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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 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 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) 829-5511
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $1.00 PAR VALUE PER SHARE, NEW YORK STOCK EXCHANGE
NON-CUMULATIVE PACIFIC STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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 4, 1998, was $2,130,569,842. 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 4, 1998, 56,048,867 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 January 3, 1998 -- Parts I and II.
(b)The Company's definitive proxy statement, dated March 30, 1998, in
connection with the Annual Meeting of Stockholders to be held May 1,
1998 -- Part III.
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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 packaging, bleached paperboard, building products, timber and
timberlands, and financial services. The Company's Paper Group consists of the
corrugated packaging and bleached paperboard operations. The corrugated
packaging operation is vertically integrated and consists of four linerboard
mills, three corrugating medium mills, 39 box plants, and nine specialty
converting plants. In February 1998, the Company announced its intention to
close, during the second quarter of 1998, one of its corrugating medium mills
and one of its box plants, both located in Newark, California. 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) 829-5511.
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FINANCIAL INFORMATION:
The results of operations including information regarding the principal
business segments are shown in the following table:
TEMPLE-INLAND INC.
BUSINESS SEGMENTS
FOR THE YEAR
-----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN MILLIONS)
Revenues
Paper.................................... $2,062.9 $2,082.3 $2,198.4 $1,740.7 $1,571.2
Building products........................ 617.3 562.6 532.9 575.5 497.5
Other activities......................... -- -- -- 19.2 58.4
-------- -------- -------- -------- --------
Manufacturing net sales.......... 2,680.2 2,644.9 2,731.3 2,335.4 2,127.1
Financial services....................... 945.2 815.4 764.3 631.4 635.1
-------- -------- -------- -------- --------
Total revenues................... $3,625.4 $3,460.3 $3,495.6 $2,966.8 $2,762.2
======== ======== ======== ======== ========
Income before taxes
Paper.................................... $ (39.0) $ 113.0 356.6 $ 73.7 $ 5.6
Building products........................ 131.1 102.0 67.0 138.8 102.4
Other activities......................... -- -- -- 1.5 (1.9)
-------- -------- -------- -------- --------
Operating profit................. 92.1 215.0 423.6 214.0 106.1
Financial services....................... 132.1 63.1(a) 98.1 56.3 67.5
-------- -------- -------- -------- --------
224.2 278.1 521.7 270.3 173.6
Corporate expense........................ (24.6) (17.2) (21.7) (13.7) (11.2)
Parent company interest -- net........... (110.3) (109.6) (72.7) (67.1) (69.4)
Other income............................. 5.7 4.6 3.7 3.8 3.2
-------- -------- -------- -------- --------
Income before taxes.............. $ 95.0 $ 155.9 $ 431.0 $ 193.3 $ 96.2
======== ======== ======== ======== ========
- ---------------
(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
32-33 and 59 of the Company's 1997 Annual Report to Shareholders, which are
incorporated herein by reference.
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The following table shows the revenues of the Company:
REVENUES
FOR THE YEAR
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN MILLIONS)
Paper
Corrugated packaging(a)...................... $1,694.0 $1,760.6 $1,910.3 $1,499.2 $1,306.9
Bleached paperboard.......................... 366.0 300.5 249.0 217.4 228.7
Pulp and other............................... 2.9 21.2 39.1 24.1 35.6
-------- -------- -------- -------- --------
2,062.9 2,082.3 2,198.4 1,740.7 1,571.2
-------- -------- -------- -------- --------
Building products
Pine lumber.................................. 262.1 217.4 190.1 211.9 176.0
Fiber products............................... 66.2 73.3 59.7 66.3 62.9
Particleboard................................ 125.0 112.2 99.1 103.0 81.3
Plywood...................................... 55.2 52.1 49.3 56.8 54.0
Gypsum wallboard............................. 104.6 90.2 83.1 74.3 53.3
Retail distribution(b)....................... 4.2 17.1 51.3 58.4 60.0
Other........................................ -- .3 0.3 4.8 10.0
-------- -------- -------- -------- --------
617.3 562.6 532.9 575.5 497.5
-------- -------- -------- -------- --------
Other activities(c)............................ -- -- -- 19.2 58.4
-------- -------- -------- -------- --------
Manufacturing net sales...................... 2,680.2 2,644.9 2,731.3 2,335.4 2,127.1
Financial services............................. 945.2 815.4 764.3 631.4 635.1
-------- -------- -------- -------- --------
Total revenues....................... $3,625.4 $3,460.3 $3,495.6 $2,966.8 $2,762.2
======== ======== ======== ======== ========
- ---------------
(a) Reclassified to include revenues from Temple-Inland Food Service Corporation
("Food Service") for 1996, 1995, 1994, and 1993. In the fourth quarter of
1997, the Company sold substantially all of the assets of Food Service, a
subsidiary that manufactured and marketed paper products for the food
service industry. Related revenues were $66.3 million, $84.1 million, $80.9
million, $57.9 million, and $54.2 million for 1997, 1996, 1995, 1994, and
1993, respectively.
(b) 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, and the final outlet was sold during 1997.
(c) 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.
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The following table shows the rated annual capacities of the production
facilities for, and unit sales of, the principal manufactured products.
ANNUAL CAPACITIES/UNIT SALES
RATED
ANNUAL
CAPACITY
AT UNIT SALES
JANUARY 3, -----------------------------------------
1998 1997 1996 1995 1994 1993
---------- ----- ----- ----- ----- -----
(IN THOUSANDS OF TONS)
Paper
Corrugated packaging.................. (a) 2,769 2,435 2,333 2,492 2,394
Bleached paperboard................... (b) 635 524 400 430 426
Pulp.................................. (b) 2 100 99 87 134
(IN MILLIONS OF BOARD FEET)
Building products
Pine lumber........................... 675 639 605 582 583 552
(IN MILLIONS OF SQUARE FEET)
Fiber products........................ 460 402 457 422 441 440
Particleboard(c)...................... 610 470 399 329 347 319
Plywood............................... 265 281 259 217 260 265
Gypsum wallboard...................... 866 843 838 813 796 782
- ---------------
(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 615,000 tons per year, including
the 70,000 tons of capacity at the Newark, California, mill, which the
Company intends to close during the second quarter of 1998. The rated
annual capacity of the linerboard mills is approximately 2.2 million tons
per year.
(b) The annual capacity of the four paper machines in operation at the
paperboard and pulp mill is approximately 690,000 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.
(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 1996. The
1997 figures reflect an increase at the Diboll, Texas, and Thomson,
Georgia, plants due to similar renovations during 1997.
NARRATIVE DESCRIPTION OF THE BUSINESS:
The business of the Company is divided among three groups: (1) the Paper
Group, which consists of the corrugated packaging and bleached paperboard
operations, (2) the Building Products Group, and (3) the Financial Services
Group. In the year ended January 3, 1998, the Paper Group, Building Products
Group, and Financial Services Group provided 57 percent, 17 percent, and 26
percent, respectively, of the total consolidated net revenues of the Company.
Paper Group. This group is composed of two operations: corrugated packaging
and bleached paperboard.
