3, 1998
Unaudited
Parent Financial
Company Services Consolidated
(in millions)
ASSETS
Cash and cash equivalents $ 13 $ 175 $ 188
Mortgage loans held for sale - 439 439
Loans receivable - 6,451 6,451
Mortgage-backed and investment
securities - 2,806 2,806
Trade and other receivables 281 - 277
Inventories 339 - 339
Property & equipment 2,813 103 2,916
Other assets 178 811 948
Investment in financial
services 576 - -
----- ------ ------
TOTAL ASSETS $ 4,200 $10,785 $14,364
====== ====== =======
LIABILITIES
Deposits $ - $ 7,375 $ 7,375
Securities sold under repurchase
agreements and Federal Home
Loan Bank advances - 1,955 1,955
Other liabilities 325 562 871
Long-term debt 1,438 167 1,605
Deferred income taxes 252 - 223
Postretirement benefits 140 - 140
Preferred stock issued by
subsidiary - 150 150
----- ------ ------
TOTAL LIABILITIES $ 2,155 $10,209 12,319
----- ------
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 356
Accumulated other comprehensive income (loss) (20)
Retained earnings 1,817
------
2,214
Cost of shares held in the treasury:
5,069,011 shares (169)
------
TOTAL SHAREHOLDERS' EQUITY 2,045
------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,364
=======
See notes to the consolidated financial statements.
<PAGE> 12
Consolidated Statements of Cash Flows
Temple-Inland Inc. and Subsidiaries
Unaudited
First Six Months
1998 1997
(in millions)
Cash Provided by (Used for) Operations
Net income $ 61.0 $ 28.8
Adjustments to reconcile net income to
net cash:
Depreciation and depletion 136.5 132.4
Amortization and accretion 32.8 10.5
Deferred taxes 19.0 5.0
Trade and other receivables (37.5) (26.8)
Accounts payable and accrued expenses (23.5) 10.0
Inventories .6 (4.9)
Mortgage loans held for sale (63.5) (4.6)
Collections and remittances on loans
serviced for others - net (41.1) 68.7
Other (64.7) (46.1)
-------- -------
19.6 173.0
Cash Provided by (Used for) Investments
Capital expenditures (91.8) (122.4)
Purchases of securities
available-for-sale (33.0) -
Maturities of securities
available-for-sale 154.7 28.0
Purchases of securities held-to-maturity - (19.2)
Maturities of securities held-to-maturity 156.9 163.0
Proceeds from sale of securities available-
for-sale 52.3 172.4
Loans originated or acquired - net of
principal collected on loans (532.1) (784.0)
Acquisition of California Financial Holding
Company, net of cash acquired - (22.7)
Other 52.7 (1.6)
------- -------
(240.3) (586.5)
Cash Provided by (Used for) Financing
Additions to debt 353.8 436.8
Payments of debt (197.8) (195.7)
Securities sold under repurchase agreements
and short-term borrowings - net 110.8 (48.3)
Cash dividends paid to shareholders (35.8) (35.5)
Net increase (decrease) in deposits 9.8 33.3
Net increase in advances from borrowers for
taxes and insurance 33.4 52.4
Purchase of treasury stock (48.1) (25.5)
Proceeds from sale of subsidiary
preferred stock 75.0 150.1
Other 2.6 5.3
------- -------
303.7 372.9
Net increase (decrease) in cash and
cash equivalents 83.0 (40.6)
Cash and cash equivalents at beginning
of period 188.5 228.7
------- -------
Cash and cash equivalents at end
of period $ 271.5 $ 188.1
======== ========
See notes to consolidated financial statements.
<PAGE> 13
TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of normal
accruals) considered necessary for a fair presentation have been
included. For further information, refer to the consolidated
financial statements and footnotes included in, or incorporated
into, Temple-Inland Inc.'s (the "Company") Annual Report on Form
10-K for the fiscal year ended January 3, 1998.
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.
Included as an integral part of the consolidated financial
statements are separate summarized financial statements for the
Company's primary business groups.
The Parent Company's (Temple-Inland Inc.) summarized financial
statements include the accounts of Temple-Inland Inc. and its
manufacturing subsidiaries with the Financial Services
subsidiaries and the 20 percent to 50 percent owned companies
being reflected in the financial statements on the equity basis.
The Temple-Inland Financial Services Group summarized financial
statements include savings bank, mortgage banking, real estate
development activities and insurance operations.
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement 130, "Reporting Comprehensive Income".
Statement 130 establishes new rules for reporting and the display
of comprehensive income and its components; however, the adoption
of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's available-for-sale securities, minimum
pension liability adjustments and foreign currency translation
adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive
income. Prior year financial statements have been reclassified
to conform to the requirements of Statement 130.
