Temple Inland Inc. Business Information, Profile, and History

Company Perspectives:

Temple-Inland's extensive forest holdings are invaluable, not just as a renewable fiber source, but as an integral and long-term part of America's landscape. Equipped with decades of forestry experience and the most advanced technology available, the company has the ability to double pine fiber on its more intensively managed lands over a growing cycle. The key will be to continue balancing society's demand for wood and paper products with the need to perpetuate the diversity of the forest.

History of Temple Inland Inc.

Temple-Inland Inc. is a holding company with operations in paper, packaging, building materials, and financial services. Based in Texas, Temple-Inland owns or operates about 2.2 million acres of timberland located in Alabama, Georgia, Louisiana, and Texas. The lands provided Temple-Inland with 61 percent of the fiber needed for its wood operations. Through subsidiary Inland Paperboard and Packaging, Inc., the company manufactures such goods as container board, corrugated containers, and bleached paperboard. Temple-Inland's building products operations produce such materials as lumber, plywood, particle board, medium-density fiberboard (MDF), gypsum wallboard, and fiber-cement siding. The financial services division provides savings accounts, mortgage loans, insurance services, and real estate development services.

Early Years in Texas: 1890s--1940s

What would become Temple-Inland Inc. began in 1893, when Thomas Louis Latane Temple, Sr., founded Southern Pine Lumber Company on 7,000 acres of East Texas, Angelina County, timberland. Temple built the town of Diboll around his company, and by 1894 the first sawmill was operating, cutting 50,000 board feet of old growth timber each day. During the next few years, Southern Pine Lumber Company continued to expand its operations in Diboll. In 1903 the company built its second sawmill and in 1907 created a hardwood mill. In 1910, Temple Lumber Company was formed and established operations in Hemphill and Pineland, both in Sabine County, Texas.

In 1934 Thomas Temple died, leaving his son Arthur with 200,000 acres of land and a company that was $2 billion dollars in debt. Three years later the Hemphill sawmill was destroyed by fire, and Temple Lumber Company operations moved to a smaller mill in Pineland. Recovery was on the way, however.

During these early years and through the housing boom following World War II, Southern Pine Lumber primarily produced basic lumber products, both hardwood and pine, for the construction and furniture industries. By the 1950s technology offered new directions and opportunity for growth. Southern Pine Lumber Company began converting chips, sawdust, and shavings into panel products. In subsequent years, the company pioneered the production of southern pine plywood, particle board, gypsum wallboard, and other building materials.

Growth Spurt in the 1950s and 1960s

Credit for substantial growth in the 1950s was due to the aggressive leadership of the grandson of Thomas Temple, Arthur Temple, who took over in 1951. Under his direction, the company used technological advances in the forest industry to expand the company's production and reduce its debt. In 1954 Southern Pine Lumber built a new plant in Diboll for fiberboard production, using wood waste and whole pine chips to make asphalt-coated insulation sheathing. Southern Pine Lumber of Diboll and Temple Lumber of Pineland merged in 1956, taking Southern Pine Lumber's name.

In 1962 Southern Pine Lumber purchased the controlling interest in Lumbermen's Investment Corporation of Austin, Texas, a mortgage-banking and real estate development company that became a wholly owned subsidiary in the early 1970s. In 1963 gypsum wallboard production began with the purchase of Texas Gypsum, of Dallas, that also became a wholly owned subsidiary of the company. That same year, Southern Pine Lumber set up a joint venture with United States Plywood Corporation to build a $3 million plywood-sheathing plant at Diboll. The plant, supplied with raw material from 400,000 acres of Southern Pine Lumber's timberland, was designed for producing plywood for sheathing, rock decking, sub-flooring, and industrial uses. After several successful years of operating the plant as a joint venture, the company bought out United States Plywood.

In 1963 Southern Pine Lumber Company changed its name to Temple Industries, Inc., and built a pilot plant in Pineland to make particle board from sawdust and shavings. After 70 years of business, the company's land holdings had grown to more than 450,000 acres. In 1964 Temple Industries expanded into financial services, including mortgage banking and insurance.

