##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report
Pursuant to Section
13 or 15(d) of the
Securities Exchange
Act of 1934
 for the Quarterly Period Ended September 30, 2006
  o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the Transition Period From  to
 Commission File Number: 001-08634
 Temple-Inland Inc.
  Delaware
    
    75-1903917(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 1300 MoPac Expressway South, Austin, Texas 78746
 (512) 434-5800
 Not Applicable
 þ o
  þ o o
 o þ
  Number of common shares outstandingClass
    
    as of September 30, 2006Common Stock (par value $1.00 per share)
    
    106,984,201




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsTemple-Inland Inc. and Subsidiaries
    
    
    3Consolidated Balance SheetsConsolidated Statements of IncomeConsolidated Statements of Cash FlowsParent Company (Temple-Inland Inc. and its manufacturing and real estate subsidiaries)
    
    
    7Summarized Balance SheetsSummarized Statements of IncomeSummarized Statements of Cash FlowsFinancial Services
    
    
    10Summarized Balance SheetsSummarized Statements of IncomeSummarized Statements of Cash FlowsNotes to the Consolidated Financial Statements
    
    
    13Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    49Item 4. Controls and Procedures
    
    
    50PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    50Item 1A. Risk Factors
    
    
    51Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3. Defaults Upon Senior Securities
    
    
    52Item 4. Submission of Matters to a Vote of Security Holders
    
    
    52Item 5. Other Information
    
    
    52Item 6. Exhibits
    
    
    52SIGNATURES
    
    
    53First Amendment to the 1993 Stock Option PlanFirst Amendment to the 1997 Stock Option PlanFirst Amendment to the 2001 Stock Incentive PlanFirst Amendment to the 2003 Stock Incentive PlanCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
  
 
 Parent
    
    
    FinancialCompany
    
    
    Services
    
    
    Consolidated(In millions)ASSETSCash and cash equivalents
    
    $
    48
    
    
    $
    294
    
    
    $
    342Trade receivables, less allowance for doubtful accounts of $16
    
    
    476
    
    
    
    
    
    
    
    476Inventories
    
    
    432
    
    
    
    
    
    
    
    432Timber and timberland
    
    
    356
    
    
    
    
    
    
    
    356Real estate
    
    
    469
    
    
    
    
    
    
    
    469Loans held for sale
    
    
    
    
    
    
    29
    
    
    
    29Loans, net of allowance for loan losses of $64
    
    
    
    
    
    
    9,535
    
    
    
    9,535Securities available-for-sale
    
    
    
    
    
    
    555
    
    
    
    555Securities held-to-maturity
    
    
    
    
    
    
    5,041
    
    
    
    5,041Investment in Federal Home Loan Bank stock
    
    
    
    
    
    
    279
    
    
    
    279Property and equipment, net
    
    
    1,638
    
    
    
    209
    
    
    
    1,847Goodwill
    
    
    365
    
    
    
    141
    
    
    
    506Other intangible assets
    
    
    
    
    
    
    27
    
    
    
    27Prepaid expenses and other assets
    
    
    440
    
    
    
    211
    
    
    
    623Investment in financial services
    
    
    983
    
    
    
    
    
    
    
    TOTAL ASSETS
    
    $
    5,207
    
    
    $
    16,321
    
    
    $
    20,517LIABILITIESAccounts payable, accrued expenses, and other liabilities
    
    $
    813
    
    
    $
    148
    
    
    $
    959Long-term debt and other borrowings
    
    
    1,620
    
    
    
    161
    
    
    
    1,781Deposits
    
    
    
    
    
    
    9,288
    
    
    
    9,281Federal Home Loan Bank borrowings
    
    
    
    
    
    
    5,436
    
    
    
    5,436Deferred income taxes
    
    
    193
    
    
    
    
    
    
    
    174Pension liability
    
    
    258
    
    
    
    
    
    
    
    258Postretirement benefits liability
    
    
    134
    
    
    
    
    
    
    
    134Preferred stock issued by subsidiaries
    
    
    
    
    
    
    305
    
    
    
    305TOTAL LIABILITIES
    
    
    3,018
    
    
    
    15,338
    
    
    
    18,328SHAREHOLDERS EQUITYPreferred
stock  par value $1 per share: authorized 25,000,000 shares; none issued
    
    
    
    
    
    
    
    
    