(i) Corrugated Packaging. The corrugated packaging operation of the Company
manufactures containerboard that it converts into a complete line of corrugated
packaging and point-of-purchase displays. Approximately 84 percent of the
containerboard produced by Inland in 1997 was converted into corrugated
containers at its box plants. The Company's nationwide network of box plants
produces a wide range of
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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 January 3, 1998, about 47 percent of the Company's box shipments
were sold directly for use in the food industry, including beverage containers.
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 packaging operation, the Company services about 6,800
customers with approximately 11,000 shipping destinations. The largest single
customer accounted for approximately four percent and the 10 largest customers
accounted for approximately 26 percent of the 1997 corrugated packaging
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, particularly the non-durable goods
segment.
(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 relationship, accounted for approximately 12 percent of bleached
paperboard sales in 1997. 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 . This customer is also a
customer of the corrugated packaging operation, but sales to this customer
represent less than four percent of the total sales of the corrugated packaging
operation. The 10 largest customers accounted for approximately 57 percent of
bleached paperboard sales in 1997. During 1997, 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 retail sales of non-durable packaged products in the United States, as
well as the level of fast food restaurant activity for food service grades,
including cup and plate. Demand 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.
Substantially all of the assets of Temple-Inland Food Service Corporation
("Food Service") were sold to a third party during 1997. Food Service was an
integrated paper converter formed by the Company to manufacture and market paper
containers and products primarily for the food service industry. Its products
included paper plates and bowls, clamshells, carrying trays and boxes, nested
food trays, fry cartons, and pails. These products were sold to the fast food
industry, retail consumer stores, and restaurants and cafeterias for use in food
service. The Company determined that Food Service was not a good strategic fit
and would be better served as part of an organization committed to those product
lines. The Company continues to manufacture bleached paperboard grades for
conversion to paper cups and plates by outside customers.
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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 southern United States.
No significant sales are generated under long-term contracts. Sales of most of
these products are made by account managers and representatives to distributors,
retailers, and O.E.M. (original equipment manufacturer) accounts. Almost 78
percent of particleboard sales are to commercial fabricators, such as
manufacturers of cabinets and furniture. The 10 largest customers accounted for
approximately 23 percent of the Building Products Group's 1997 sales.
The building products business is heavily dependent upon the level of
residential housing expenditures, including the repair and remodeling market.
During 1996, the Company completed an upgrade to its particleboard plant in
Monroeville, Alabama. Similar renovation projects were completed at the Diboll,
Texas, and Thomson, Georgia, particleboard plants during 1997.
The Building Products Group is a 50 percent owner in three joint ventures.
One of these joint ventures is currently scheduled to begin producing medium
density fiberboard in the second quarter of 1998 at a facility under
construction in Arkansas. Another of these joint ventures is expected to begin
producing cement fiberboard in the third quarter of 1998 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.
This joint venture also began construction after year end of a wallboard plant
to be located in Tennessee, completion of which is anticipated by 2000.
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 in Texas through 110 banking centers located primarily in
the eastern third of Texas, including Houston, Dallas, San Antonio, and Austin.
Following the Company's acquisition of California Financial Holding Company
("CFHC") in the second quarter of 1997, Guaranty operates an additional 25
branches in the Central Valley of California. 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 second quarter of 1997, the Company completed its acquisition of
CFHC, the parent corporation of Stockton Savings Bank, F.S.B. ("Stockton")
headquartered in Stockton, California. CFHC stockholders received total
consideration of approximately $143.4 million, or $30 per share, consisting of a
combination of the common stock of the Company and cash. The operations of
Stockton were subsequently merged into Guaranty.
During 1996, Congress adopted legislation to recapitalize the Savings
Association Insurance Fund ("SAIF"). This legislation imposed a one-time special
assessment on SAIF members equal to 65.7 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
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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 has reduced assessments by approximately $10 million.
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") established
to ensure capital adequacy of savings institutions currently require savings
institutions to maintain minimum amounts and ratios of total and Tier I capital
to risk-weighted assets and of Tier I capital to adjusted tangible assets.
Management believes that as of year end, Guaranty met all of its capital
adequacy requirements. 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 year end, Guaranty had a leverage capital ratio of
5.48 percent of adjusted total assets. For additional information regarding
regulatory capital requirements, see Note M to Financial Services Group
Summarized Financial Statements on page 49 of the Company's 1997 Annual Report
to Shareholders, which is incorporated herein by reference.
Guaranty must meet or exceed certain regulatory requirements to continue
its current activities and to take certain deductions under the Internal Revenue
Code. At year end, Guaranty met or exceeded these regulatory requirements and
intends to continue meeting or exceeding these regulatory requirements.
(ii) Mortgage Banking. Temple-Inland Mortgage, a wholly-owned subsidiary of
Guaranty, headquartered in Austin, Texas, originates, warehouses, and services
FHA, VA, and conventional mortgage loans primarily on single family residential
property. Temple-Inland Mortgage originates mortgage loans for sale into the
secondary market. It typically retains the servicing rights on these loans, but
periodically sells some portion of its servicing to third parties. During 1997,
Temple-Inland Mortgage expanded its operations in the Midwest by acquiring
Knutson Mortgage Corporation of Minneapolis, a full-service mortgage bank with a
loan servicing portfolio of approximately $6 billion. At year end, Temple-Inland
Mortgage was servicing $26.1 billion in mortgage loans, including loans serviced
for affiliates and approximately $1.6 billion in mortgages serviced for a third
party. Temple-Inland Mortgage produced $3.2 billion in mortgage loans during
1997 compared with $1.9 billion during 1996.
(iii) Real Estate Development and Income Properties. Subsidiaries of
Financial Services are involved in the development of 34 residential
subdivisions in Texas, Arizona, California, Colorado, Florida, Georgia,
Missouri, Tennessee, and Utah. The real estate group of the Company also owns 18
commercial properties, including properties owned by joint ventures in which
subsidiaries of Financial Services are venture partners.
(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 the Financial Services Group.