In 1966 the company built a stud mill at Pineland. In 1969 it rebuilt the Diboll sawmill a year after it was destroyed by fire and, also that year, acquired two beverage-case plants in Chattanooga, Tennessee, and Dallas. Two new wholly owned subsidiaries joined Temple Industries in 1969. Sabine Investment Company of Texas, Inc. was formed, and Temple Associates, Inc. was acquired.

Continued Growth and Ownership Change in the 1970s

The 1970s were even more significant for the company, beginning with the production of medium-density siding and the expansion of the fiberboard operation. Temple Industries formed Creative Homes, Inc., in Diboll, to build mobile and modular homes for approximately four years. In 1971 the company built a new particle board plant in Diboll, and in 1972 acquired AFCO Industries, Inc., manufacturer of do-it-yourself consumer products. That same year Temple's West Memphis, Tennessee, gypsum operation began production.

The decade, however, was defined by the events of 1973: Time Inc. acquired Temple Industries and merged it with its Eastex Pulp and Paper Company subsidiary to form Temple-Eastex Incorporated. Eastex Pulp and Paper had been founded in the early 1950s by Time and Houston Oil Company, as East Texas Pulp and Paper. Houston Oil's 670,000 acres of southern pine and hardwood provided raw material for the new paper mill, opened at Evadale, Texas, in 1954. Time had purchased Houston Oil's 50 percent ownership in 1956, thus acquiring the 670,000 acres of timberland.

When Time created Temple-Eastex, magazines were providing only about one-fourth of Time's sales, and Time officials decided to expand the company's more profitable forest products business. Both companies were looking to diversify; Time's underperforming stock made it vulnerable to takeover. Temple met with Eastex president R.M. (Mike) Buckley, and the arrangements were made. Time bought Temple Industries for stock, and the Temples became Time's largest outside shareholders.

Temple-Eastex produced lumber and other building materials, in addition to paperboard used for household paper products. In 1974 Temple-Eastex opened a new particle board plant in Thomson, Georgia, and a new plywood plant in Pineland, Texas. In 1975 the stud mill at Pineland was automated, and all operations except plywood and studs were phased out. That same year Temple-Eastex installed an innovative process for bleaching of pulp, required for white paper products, in the Evadale mill, as part of an expansion in kraft pulp capacity. The $55 million Temple-Eastex expansion boosted Evadale production by 17 percent. The company stayed busy during the late 1970s with openings, closings, purchases, and moves. A wood molasses plant was built in Diboll in 1977 to use the wood sugars found in the waste water from fiber products. The following year a $100 million capital improvement was begun at Evadale to further enhance operations there. In 1978, Arthur Temple became vice-chairman of Time and served in that position until 1983. In 1979 Temple-Eastex moved into new corporate offices in Diboll, while the nearby plywood operation was closed permanently.

Going Solo in the 1980s

The 1980s started off smoothly with some improvements at the Diboll mill. In 1980 a plastic-foam operation was put on line to manufacture urethane for rigid-foam insulation, and the company's newest and largest wood-fired boiler began operation. A new chip mill and log processing operation was constructed in 1982 in Pineland to supply chips to Evadale, plywood and stud logs to Pineland, and fuel for all other operations. In 1982, however, the company was fined $40,000 by the Texas Air Control Board for violating state particulate rate and opacity standards. In addition to the fine, the Evadale kraft pulp and paper mill was required to install two electrostatic precipitators.

In 1983, ten years after acquiring Temple Industries, Time decided to spin off the company's forest products operations into a separate company, again as an antitakeover measure. Time distributed 90 percent of the common stock in the newly formed company, Temple-Inland Inc., to its shareholders. Time also agreed to sell the balance of its holdings within five years after the spinoff.

Temple-Inland, which was then comprised of Temple-Eastex, Inland Container Corporation, and several other operations, offered a wide range of products, including plywood, fiberboard, lumber, particle board, gypsum, rigid foam board, and wall paneling. The building products division operates five retail stores in Texas and one in Louisiana. Temple-Inland also has successful financial services operations, offering mortgage banking, real estate development, and insurance. The company's heaviest volume, however, came from its container and container board segment, which accounted for 59 percent of the company's earnings in 1989. This segment ranked fifth in container board production in the United States and third among the country's 800 corrugated box producers in 1990.