<page 14>
TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION--Continued
Comprehensive income (unaudited) for the six months ended June
1998 and 1997 is as follows:
Comprehensive Income
(in thousands)
Second Quarter First Six Months
1998 1997 1998 1997
Net income $34,563 $15,552 $61,020 $28,801
Other comprehensive income,
net of income taxes:
Unrealized gains (losses)
on securities 972 1,331 6,356 (557)
Minimum pension liability
adjustments - - (988) -
------ ------ ------ ------
Comprehensive income $35,535 $16,883 $66,388 $28,244
====== ====== ====== ======
The American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5 in April 1998. SOP 98-5
requires costs of start-up activities to be expensed as incurred.
The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The adoption will not have a
material impact on the Company.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is required to be adopted in years
beginning after June 15, 1999. The Company has not yet
determined what the effect of Statement 133 will be on the
earnings and financial position of the Company.
NOTE B - EARNINGS PER SHARE
Numerators and denominators used in computing earnings per share
are as follows:
Earnings Per Share
(in thousands, except for per
share data)
Second Quarter First Six Months
1998 1997 1998 1997
Numerator for basic and
diluted earnings per
share-net income $34,563 $15,552 $61,020 $28,801
====== ====== ====== ======
Denominator for basic earnings
per share - weighted average
common shares outstanding 55,801 55,454 55,919 55,440
Dilutive effect of stock
options 183 177 180 178
------ ------ ------ ------
Denominator for diluted
earnings per share 55,984 55,631 56,099 55,618
====== ====== ====== ======
Net income per share
- Basic $ .62 $ .28 $1.09 $ .52
==== ==== ==== ====
Net income per share
- Diluted $ .62 $ .28 $1.09 $ .52
==== ==== ==== ====
<PAGE> 15
TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - CONTINGENCIES
There are pending against the Company and its subsidiaries
lawsuits and claims 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.
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Results of operations, including information regarding the
Company's principal business segments, are shown below:
Second Quarter First Six Months
1998 1997 1998 1997
(in millions)
Revenues
Paper $ 515.3 $ 527.6 $ 1,043.0 $ 1,030.0
Building products 155.9 159.5 310.4 306.1
----- ----- ------- -------
Manufacturing net sales 671.2 687.1 1,353.4 1,336.1
Financial services 269.5 220.8 531.9 422.7
----- ----- ------- -------
Total revenues $ 940.7 $ 907.9 $ 1,885.3 $ 1,758.8
====== ====== ======== ========
Income
Paper $ 17.9 $ (10.1) $ 27.8 $ (17.2)
Building products 32.3 36.4 62.2 68.5
----- ----- ------- -------
Operating profit 50.2 26.3 90.0 51.3
Financial services 41.0 32.4 77.7 61.9
----- ----- ------- -------
91.2 58.7 167.7 113.2
Corporate expenses (7.3) (6.4) (14.2) (12.2)
Parent company interest
- net (27.0) (28.3) (53.3) (56.1)
Other - net 1.7 1.9 3.2 2.7
----- ----- ------- -------
Income before taxes 58.6 25.9 103.4 47.6
Taxes on income 24.0 10.3 42.4 18.8
----- ----- ------- -------
Net income $ 34.6 $ 15.6 $ 61.0 $ 28.8
====== ====== ======== ========
<PAGE> 17
Second Quarter 1998 vs. Second Quarter 1997
Second quarter earnings for 1998 totaled $34.6 million, or $0.62
per diluted share, an increase of 121 percent from second quarter
1997 net income of $15.6 million, or $0.28 per diluted share.
Revenues for the period were $940.7 million, up four percent from
the $907.9 million reported for the same quarter of 1997.
The paper group reported operating earnings of $17.9 million
compared with a loss of $10.1 million in last year's second
quarter. Average box prices for the corrugated packaging
operation were up 11 percent compared with the same period last
year while volumes were down slightly. Prices for boxes were
stable with first quarter levels, but volume weakened seasonally
during the quarter. Demand for containerboard in the export
markets also declined, especially in Asian markets. As a result,
the corrugated packaging operation reduced production to control
inventory levels. Prices for bleached paperboard were flat
compared with the first quarter, but down from second quarter
1997 prices. Mix improvement and lower costs somewhat offset the
lower prices.
The building products group reported operating income of $32.3
million, down only $4.1 million from last year's second quarter
despite a $55 per mbf decline in average lumber prices that
reduced profitability by $7.1 million. Residential construction
levels remained higher than anticipated in the quarter, and
demand for this group's mix of building products remained
favorable, especially for gypsum and particleboard.
The financial services group had a record quarter with earnings
of $41.0 million, $8.6 million above last year's same period
results. The bank's loan portfolio continued to grow, while
operating costs declined as additional benefits were achieved
from the acquisition of Stockton Savings. The mortgage bank
experienced near record levels of new mortgage originations at
$1.42 billion, but also experienced an increased level of
prepayments largely due to refinancings.
Net interest expense decreased to $27.0 million in the second
quarter of 1998 compared with $28.3 million in the second quarter
of last year. Gross interest decreased from $28.9 million in
1997 to $27.1 million in 1998. Capitalized interest decreased
slightly from $.6 million in the second quarter of 1997, to $.1
million in the second quarter of 1998.