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The following schedule presents the average balances, interest
income/expense, and rates earned or paid by major balance sheet category for the
years 1995 through 1997:
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST SPREAD
YEAR END 1997 YEAR END 1996 YEAR END 1995
------------------------------ ------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- --------- ------ --------- --------- ------ --------- --------- ------
(DOLLARS IN MILLIONS)
ASSETS
Interest-earning assets:
Interest-earning deposits in
other
banks...................... $ 71.0 $ 4.1 5.71% $ 32.1 $ 2.1 6.42% $ 41.4 $ 2.4 5.90%
Mortgage-backed and
investment securities...... 2,802.2 161.3 5.75% 3,208.5 183.5 5.72% 3,650.4 208.6 5.72%
Securities purchased under
agreements to resell,
agency discount notes,
federal funds sold, and
commercial paper........... 332.9 18.3 5.51% 339.4 18.4 5.41% 324.2 19.1 5.88%
Loans receivable and mortgage
loans held for sale(1)..... 6,618.4 524.9 7.93% 5,258.4 426.1 8.10% 4,490.2 368.6 8.21%
Covered assets............... -- -- -- -- -- -- 298.5 18.3 6.14%
Other........................ 6.9 .4 6.22% 26.0 .7 2.91% 25.6 1.9 7.42%
--------- ------ -------- ------ -------- ------
Total interest-earning
assets............... 9,831.4 $709.0 7.21% 8,864.4 $630.8 7.12% 8,830.3 $618.9 7.01%
====== ====== ======
Cash........................... 100.1 90.6 90.2
Other FSLIC receivables........ -- .8 (10.7)
Other assets................... 785.6 586.0 537.3
--------- -------- --------
Total assets........... $10,717.1 $9,541.8 $9,447.1
========= ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand.... $ 1,099.6 $ 26.4 2.40% $1,087.2 $ 26.1 2.41% $1,212.7 $ 29.9 2.47%
Savings deposits........... 212.4 4.7 2.22% 184.6 4.2 2.28% 216.2 4.9 2.25%
Time deposits.............. 5,416.4 300.1 5.54% 5,013.6 278.0 5.54% 5,037.6 278.1 5.52%
--------- ------ -------- ------ -------- ------
Total interest-bearing
deposits............. 6,728.4 331.2 4.92% 6,285.4 308.3 4.91% 6,466.5 312.9 4.84%
Advances from the Federal
Home Loan Bank............. 1,276.6 79.0 6.19% 629.1 34.0 5.41% 383.6 21.7 5.66%
Securities sold under
repurchase agreements...... 1,297.2 67.9 5.24% 1,484.3 83.5 5.62% 1,490.3 92.1 6.18%
Other borrowings............. 147.7 10.1 6.82% 131.9 9.5 7.24% 95.9 7.2 7.49%
--------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities.......... 9,449.9 $488.2 5.17% 8,530.7 $435.3 5.10% 8,436.3 $433.9 5.14%
====== ====== ======
Noninterest-bearing demand..... 61.1 46.4 79.3
Other liabilities.............. 475.6 361.8 331.3
Preferred Stock issued by
subsidiary................... 90.4 -- --
Shareholder's equity........... 640.1 602.9 600.2
--------- -------- --------
Total liabilities and
shareholder's
equity............... $10,717.1 $9,541.8 $9,447.1
========= ======== ========
Net interest income.... $220.8 $195.5 $185.0
====== ====== ======
Net yield on
interest-earning
assets............... 2.25% 2.20% 2.10%
===== ===== =====
- ---------------
(1) Nonaccruing loans are included in the average of loans receivable.
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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
1997 COMPARED WITH 1996 1996 COMPARED WITH 1995
------------------------------- -----------------------------
INCREASE (DECREASE) DUE TO(1) INCREASE (DECREASE) DUE TO(1)
------------------------------- -----------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- ------- -------- ------- ------- -------
(IN MILLIONS)
Interest income:
Interest-earning deposits in other
banks............................ $ 2.2 $(0.2) $ 2.0 $ (.5) $ .2 $ (.3)
Mortgage-backed and investment
securities....................... (23.3) 1.1 (22.2) (25.3) .2 (25.1)
Securities purchased under
agreements to resell, agency
discount notes, federal funds
sold, and commercial paper....... (0.4) 0.3 (0.1) .9 (1.6) (.7)
Loans receivable and mortgage loans
held for sale.................... 108.0 (9.2) 98.8 62.3 (4.8) 57.5
Covered assets...................... -- -- -- (18.3) -- (18.3)
Other............................... (0.8) 0.5 (0.3) -- (1.2) (1.2)
------ ----- ------ ------ ------ ------
Total interest income....... $ 85.7 $(7.5) $ 78.2 $ 19.1 $ (7.2) $ 1.9
====== ===== ====== ====== ====== ======
Interest expense:
Deposits:
Interest-bearing demand.......... $ 0.3 $ -- $ 0.3 $ (3.1) $ (.7) $ (3.8)
Savings deposits................. 0.6 (0.1) 0.5 (.8) .1 (.7)
Time deposits.................... 22.3 (0.2) 22.1 (1.3) 1.2 (.1)
------ ----- ------ ------ ------ ------
Total interest on
deposits.................. 23.2 (0.3) 22.9 (5.2) .6 (4.6)
Advances from the Federal Home Loan
Bank............................. 39.4 5.5 44.9 13.3 (1.0) 12.3
Securities sold under repurchase
agreements....................... (10.0) (5.5) (15.5) (0.4) (8.2) (8.6)
Other borrowings.................... 1.1 (0.5) 0.6 2.5 (.2) 2.3
------ ----- ------ ------ ------ ------
Total interest expense...... $ 53.7 $(0.8) $ 52.9 $ 10.2 $ (8.8) $ 1.4
====== ===== ====== ====== ====== ======
Net interest income (expense)....... $ 32.0 $(6.7) $ 25.3 $ 8.9 $ 1.6 $ 10.5
====== ===== ====== ====== ====== ======
- ---------------
(1) The change in interest income and expense due to both rate and volume has
been allocated to volume and rate changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
9
11
The following table sets forth the carrying amount of mortgage-backed and
investment securities as of the dates indicated:
TYPES OF INVESTMENTS
AT YEAR END
--------------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
Held-to-Maturity:
Mortgage-backed securities.................................. $1,768.3 $2,083.7 $2,412.8
Debt securities
U.S. Government securities (including agencies)........... -- -- .3
Corporate securities...................................... -- -- --
Other..................................................... -- -- .1
-------- -------- --------
-- -- .4
-------- -------- --------
Available-for-Sale:
Mortgage-backed securities.................................. 948.1 643.9 949.6
Debt securities
Corporate bonds........................................... 3.0 3.0 1.4
Equity securities
Federal Home Loan Bank Stock.............................. 85.7 52.6 57.7
Other..................................................... .5 .3 1.7
-------- -------- --------
86.2 52.9 59.4
-------- -------- --------
$2,805.6 $2,783.5 $3,423.6
======== ======== ========
The table below sets forth the maturities of mortgage-backed and investment
securities as of year end 1997:
MATURITY DISTRIBUTION OF MORTGAGE-BACKED AND INVESTMENT SECURITIES
MATURING
----------------------------------------------------------------- VARIABLE/NO
WITHIN 1 YEAR 1-5 YEARS 5-10 YEARS OVER 10 YEARS MATURITY TOTAL
-------------- -------------- -------------- -------------- ---------------- CARRYING
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD VALUE
------ ----- ------ ----- ------ ----- ------ ----- -------- ----- --------
(DOLLARS IN MILLIONS)
Held-to-Maturity:
Mortgage-backed
securities............... $ -- -- $ -- -- $ -- -- $ -- -- $1,768.3 5.61% $1,768.3
Available-for-Sale:
Mortgage-backed
securities............... -- -- -- -- -- -- -- -- 948.1 7.40% 948.1
Debt securities
Corporate securities..... -- -- -- -- 2.0 6.34% 1.0 5.79% -- -- 3.0
Equity securities
Federal Home Loan Bank
stock.................. -- -- -- -- -- -- -- -- 85.7 6.00% 85.7
Other.................... -- -- -- -- -- -- -- -- .5 -- .5
------ ------ ---- ---- -------- --------