Inland Container Corporation, a fully integrated packaging company, made corrugated boxes and other containers at its six paper mills. The company got its start in 1918 when Herman C. Krannert started Anderson Box Company in Anderson, Indiana, to make ventilated corrugated boxes for the shipment of chickens. By 1925 he moved to Indianapolis, Indiana, and opened the first Inland Box Company plant the following year. The company acquired a second plant in Middletown, Ohio, in 1929, and in 1930 was reincorporated as Inland Container Corporation. By 1946 Inland Container had grown into a multi-plant box maker but was relying entirely on outside sources for its paper supply. Later that year, through a joint venture with The Mead Corporation, Georgia Kraft Company, half of which was owned by Inland Container, was formed, and construction of a new liner board mill was begun at Macon, Georgia. Georgia Kraft owned approximately one million acres of timberland in Georgia and Alabama and operated three liner board mills with five machines, as well as plywood and lumber mills.

In 1958 Inland Container acquired a majority of the outstanding stock of General Box Corporation, which, when combined with shares previously held, gave Inland Container more than 50 percent control of that company. This acquisition led to an antitrust charge in 1960 by the Federal Trade Commission (FTC) against Inland Container for its purchase of shares of General Box's Louisville, Kentucky, plant. Inland Container was ordered to sell the corrugated shipping container plant that it had acquired from General Box.

In the late 1960s, Inland Container further integrated its operations with construction of a corrugating-medium mill in Tennessee, which began operations in 1970. In 1978 Time paid $272 million to buy Inland Container. Other operating divisions of Inland Container marketed packaging materials for the agricultural, horticultural, and poultry industries, and manufactured and marketed paper and reinforced box tapes.

Following the 1983 spinoff, Temple-Inland incorporated Inland Container and Temple-Eastex. Temple-Inland adopted the same aggressive stance as its subsidiaries had in previous years. The Temple family was still in control of the company, although it had been expanded, diversified, and modernized since Thomas Temple began operations in 1894. During its first year of business, the subsidiary Temple-Eastex purchased Elmendorf Board of Claremont, New Hampshire, a manufacturer of oriented-strand board (OSB). The next year, the company acquired National Fidelity Life Insurance Company of Kansas for $28 million with an eye to expanding its financial services group. In December 1987, Temple-Inland Financial Services acquired Kilgore Federal Savings and Loan Association in Texas for $10 million.

In 1986 Temple-Inland purchased a liner board mill, three box manufacturing plants, a short line railroad, and approximately 260,000 acres of timberland in east Texas and Louisiana at a cost of about $220 million, from Owens-Illinois, a Toledo, Ohio-based packaging company. The mill, in Orange, Texas, greatly increased the company's capacity for production of liner board. The mill and timberland were also valuable because of their proximity to Temple-Inland's other facilities. That same year, Temple-Eastex announced construction of a $30 million wood-converting facility in Buna, Texas. The facility was intended as a high-tech sawmill and lowcost residue provider to paper mills in the Texas cities of Evadale and Orange.

In 1988 Temple-Eastex Incorporated changed its name to Temple-Inland Forest Products Corporation. That same year Georgia Kraft Company was dissolved and its assets divided between Temple-Inland and Mead. Temple-Inland acquired the Rome, Georgia, liner board mills, a sawmill in Rome, and more than 400,000 acres of timberland.

The big news of 1988, however, was the purchase of three insolvent Texas savings and loans. Temple-Inland, along with Trammell Crow and Mason Best Company, bought Delta Savings Association of Texas, in Alvin; Guaranty Federal Savings & Loan Association of Dallas; and First Federal Savings & Loan Association of Austin. The three institutions were combined into one, Guaranty Federal Savings Bank, operating in Dallas, of which Temple-Inland had an 80 percent interest. Temple-Inland's initial outlay was $75 million, and the company committed to contribute another $50 million by January 1991. Temple-Inland was hoping for future payoffs. Purchase of the institutions was a low-risk investment that complemented the company's plans for growth in its financial services group.