<PAGE> 18
First Half of 1998 vs. First Half of 1997
Earnings for the first six months of 1998 were $61.0 million, or
$1.09 per diluted share compared with $28.8 million, or $.52 per
diluted share for the first half of last year. Revenues of
$1,885.3 million were up seven percent from the 1997 first half
revenues of $1,758.8 million.
The paper group earned $27.8 million compared with a loss of
$17.2 million in the first six months of 1997. Average box
prices for the corrugated packaging operation were up for the
first six months of the year compared with the same period last
year, while volumes were down slightly. Prices for bleached
paperboard were slightly lower for the first half of 1998
compared with the same period last year.
The building products group earned $62.2 million in the first
half of 1998 compared with $68.5 million in the first half of
last year. Although significantly lower market prices for solid
wood products and fiber products reduced earnings by a combined
total of $10.7 million from the first half of 1997, the strong
earnings for the particleboard and gypsum group somewhat offset
this decline. Gypsum operations improved earnings from last year
due to higher market prices and increased shipment volumes. The
particleboard operation experienced significantly higher shipment
volumes in the first half of 1998 compared with the first six
months of 1997.
Earnings for the financial services group were $77.7 million for
the period, an increase of $15.8 million from last year's
comparable period. The bank's loan portfolio continued to grow
and the credit quality of the loan portfolio remains strong.
Capital Resources and Financial Condition
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.
During the second quarter of 1998, an additional $75 million of
preferred stock in the REIT subsidiary of Guaranty Federal Bank,
F.S.B., was issued bringing the total to $225 million. Parent
Company's debt increased $102.1 million in the first half of 1998
mainly through issuance of commercial paper and bank debt. As
part of the Company's share repurchase plan, approximately
850,500 shares were repurchased in the first half of 1998 at a
total cost of $48.1 million.
Guaranty Federal Bank continues to meet all three regulatory
capital requirements.
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
INTEREST RATE RISK:
The Company is subject to interest rate risk from the utilization
of financial instruments such as term debt and other borrowings,
as well as the lending and deposit gathering activities of the
Financial Services Group. Historically, the exposure of income
to interest rate risk has been maintained at a relatively
moderate level due to the high correlation between changes in the
rates earned on the group's adjustable-rate assets and changes in
the aggregate cost of the group's funding sources. The Company
has many options to mitigate the earnings impact of a significant
change in interest rates. Potential options include selling
assets, executing hedges, and modifying the maturity or repricing
characteristics of assets and/or liabilities.
The Company routinely utilizes a simulation model to measure the
sensitivity of income to movements in interest rates. The model
incorporates the maturity and repricing characteristics of
interest rate sensitive assets and liabilities, as well as
assumptions regarding the impact of changing interest rates on
the prepayment rates of certain results. The results of the
sensitivity analyses as of July 4, 1998 did not differ materially
from the amounts reported as of January 3, 1998.
FOREIGN CURRENCY RISK:
The Company's exposure to foreign currency fluctuations on its
financial instruments is not material because most of these
instruments are denominated in U.S. dollars.
COMMODITY PRICE RISK:
The Company has no financial instruments subject to commodity
price risks.
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note B to Notes to
Consolidated Financial Statements in Part I of this
report is incorporated by reference thereto.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Regulation S-K
Exhibit Number
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On June 2, 1998, the Company filed a Current
Report on Form 8-K reporting, under Item 5 of
the report, that the Company had amended its
existing shelf registration (Registration
No. 333-52189) and entered into a Selling
Agency Agreement with Salomon Brothers Inc.
and SBC Warburg Dillon Read Inc., related to
the possible issuance and sale of up to
$500,000,000 aggregate principal amount of
Medium-Term Notes, Series F.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TEMPLE-INLAND INC.
(Registrant)
Date: August 12, 1998 By /s/ David H. Dolben
-------------------------
David H. Dolben
Vice President and
Chief Accounting Officer
<PAGE> 22
EXHIBIT INDEX
The following is an index of the exhibits filed herewith. The
page reference set forth opposite the description of exhibits
included in such index refer to the pages under the sequential
numbering system prescribed by Rule 0-3(b) under the Securities
Exchange Act of 1934.
Regulation S-K
Exhibit Sequential
Number Page Number
(27) Financial Data Schedule 23
<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> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JUL-04-1998
<CASH> 272
<SECURITIES> 0
<RECEIVABLES> 312
<ALLOWANCES> 0
<INVENTORY> 339
<CURRENT-ASSETS> 0
<PP&E> 2,869
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,695
<CURRENT-LIABILITIES> 0
<BONDS> 1,763
0
0
<COMMON> 61
<OTHER-SE> 1,969
<TOTAL-LIABILITY-AND-EQUITY> 14,695
<SALES> 1,353
<TOTAL-REVENUES> 1,885
<CGS> 1,278
<TOTAL-COSTS> 1,732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 103
<INCOME-TAX> 42
<INCOME-CONTINUING> 61
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.09
</TABLE>