-- -- -- -- -- -- -- 86.2 86.2
------ ------ ---- ---- -------- --------
$ -- $ -- $2.0 $1.0 $2,802.6 $2,805.6
====== ====== ==== ==== ======== ========
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12
The following table shows the loan distribution for Financial Services:
TYPES OF LOANS
AT YEAR END
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN MILLIONS)
Real estate mortgage................... $4,414.1 $4,198.5 $3,720.0 $3,137.5 $2,302.9
Construction and development (including
residential)......................... 2,975.1 2,152.4 1,500.6 1,022.6 643.7
Commercial and business................ 1,253.0 658.8 406.3 229.0 80.7
Consumer and other..................... 590.2 467.2 416.0 366.0 404.1
-------- -------- -------- -------- --------
9,232.4 7,476.9 6,042.9 4,755.1 3,431.4
Less:
Unfunded portion of loans............ 2,709.7 2,002.8 1,211.8 1,027.7 614.0
Unearned discounts................... -- -- -- .6 3.0
Unamortized purchase discounts....... (21.3) (11.8) (1.8) (5.1) 8.9
Net deferred fees.................... 2.0 3.6 3.0 3.2 2.2
Allowance for loan losses............ 91.1 68.4 65.5 53.9 47.9
-------- -------- -------- -------- --------
2,781.5 2,063.0 1,278.5 1,080.3 676.0
-------- -------- -------- -------- --------
$6,450.9 $5,413.9 $4,764.4 $3,674.8 $2,755.4
======== ======== ======== ======== ========
The table below presents the maturity distribution of loans (excluding real
estate mortgage and consumer loans) outstanding at year end 1997, based on
scheduled repayments. The amounts due after one year, classified according to
the sensitivity to changes in interest rates, are also provided.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
MATURING
-------------------------------------------
WITHIN 1 1 TO 5 AFTER 5
YEAR YEARS YEARS TOTAL
-------- -------- ------- --------
(IN MILLIONS)
Construction and development (including
residential)............................. $1,790.1 $1,185.0 $ -- $2,975.1
Commercial and business.................... 577.1 542.9 133.0 1,253.0
-------- -------- ------ --------
$2,367.2 $1,727.9 $133.0 $4,228.1
======== ======== ====== ========
Loans maturing after 1 year with:
Variable interest rates.................. $1,704.9 $102.8 $1,807.7
======== ====== ========
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 1997, 1996, 1995,
1994, and 1993. The aggregate amounts and the interest income foregone on such
loans, therefore, are immaterial and are not disclosed.
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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
AT YEAR END
--------------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
Balance at beginning of year.................... $68.4 $65.5 $53.9 $47.9 $20.8
Charge-offs:
Real estate mortgages......................... (4.8) (5.8) (3.9) (4.4)(b) (.7)
Construction and development.................. (.1) (.1) -- -- --
Commercial.................................... (.9) (2.9) (.7) (1.1) --
Consumer and other............................ (2.0) (4.4) (5.0) (4.7)(b) (1.8)
----- ----- ----- ----- -----
(7.8) (13.2) (9.6) (10.2) (2.5)
Recoveries:
Real estate mortgages......................... .9 2.1 1.1 .6 .2
Commercial.................................... -- -- .5 .1 --
Consumer and other............................ .9 .9 .8 1.4 .6
----- ----- ----- ----- -----
1.8 3.0 2.4 2.1 .8
----- ----- ----- ----- -----
Net charge-offs....................... (6.0) (10.2) (7.2) (8.1)(b) (1.7)
Additions charged to operations................. (1.7) 13.8 14.6 6.5 4.8
Additions related to bulk purchases of loans,
net of adjustments............................ 30.4(a) (.7) 4.2 7.6 24.0(b)
----- ----- ----- ----- -----
Balance at end of year.......................... $91.1 $68.4 $65.5 $53.9 $47.9
===== ===== ===== ===== =====
Ratio of net charge-offs during the year to
average loans outstanding during the year..... .10% .20% .16% .27% .10%
===== ===== ===== ===== =====
- ---------------
(a) Principally related to the loan portfolio from the acquisition of Stockton
Savings Bank, F.S.B.
(b) 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)
AT YEAR END
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994
---------------------- ---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO LOANS TO
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ---------- --------- ---------- --------- ---------- --------- ----------
Real estate
mortgage........... $58.0 48% $59.6 56% $57.9 61% $46.1 66%
Construction and
development........ 25.1 32% 1.9 29% 1.7 25% 1.4 21%
Commercial and
business........... 4.1 14% 2.5 9% 1.0 7% 1.5 5%
Consumer and other... 3.9 6% 4.4 6% 4.9 7% 4.9 8%
----- ---- ----- ---- ----- ---- ----- ----
$91.1 100% $68.4 100% $65.5 100% $53.9 100%
===== ==== ===== ==== ===== ==== ===== ====
AT YEAR END
----------------------
1993
----------------------
PERCENT OF
LOANS TO
AMOUNT OF TOTAL
ALLOWANCE LOANS
--------- ----------
Real estate
mortgage........... $39.4 67%
Construction and
development........ 1.0 19%
Commercial and
business........... 1.1 2%
Consumer and other... 6.4 12%
----- ----
$47.9 100%
===== ====
The amount charged to operations and the related balance in the allowance
for loan losses are based on periodic evaluations of the loan portfolio by
management. These evaluations consider several factors, including without
limitation, past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral, and current economic conditions.
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14
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 the Financial Services Group on
page 8 hereof.
The amount of time deposits of $100,000 or more and related maturities at
year end 1997, are disclosed in Note F to Financial Services Group Summarized
Financial Statements on page 47 of the Company's 1997 Annual Report.
Return on Equity and Assets. The following table shows operating and
capital ratios of the Financial Services Group for each of the last three years:
OPERATING AND CAPITAL RATIOS
YEAR END
--------------------------
1997 1996 1995
------- ------- ------
Return on average assets................................ 1.04% .41%* .75%
Return on average equity................................ 17.41% 6.43%* 11.79%
Dividend payout ratio................................... 246.72% 128.96%* 70.66%
Equity to assets ratio.................................. 5.97% 6.32% 6.35%
- ---------------
* 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 the Financial Services Group at the end of the reported period:
SHORT TERM BORROWINGS
(IN MILLIONS)
WEIGHTED WEIGHTED
AVERAGE MAXIMUM AVERAGE AVERAGE
INTEREST AMOUNT AMOUNT INTEREST
BALANCE AT RATE AT OUTSTANDING OUTSTANDING RATE
END OF END OF DURING THE DURING THE DURING THE
PERIOD PERIOD PERIOD PERIOD PERIOD
---------- -------- ----------- ----------- ----------
1997
Securities sold under agreements to
repurchase............................ $ 270.0 5.9% $1,696.6 $1,297.2 5.2%
Short-term FHLB advances................ $1,128.5 5.9% $1,128.5 $ 871.1 6.1%
1996
Securities sold under agreements to
repurchase............................ $ 959.3 5.5% $1,992.4 $1,484.3 5.6%
Short-term FHLB advances................ $ 977.6 5.5% $1,022.6 $ 559.9 5.0%
1995
Securities sold under agreements to
repurchase............................ $1,573.7 5.8% $1,864.1 $1,490.3 6.2%
Short-term FHLB advances................ $ 30.0 5.8% $ 50.0 $ 228.9 5.3%
- ---------------
Note: Certain short-term FHLB advances and 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.