In 1989 Temple-Inland was deemed 'the most undervalued paper stock on the Big Board' by Business Week, May 22, 1989. The company was described as having superb leadership but stock that failed to reflect Temple-Inland's rapid growth. The following year, Temple-Inland sold its Great American Reserve Insurance Company, using the $10 million profit from the sale to bolster Guaranty Federal's capital to expand its home-mortgage lending and consumer banking services. Also in 1990, the company started a new sawmill in DeQuincy, Louisiana, which produced chips for the Evadale and Orange mills, as well as 100 million board feet of lumber annually. In 1991 the company expanded and upgraded its recycled liner board mill in Ontario, California.

Diversification and Growth through Acquisitions in the Early 1990s

Demand for paper products was consistent during the late 1980s and early 1990s, and the demand for liner board for corrugated boxes continued to increase. Containers and container board sales accounted for more than one-half of the company's profits. The smaller, but highly profitable bleached-pulp-and-paperboard division had seen a rise in demand. This division was one of the company's strongest segments, with bleached paperboard being used for many products, including paper cups and paper plates.

In 1991 Arthur Temple, Jr., retired, and Clifford Grum was appointed chairman and CEO. Grum was the first chairman with no ties to the Temple family. Grum announced that Temple-Inland would focus on new technology, including synthetic paper products such as heat-resistant microwave containers, in the 1990s. He predicted that synthetic paper would play an increasingly important role in the future of the industry. Temple-Inland sought to expand its paper operations, and the company acquired Rand-Whitney Packaging in 1994. The following year the company's Latin America presence grew with the opening of a box plant in Chile and a corrugated container sheet facility in Mexico.

Temple-Inland's financial services division grew steadily through the early 1990s, aided by a string of strategic acquisitions. In 1991 the company purchased Capitol Mortgage Bankers, Inc., and the following year its subsidiaries, Guaranty Federal Savings Bank and Kilgore Federal Savings and Loan Association, merged its operations and formed Guaranty Federal Bank, F.S.B. Guaranty bought all of the outstanding stock of AFB in 1993 and acquired the First Saving Bank of San Antonio in 1994 for about $42 million.

Changing Market Conditions in the Late 1990s

Paper market conditions worsened in the late 1990s, and worldwide demand declined, spurring Temple-Inland to restructure its paper products division in 1998. Operating earnings for the paper group were $113 million in 1996, but in 1997 they dropped to a loss of $39 million. Despite poor market conditions, Temple-Inland began operating two new corrugated packaging facilities in 1997, one in Ohio and the other in Mexico. Also that year the company sold the operating assets of Temple-Inland Food Service Corporation, a subsidiary, and closed a box plant in Pennsylvania.

In 1998 the paper group opted for a more decentralized structure in the hope of becoming more competitive. The company set a goal of increasing its paper division earnings by $150 million, despite a continued dreary outlook for paper markets. Temple-Inland closed corrugated packaging facilities in Newark, California, because they were considered noncompetitive and outdated, and sold the Rexford Paper Company, determined to be a non-core asset. Paperboard production was curbed to balance inventory levels. Temple-Inland also added new plants in 1998--two new sheet plants, located in Tennessee and Virginia, began operations. In 1998 operating earnings fared better than 1997, reaching $32.5 million. The improvement was attributed to an increase in the average prices for corrugated packaging and paperboard; box prices fell 19 percent in 1996, dropped an average of 11 percent in 1997, and improved in 1998, with box prices averaging seven percent higher than 1997 prices.

In 1999 Temple-Inland and Caraustar Industries, Inc., entered into an agreement to form Premier Boxboard Limited LLC, which would operate a Temple-Inland-owned mill in Indiana. Plans to convert the container board mill to one able to produce lightweight gypsum facing paper commenced immediately. The company also sold its bleached paperboard facility in Evadale, Texas, to Westvaco Corp. that year. To better serve customers in Mexico, Temple-Inland planned to open a new sheet plant in Guadalajara, Mexico, in early 2000.