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 1997, wood
fiber required for the Company's paper and wood
13
15
products operations was produced from these lands and as a by-product of its
solid wood operations to the extent shown on the following chart:
WOOD FIBER REQUIREMENTS
PERCENTAGE
SUPPLIED
RAW MATERIALS INTERNALLY
------------- ----------
Sawtimber......................................... 58%
Pine Pulpwood..................................... 63%
Hardwood Pulpwood................................. 35%
The balance of the wood fiber required for these operations was purchased
from numerous landowners and other lumber companies. In an effort to provide an
alternative for a portion of 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 approximately five years.
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
1997, OCC represented approximately 44% 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. At its gypsum wallboard plant in West Memphis,
Arkansas, the Company also uses synthetic gypsum as a raw material. Synthetic
gypsum is a by-product of coal-burning electrical power plants. The joint
venture gypsum wallboard plant being built in Cumberland City, Tennessee, will
use only synthetic gypsum in its operations. The Company has entered into a
long-term supply agreement for synthetic gypsum produced at a TVA electrical
plant located adjacent to the joint venture plant. Synthetic gypsum acquired
pursuant to this agreement will supply all of the synthetic gypsum required by
the joint venture plant and a portion of the requirements for the West Memphis
plant.
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
Electricity and steam requirements at the Company's manufacturing
facilities are either supplied by a local utility or generated internally
through the use of a variety of fuels, including natural gas, fuel oil, coal,
wood bark, and in some instances, waste products resulting from the
manufacturing process. By utilizing these waste products and other wood
by-products as a biomass fuel to generate electricity and steam, the Company was
able to generate approximately 50 percent of its energy requirements at its
mills in Rome, Georgia; Evadale, Texas; and Orange, Texas, during 1997. The
Ontario, California, mill operates a cogeneration power plant that sells to an
electric utility excess electricity generated. In most cases where natural gas
or fuel oil is used as a fuel, the Company's facilities possess a dual capacity
enabling the use of either fuel as a source of energy.
14
16
The natural gas needed to run the Company's natural gas fueled power
boilers is acquired pursuant to multiple gas contracts that provide for the
purchase of gas on an interruptible basis at favorable rates.
EMPLOYEES
At January 3, 1998, the Company and its subsidiaries had approximately
15,000 employees. Approximately 4,900 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:
LOCATION BARGAINING UNIT(A) EMPLOYEES COVERED EXPIRATION DATES
-------- ------------------ ----------------- ----------------
Bleached United Paperworkers 489 Hourly Production August 1, 2004
Paperboard Mill, International Union Employees, 193 Hourly
Evadale, Texas ("UPIU"), Local 801, UPIU, Mechanical Maintenance
Local 825, and Employees, and 70
International Brotherhood Electrical Maintenance
of Electrical Workers Employees
("IBEW"), Local 390
Linerboard Mill, UPIU, Local 1398, and 242 Hourly Production July 31, 1999
Orange, Texas UPIU, Local 391 Employees and 102 Hourly
Maintenance Employees
Linerboard Mill, UPIU, Local 804, IBEW, 355 Hourly Production August 28, 2000
Rome, Georgia Local 613, United Employees, 43 Electrical
Association of Journeymen Maintenance Employees, and
& Apprentices of the 137 Hourly Maintenance
Plumbing & Pipefitting Employees
Industry of the U.S. and
Canada, Local 766, and
International Association
of Machinists & Aerospace
Workers, Local 414
Evansville, UPIU, Local 1046, UPIU, 103, 102, and 96 Hourly August 30, 2002
Indiana, Local 1737, and UPIU, Production Employees,
Louisville, Local 114, respectively respectively
Kentucky, and
Middletown,
Ohio, Box Plants
("Northern
Multiple")
Rome, Georgia, and UPIU Local 838 and UPIU 135 and 103 Hourly December 1, 2003
Orlando, Local 634, respectively Production Employees,
Florida, Box respectively
Plants
("Southern
Multiple")
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,
15
17
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 $16 million during 1997. This
amount does not include capital expenditures for environmental control
facilities made as part of major mill modernizations and expansions or capital
expenditures made for another purpose that have an indirect benefit on
environmental compliance.
The Company is committed to protecting the health and welfare of its
employees, the public, and the environment and strives to maintain compliance
with all state and federal environmental regulations in a manner that is also
cost effective. In the construction of new facilities and the modernization of
existing facilities, 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
1998 through 2000 will average approximately $15 million each year. The
estimated expenditures could be significantly higher if more stringent laws and
regulations are implemented.
On November 14, 1997, the U.S. Environmental Protection Agency (the "EPA")
issued extensive regulations governing air and water emissions from the pulp and
paper industry (the "Cluster Rule"). According to the EPA, the technology
standards in the Cluster Rule will cut the industry's toxic air pollutant
emissions by almost 60 percent from current levels and virtually eliminate all
dioxin discharged from pulp, paper, and paperboard mills into rivers and other
surface waters. The rule also provides incentives for individual mills to adopt
technologies that will lead to further reductions in toxic pollutant discharges.
The EPA estimates that the industry will need to invest approximately $1.8
billion in capital expenditures and approximately $277 million per year in
operating expenditures to comply with the Cluster Rule. The initial compliance
period is three years from the date these regulations are published in the
Federal Register. The estimated expenditures of the Company that are disclosed
above do not include expenditures that may be needed to comply with the Cluster
Rule. Based upon its interpretation of the Cluster Rule as issued, the Company
currently estimates that compliance with the rule 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 $110 million over the next three years.
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.
16
18
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 1997. 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.
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:
NAME AGE OFFICE
---- --- ------
Clifford J. Grum...... 63 Chairman of the Board and Chief Executive Officer
Kenneth M. Jastrow,
II.................. 50 President, Chief Operating Officer, and Chief Financial Officer
William B. Howes...... 60 Executive Vice President
Harold C. Maxwell..... 57 Group Vice President
Ted A. Owens.......... 59 Group Vice President
Jack C. Sweeny........ 51 Group Vice President
Joseph E. Turk........ 54 Group Vice President
David H. Dolben....... 62 Vice President and Chief Accounting Officer
M. Richard Warner..... 46 Vice President, General Counsel, and Secretary
David W. Turpin....... 47 Treasurer
Clifford J. Grum became Chairman of the Board, Chief Executive Officer, and
a Director of the Company in February 1991 after serving as President, Chief
Executive Officer, and a Director since October 1983. He also serves as a
Director of Temple-Inland FPC, a Director of Inland, Chairman of the Board of
Guaranty, and a Director of Financial Services.
Kenneth M. Jastrow, II was named President, Chief Operating Officer, and a
Director of the Company in February 1998, and continues to serve as the Chief
Financial Officer of the Company, a position he has held since November 1991.
Before being named President and Chief Operating Officer, Mr. Jastrow was a
Group Vice President of the Company since 1995. 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.
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
17
19
1990, Mr. Howes was an employee of Union Camp Corporation for 28 years, serving
most recently as Senior Vice President.
Harold C. Maxwell became Group Vice President of the Company in May 1989.
In March 1998, Mr. Maxwell was named Chairman of the Board, President, and Chief
Executive Officer of Temple-Inland FPC after having 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.
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
RATED
NO. OF ANNUAL 1997
LOCATION PRODUCT MACHINES CAPACITY PRODUCTION
-------- ------- -------- -------- ----------
(IN TONS)
Ontario, California............................. Linerboard 1 300,000 288,000
Rome, Georgia................................... Linerboard 2 835,000 849,000
Orange, Texas................................... Linerboard 2 630,000 608,000
Maysville, Kentucky............................. Linerboard 1 390,000 397,000
Newark, California(1)........................... Medium 2 70,000 73,000
Newport, Indiana................................ Medium 1 280,000 284,000
New Johnsonville, Tennessee..................... Medium 1 265,000 262,000
- ---------------
(1) In February 1998, the Company announced its intention to close this mill
during the second quarter of 1998.
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20
BLEACHED PAPERBOARD MILL
RATED
NO. OF ANNUAL 1997
LOCATION PRODUCT MIX MACHINES CAPACITY PRODUCTION
-------- ----------- -------- -------- ----------
(IN TONS)
Evadale, Texas......................... Bleached Pulp .6% 4 3,734
Food Service 35.9% 243,652
Packaging 38.4% 260,568
Office Supplies 15.3% 103,736
Specialties 7.0% 47,363
Nodular Pulp 2.8% 18,750
----- ------- -------
100% 4 690,000* 677,803
===== =======
- ---------------
* The production capacity may vary to some degree depending on product mix. Due
to market conditions for the grade it was designed to produce, the Company
decided in 1993 to no longer operate a cylinder machine at the mill.
19
21
CORRUGATED CONTAINER PLANTS*
DATE
CORRUGATOR ACQUIRED OR
LOCATION SIZE CONSTRUCTED
-------- ---------- -----------
Fort Smith, Arkansas........................................ 87" 1978
Fort Smith, Arkansas(1)***.................................. None 1996
Bell, California............................................ 97" 1972
El Centro, California(1).................................... 87" 1990
Newark, California (2)...................................... 87" 1974
Ontario, California......................................... 87" 1985
Santa Fe Springs, California................................ 98" 1972
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
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
Streetsboro, Ohio........................................... 98" 1997
Biglerville, Pennsylvania................................... 98" 1955
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................................. 80" 1997
Buenos Aires, Argentina..................................... 98" 1994
Santiago, Chile............................................. 87" 1995
- ---------------
* The annual capacity of Inland's box plants is not given because such
annual capacity is a function of the product mix, customer requirements
and the type of converting equipment installed and operating at each
plant, each of which varies from time to time.
** The Tracy, California and Rome, Georgia plants each contain two
corrugators.
*** Sheet plants.
(1) Leased facilities.
(2) In February 1998, the Company announced its intention to close this box
plant during the second quarter of 1998.
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22
Inland owns specialty converting plants in Santa Fe Springs, California;
Harrington, Delaware; Indianapolis, Indiana; and Leominster, Massachusetts, and
leases specialty converting plants in Buena Park, California; Santa Fe Springs,
California; Ontario, California; and Rural Hall, North Carolina. 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.
BUILDING PRODUCTS
RATED
ANNUAL
DESCRIPTION LOCATION CAPACITY
----------- -------- ---------------
(IN MILLIONS OF
BOARD FEET)
Lumber........................................... Diboll, Texas 150*
Lumber........................................... Pineland, Texas 95
Lumber........................................... Buna, Texas 170
Lumber........................................... Rome, Georgia 115
Lumber........................................... DeQuincy, Louisiana 145
- ---------------
* Includes separate finger jointing capacity of 10 million board feet.
RATED
ANNUAL
DESCRIPTION LOCATION CAPACITY
----------- -------- ---------------
(IN MILLIONS OF
SQUARE FEET)
Fiberboard................................... Diboll, Texas 460
Particleboard................................ Monroeville, Alabama 145
Particleboard................................ Thomson, Georgia 145
Particleboard................................ Diboll, Texas 140
Particleboard................................ Hope, Arkansas 180
Plywood...................................... Pineland, Texas 265
Gypsum Wallboard............................. West Memphis, Arkansas 400
Gypsum Wallboard............................. Fletcher, Oklahoma 466
Gypsum Wallboard*............................ McQueeney, Texas 300
- ---------------
* This facility is owned by a joint venture in which a subsidiary of the
Company has a 50 percent interest.
TIMBER AND TIMBERLANDS*
(IN ACRES)
Pine Plantations......................................... 1,510,779
Natural Pine............................................. 323,738
Hardwood................................................. 215,826
Special Use/Non-Forested................................. 107,913
---------
TOTAL.................................................... 2,158,256
=========
- ---------------
* 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.
Through its subsidiaries, 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,
21
23
Texas. Construction is currently in progress for a 175,000 square foot addition
to the Company's office complex in Austin, Texas.
The Company also owns 381,000 mineral acres in Texas and Louisiana. Revenue
from lease and production activities on these acres totaled $10.8 million in
1997. Additionally, the Company owns 395,830 mineral acres in Alabama and
Georgia, which produced no lease or production revenue in 1997.
At year end 1997 property and equipment having a net book value of
approximately $48.4 million were subject to liens in connection with $71.6
million of debt.
ITEM 3. LEGAL PROCEEDINGS
General:
During the year, the Company disclosed that a former employee of the
Company ("Employee") filed a wrongful termination lawsuit against the Company on
August 4, 1995, which is currently pending in state district court in Angelina
County, Texas. Employee alleges that his employment was terminated for refusing
to participate in alleged illegal activity consisting of underpayment of the
Company's federal income taxes and filing with the Securities and Exchange
Commission (the "Commission") financial reports that were misleading because of
the understatement of income. Although the Company does not consider this
litigation to be material, the Company has publicly denied the allegations made
by Employee in response to media attention given to the litigation. The Company
remains confident that upon the ultimate trial of the issues raised, the
allegations will be found to have no merit or grounds whatsoever. As a result of
the allegations made by Employee, the Commission began a non-public
investigation into the allegations. The Company has provided information to the
Commission in response to a subpoena issued in this investigation and will
continue to cooperate with the Commission in resolving this matter.
The Company and its subsidiaries are involved in various other 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, with whom the Company must file periodic reports on the discharge
of pollutants. 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
22
24
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 stockholders during
the fourth quarter of its last fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information:
The information concerning market prices of the Company's Common Stock
required by this item is incorporated by reference from page 34 of the Company's
1997 Annual Report to Shareholders furnished to the Securities and Exchange
Commission pursuant to Rule 14a-3(b).
Stockholders:
The Company's stock transfer records indicated that as of March 4, 1998,
there were approximately 7,240 holders of record of the Common Stock.
Dividend Policy:
On February 6, 1998, the Board of Directors declared a quarterly dividend
on the Common Stock of $.32 per share payable on March 13, 1998, to stockholders
of record on February 27, 1998. During the first two quarters of 1995, the
Company paid a quarterly dividend of $.27 per share. The quarterly dividend was
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 1997 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 1997 Annual Report to Shareholders
furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(b).