The building products group enjoyed growth and profitability in the late 1990s despite tumbling lumber markets. Though average lumber prices fell ten percent in 1998, increases in U.S. housing starts and the strong U.S. economy deflected losses. In addition, Temple-Inland began to diversify and moved more aggressively into the composite panel market to provide alternatives to traditional lumber. In 1996, as part of a joint venture with Caraustar, Temple-Inland purchased a wallboard facility and a gypsum quarry in Texas. Under the terms of the agreement of the joint venture, named Standard Gypsum L.L.C., Temple-Inland agreed to manage and operate the two facilities, while Caraustar would provide gypsum paperboard supplies.

To meet increasing demand for medium-density fiberboard (MDF) and offset declines in lumber prices in the late 1990s, Temple-Inland acquired two MDF plants from MacMillan Bloedel Limited for about $106 million in 1998. The plants, located in Pennsylvania and Ontario, Canada, complemented the company's particle board operations, as many particle board customers also used MDF. Temple-Inland continued to strengthen its gypsum wallboard and fiber-cement operations to facilitate rapidly growing construction markets, completing a fiber-cement plant in Texas and progressing with the construction of a gypsum wallboard plant in Tennessee during 1998. Temple-Inland also streamlined its building products operations by implementing modernization plans; the company renovated its Diboll, Texas, mill, modernized its Buna, Texas, sawmill, and converted its Pineland, Texas, sawmill to manufacture lumber rather than plywood.

Temple-Inland's financial services division achieved record earnings in the late 1990s and continued its growth strategy. In 1997 Temple-Inland bought California Financial Holding Company, the parent company of Stockton Savings Bank F.S.B. of Stockton, California. Two years later the company acquired HF Bancorp, Inc., the parent company of Hemet Federal Savings and Loan Association, for $120 million. The purchase greatly expanded Guaranty Federal Bank's geographic reach and strengthened its operations in the Southern California region.

Though mortgage loan rates were at record lows in the late 1990s, the low rates resulted in high numbers of new mortgage originations. To capitalize on the highly active mortgage market, Temple-Inland acquired Western Cities Mortgage Corporation for $11.5 million in 1996, and a year later the company purchased Knutson Mortgage Corporation for approximately $14.6 million. Temple-Inland's mortgage operations, which served primarily single-family home buyers through 78 offices, saw production volumes nearly double from 1997 to 1998.

Despite uncertain market conditions, Temple-Inland remained committed to improving operations and revenues. The company planned to take advantage of promising markets, such as the MDF and gypsum wallboard segments, and to divest of non-strategic operations. With a diverse offering of paper and building products, access to more than two million acres of timberland, and financial services that included more than 135 Guaranty Federal Bank branches in Texas and California, Temple-Inland seemed poised to head into the 21st century.

Principal Subsidiaries: Inland Paperboard and Packaging, Inc.; Temple-Inland Forest Products Corporation; Temple-Inland Financial Services Inc.; Guaranty Federal Bank, F.S.B.; Temple-Inland Mortgage Corporation.

Principal Competitors: International Paper Company; Smurfit-Stone Container Corporation; The Mead Corporation; Georgia-Pacific Corporation; Weyerhaeuser Company.

Chronology

• Key Dates:

• 1893: Southern Pine Lumber Company forms in Texas.
• 1910: Temple Lumber Company forms.
• 1956: Temple Lumber and Southern Pine merge. New company retains the Southern Pine Lumber Company name.
• 1963: Southern Pine is renamed Temple Industries, Inc.
• 1973: Time Inc. acquires Temple Industries and merges it with Eastex Pulp and Paper Company; resultant company is named Temple-Eastex Incorporated.
• 1978: Time Inc. purchases Inland Container Corporation.
• 1983: Time divests its forest products companies and creates a separate company, Temple-Inland Inc., made up of Temple-Eastex Incorporated, Inland Container Corporation, and several other operations.
• 1988: Temple-Eastex changes its name to Temple-Inland Forest Products Corporation.
• 1988: Temple-Inland expands its financial services operations with the purchase of three Texas savings and loans. Temple-Inland combines the three into Guaranty Federal Savings Bank.
• 1992: Subsidiaries Kilgore Federal Savings and Loan Association and Guaranty Federal Savings Bank merge to form Guaranty Federal Bank, F.S.B.