Management's Discussion and Analysis of Financial Condition and Results of
Operations that is incorporated by reference into this item and the Market Risk
Disclosures set forth in item 7A contain forward-looking statements that involve
risks and uncertainties. The actual results achieved by Temple-Inland
23
25
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include general economic,
market, or business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by Temple-Inland and its subsidiaries; the availability
and price of raw materials used by Temple-Inland and its subsidiaries;
competitive actions by other companies; changes in laws or regulations; and
other factors, many of which are beyond the control of Temple-Inland and its
subsidiaries.
ITEM 7.A. 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 (which comprise over 90%
of earning 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 assets. The following table illustrates
the estimated impact on pre-tax income of immediate, parallel, and sustained
shifts in interest rates for the subsequent 12 month period:
CHANGE IN INCREASE/(DECREASE) IN
INTEREST RATES INCOME BEFORE TAXES
- -------------- ----------------------
(IN MILLIONS)
+2% $ 4
+1% $ 9
0 $ 0
-1% $(12)
-2% $(14)
Additionally, the fair value (estimated at $270 million as of the end of
1997) of the Financial Services Group's mortgage servicing rights is also
affected by changes in interest rates. The Company estimates that a one
percentage point decrease in interest rates from current levels would decrease
the fair value of the mortgage servicing rights by approximately $40 million.
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.
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.
24
26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference
from pages 5 through 8 of the Company's definitive proxy statement, involving
the election of directors, to be filed pursuant to Regulation 14A with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this Form 10-K (the "Definitive Proxy Statement").
Information required by this item concerning executive officers is included in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
pages 10 through 16 of the Company's Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
pages 2 through 4 of the Company's Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
page 8 of the Company's Definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Report.
1. FINANCIAL STATEMENTS:
PAGE
ITEM NUMBER
---- ------
Temple-Inland Inc. and Subsidiaries
Report of Independent Auditors*............................. 61
Consolidated Statements of Income -- for the years 1997,
1996, and 1995*........................................... 50
Consolidating Balance Sheets at year end 1997 and 1996*..... 52-53
Consolidated Statements of Shareholders' Equity -- for the
years 1997, 1996, and 1995*............................... 54
Consolidated Statements of Cash Flows -- for the years 1997,
1996, and 1995*........................................... 51
Notes to Consolidated Financial Statements*................. 55-60
- ---------------
* Incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended January 3, 1998, and filed for purposes
of those portions so incorporated as Exhibit 13. Page numbers refer to page
numbers in the Company's 1997 Annual Report to Shareholders.
25
27
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 January 3, 1998, is filed herewith at the page indicated.
PAGE
ITEM NUMBER
---- ------
Temple-Inland Inc. and Subsidiaries
Schedule II -- Valuation and Qualifying Accounts.......... 32
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
inapplicable and, therefore, have been omitted.
3. EXHIBITS:
EXHIBIT
NUMBER EXHIBIT
------- -------
3.01 -- Certificate of Incorporation of the Company(1), as
amended effective May 4, 1987(2), as amended effective
May 4, 1990(3)
3.02 -- By-laws of the Company as amended and restated May 3,
1991(18)
4.01 -- Form of Specimen Common Stock Certificate of the
Company(4)
4.02 -- Indenture dated as of September 1, 1986, between the
Registrant and Chemical Bank, as Trustee(5), as amended
by First Supplemental Indenture dated as of April 15,
1988, as amended by Second Supplemental Indenture dated
as of December 27, 1990(12), and as amended by Third
Supplemental Indenture dated as of May 9, 1991(13)
4.03 -- Form of Specimen Medium-Term Note of the Company(5)
4.04 -- Form of Fixed-rate Medium Term Note, Series B, of the
Company(12)
4.05 -- Form of Floating-rate Medium Term Note, Series B, of the
Company(12)
4.06 -- Form of 9% Note due May 1, 2001, of the Company(15)
4.07 -- Form of Fixed-rate Medium Term Note, Series D, of the
Company(14)
4.08 -- Form of Floating-rate Medium Term Note, Series D, of the
Company(14)
4.09 -- Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock, dated
February 16, 1989(6)
4.10 -- Rights Agreement, dated February 3, 1989, between the
Company and NCNB Texas National Bank, Dallas, Texas, as
Rights Agent(7)
4.11 -- Form of 7.25% Note due September 15, 2004, of the
Company(16)
4.12 -- Form of 8.25% Debenture due September 15, 2022, of the
Company(16)
10.01* -- 1988 Stock Option Plan for Key Employees and Directors of
Temple-Inland Inc. and its Subsidiaries(8)
10.02* -- Form of Incentive Option Agreement under the 1988 Stock
Option Plan(8)
10.03* -- Form of Nonqualified Option Agreement under the 1988
Stock Option Plan(8)
10.04* -- Temple-Inland Inc. Incentive Stock Plan(1), as amended
May 6, 1988(9), as amended February 7, 1992(18)
10.05* -- Form of Incentive Shares Agreement(10)
10.06* -- 1988 Performance Unit Plan for Key Employees of
Temple-Inland Inc. and its Subsidiaries(9), as amended
February 4, 1994(20)
10.07* -- Form of Performance Unit Rights Agreement under the
Performance Unit Plan(6)
26
28
EXHIBIT
NUMBER EXHIBIT
------- -------
10.08 -- Assistance Agreement dated September 30, 1988, among the
Federal Savings and Loan Insurance Corporation; Guaranty
Federal Savings Bank, Dallas, Texas; Guaranty Holdings
Inc. I; Guaranty Holdings Inc. II; Temple-Inland Inc.;
Mason Best Company; and Trammell Crow Ventures 3,
Ltd.(11)
10.09* -- Temple-Inland Inc. 1993 Stock Option Plan(17)
10.10* -- Temple-Inland Inc. 1993 Restricted Stock Plan(17)
10.11* -- Temple-Inland Inc. 1993 Performance Unit Plan(17), as
amended February 4, 1994(20)
10.12 -- Stock Purchase Agreement and Agreement and Plan of
Reorganization by and among Guaranty, Guaranty Holdings
Inc. I ("GHI"), Lone Star Technologies, Inc. ("LST"), and
LSST Financial Services Corporation ("LSST Financial"),
dated as of February 16, 1993(19)
10.13 -- First Amendment to Stock Purchase agreement and Agreement
and Plan of Reorganization by and among Guaranty, GHI,
LST and LSST Financial, dated as of April 2, 1993(19)
10.14 -- Second Amendment to Stock Purchase Agreement and
Agreement and Plan of Reorganization by and among
Guaranty, GHI, LST and LSST Financial, dated as of August
31, 1993(19)
10.15 -- Third Amendment to Stock Purchase Agreement and Agreement
and Plan of Reorganization by and among Guaranty, GHI,
LST and LSST Financial, dated as of September 30,
1993(19)
10.16 -- Holdback Escrow Agreement by and among LST, Guaranty, and
Bank One, Texas, N.A. dated as of November 12, 1993(19)
10.17 -- Termination Agreement by and among Federal Deposit
Insurance Corporation, as Manager of the FSLIC Resolution
Fund, Guaranty Federal Bank, F.S.B., Guaranty Holdings
Inc. I, and Temple-Inland Inc., dated as of October 31,
1995(21)
10.18 -- GFB Tax Agreement by and among Federal Deposit Insurance
Corporation, as Manager of the FSLIC Resolution Fund,
Guaranty Federal Bank, F.S.B., Guaranty Holdings Inc. I,
and Temple-Inland Inc., dated as of October 31, 1995(21)
10.19 -- Termination Agreement by and among Federal Deposit
Insurance Corporation, as Manager of the FSLIC Resolution
Fund, Guaranty Federal Bank, F.S.B., the surviving
institution resulting from the merger of American Federal
Bank, F.S.B. with and into Guaranty, which subsequently
became the successor-in-interest to LSST Financial
Services Corporation, Guaranty Holdings Inc. I, and
Temple-Inland Inc., dated as of October 31, 1995(21)
10.20 -- AFB Tax Agreement by and among Federal Deposit Insurance
Corporation, as Manager of the FSLIC Resolution Fund,
Guaranty Federal Bank, F.S.B., the surviving institution
resulting from the merger of American Federal Bank,
F.S.B. with and into Guaranty, which subsequently became
the successor-in-interest to LSST Financial Services
Corporation, Guaranty Holdings Inc. I, and Temple-Inland
Inc., dated as of October 31, 1995(21)
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)
27
29
EXHIBIT
NUMBER EXHIBIT
------- -------
11 -- Statement re: Computation of Per Share Earnings for the
three years ended January 3, 1998(24)
13 -- Annual Report to Shareholders for the year ended January
3, 1998. 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)
27.1 -- Financial Data Schedules(24)
27.2 -- Restated 1995 and 1996 Annual Financial Data
Schedules(24)
27.3 -- Restated 1997 Interim Financial Data Schedules(24)
27.4 -- Restated 1996 Interim Financial Data Schedules(24)
- ---------------
* 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.
28
30
(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 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 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 1997.
29
31
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 30,
1998.
TEMPLE-INLAND INC.
(Registrant)
By: /s/ CLIFFORD J. GRUM
----------------------------------
Clifford J. Grum,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ CLIFFORD J. GRUM Director, Chairman of the March 30, 1998
- ----------------------------------------------------- Board, Chief Executive
Clifford J. Grum Officer
/s/ KENNETH M. JASTROW, II Director, President, Chief March 30, 1998
- ----------------------------------------------------- Operating Officer, and
Kenneth M. Jastrow, II Chief Financial Officer
/s/ DAVID H. DOLBEN Vice President and Chief March 30, 1998
- ----------------------------------------------------- Accounting Officer
David H. Dolben
/s/ PAUL M. ANDERSON Director March 30, 1998
- -----------------------------------------------------
Paul M. Anderson
/s/ ROBERT CIZIK Director March 30, 1998
- -----------------------------------------------------
Robert Cizik
/s/ ANTHONY M. FRANK Director March 30, 1998
- -----------------------------------------------------
Anthony M. Frank
/s/ WILLIAM B. HOWES Director March 30, 1998
- -----------------------------------------------------
William B. Howes
/s/ BOBBY R. INMAN Director March 30, 1998
- -----------------------------------------------------
Bobby R. Inman
/s/ HERBERT A. SKLENAR Director March 30, 1998
- -----------------------------------------------------
Herbert A. Sklenar
/s/ WALTER P. STERN Director March 30, 1998
- -----------------------------------------------------
Walter P. Stern
/s/ ARTHUR TEMPLE III Director March 30, 1998
- -----------------------------------------------------
Arthur Temple III
/s/ CHARLOTTE TEMPLE Director March 30, 1998
- -----------------------------------------------------
Charlotte Temple
/s/ LARRY E. TEMPLE Director March 30, 1998
- -----------------------------------------------------
Larry E. Temple
30
32
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Temple-Inland Inc.
as of January 3, 1998 and December 28, 1996, and for each of the three years in
the period ended January 3, 1998, and have issued our report thereon dated
January 30, 1998 which is incorporated by reference in this Annual Report (Form
10-K) from the 1997 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 30, 1998
31
33
SCHEDULE II
TEMPLE-INLAND INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
CHARGED
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTIONS -- AT END
PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
------------ ---------- ----------- ------------- ---------
For the year 1997:
Deducted from accounts
receivable:
Allowance for doubtful
accounts.................... $ 9.4 $ 6.8 $-- $6.8 (A) $ 9.4
Reserve for discounts and
allowances.................. 1.4 -- 7.8 (B) 7.7 (C) 1.5
Allowance for loan losses..... 68.4 (1.7) 30.4 (D) 6.0 (A) 91.1
Allowance for unrealized
losses on available-for-sale
securities.................. 12.2 (2.5) (4.6) (E) -- 5.1
Allowance for unrealized
losses on mortgage loans
held for sale............... -- 0.4 -- -- 0.4
----- ----- ----- ----- ------
Totals................... $91.4 $ 3.0 $33.6 $20.5 $107.5
===== ===== ===== ===== ======
For the year 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
losses on available-for-sale
securities.................. (1.7) -- 13.9 (E) -- 12.2
Allowance for unrealized
losses on mortgage loans
held for sale............... 0.3 -- -- 0.3 (A) --
----- ----- ----- ----- ------
Totals................... $73.9 $16.9 $20.9 $20.3 $ 91.4
===== ===== ===== ===== ======
For the year 1995:
Deducted from accounts
receivable:
Allowance for doubtful
accounts.................... $ 8.4 $ 1.9 $-- $2.0 (A) $ 8.3
Reserve for discounts and
allowances.................. 0.7 -- 7.9 (B) 7.1 (C) 1.5
Allowance for loan losses..... 53.9 14.6 4.2 (D) 7.2 (A) 65.5
Allowance for unrealized
losses on available-for-sale
securities.................. 0.7 (0.7) (1.7)(E) -- (1.7)
Allowance for unrealized
losses on mortgage loans
held for sale............... 0.8 -- -- 0.5 (A) 0.3
----- ----- ----- ----- ------
Totals................... $64.5 $15.8 $10.4 $16.8 $ 73.9
===== ===== ===== ===== ======
- ---------------
(A) Uncollectible accounts written off, net of recoveries.
(B) Reduction of revenues for customer discounts.
(C) Customer discounts taken.
(D) Additions related to bulk purchases of loans.
(E) Unrealized gains/losses.
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34
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------- -------
11 -- Statement re: Computation of Per Share Earnings for the
three years ended January 3, 1998
13 -- Annual Report to Shareholders for the year ended January
3, 1998. Such Report is not deemed to be filed with the
Commission as part of this Annual Report on Form 10-K,
except for the portions thereof expressly incorporated by
reference.
21 -- Subsidiaries of the Company
23 -- Consent of Ernst & Young LLP
27.1 -- Financial Data Schedules
27.2 -- Restated 1995 and 1996 Annual Financial Data Schedules
(24)
27.3 -- Restated 1997 Interim Financial Data Schedules
27.4 -- Restated 1996 Interim Financial Data Schedules