    
    Common stock  par value $1 per share: authorized 200,000,000 shares; issued
123,605,344 shares, including shares held in the treasury
    
    
    
    
    
    
    
    
    
    
    124Additional paid-in capital
    
    
    
    
    
    
    
    
    
    
    460Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (195
    )Retained earnings
    
    
    
    
    
    
    
    
    
    
    2,4222,811Cost of shares held in the treasury: 16,621,143 shares
    
    
    
    
    
    
    
    
    
    
    (622
    )TOTAL SHAREHOLDERS EQUITY
    
    
    
    
    
    
    
    
    
    
    2,189TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    
    
    
    $
    20,517
  3




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##### Table of Contents



Parent
    
    
    FinancialCompany
    
    
    Services
    
    
    Consolidated(In millions)ASSETSCash and cash equivalents
    
    $
    13
    
    
    $
    431
    
    
    $
    441Trade receivables, less allowance for doubtful accounts of $14
    
    
    411
    
    
    
    
    
    
    
    411Inventories
    
    
    425
    
    
    
    
    
    
    
    425Timber and timberland
    
    
    394
    
    
    
    
    
    
    
    394Real estate
    
    
    403
    
    
    
    
    
    
    
    403Loans held for sale
    
    
    
    
    
    
    280
    
    
    
    280Loans, net of allowance for loan losses of $74
    
    
    
    
    
    
    9,845
    
    
    
    9,845Securities available-for-sale
    
    
    
    
    
    
    654
    
    
    
    654Securities held-to-maturity
    
    
    
    
    
    
    5,558
    
    
    
    5,558Investment in Federal Home Loan Bank stock
    
    
    
    
    
    
    300
    
    
    
    300Property and equipment, net
    
    
    1,633
    
    
    
    193
    
    
    
    1,826Goodwill
    
    
    236
    
    
    
    159
    
    
    
    395Other intangible assets
    
    
    
    
    
    
    31
    
    
    
    31Prepaid expenses and other assets
    
    
    469
    
    
    
    240
    
    
    
    667Investment in financial services
    
    
    1,017
    
    
    
    
    
    
    
    TOTAL ASSETS
    
    $
    5,001
    
    
    $
    17,691
    
    
    $
    21,630LIABILITIESAccounts payable, accrued expenses, and other liabilities
    
    $
    750
    
    
    $
    175
    
    
    $
    909Long-term debt and other borrowings
    
    
    1,599
    
    
    
    101
    
    
    
    1,700Deposits
    
    
    
    
    
    
    9,201
    
    
    
    9,194Federal Home Loan Bank borrowings
    
    
    
    
    
    
    6,892
    
    
    
    6,892Deferred income taxes
    
    
    165
    
    
    
    
    
    
    
    143Pension liability
    
    
    270
    
    
    
    
    
    
    
    270Postretirement benefits liability
    
    
    137
    
    
    
    
    
    
    
    137Preferred stock issued by subsidiaries
    
    
    
    
    
    
    305
    
    
    
    305TOTAL LIABILITIES
    
    
    2,921
    
    
    
    16,674
    
    
    
    19,550SHAREHOLDERS EQUITYPreferred
stock  par value $1 per share: authorized 25,000,000 shares; none issued
    
    
    
    
    
    
    
    
    
    
    Common stock  par value $1 per share: authorized 200,000,000 shares; issued
123,605,344 shares, including shares held in the treasury
    
    
    
    
    
    
    
    
    
    
    124Additional paid-in capital
    
    
    
    
    
    
    
    
    
    
    445Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (189
    )Retained earnings
    
    
    
    
    
    
    
    
    
    
    2,1412,521Cost of shares held in the treasury: 12,630,953 shares
    
    
    
    
    
    
    
    
    
    
    (441
    )TOTAL SHAREHOLDERS EQUITY
    
    
    
    
    
    
    
    
    
    
    2,080TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    
    
    
    $
    21,630
  4




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##### Table of Contents



Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share amounts)REVENUESManufacturing and real estate
    
    $
    1,115
    
    
    $
    981
    
    
    $
    3,350
    
    
    $
    3,015Financial services
    
    
    294
    
    
    
    257
    
    
    
    876
    
    
    
    7181,409
    
    
    
    1,238
    
    
    
    4,226
    
    
    
    3,733COSTS AND EXPENSESManufacturing and real estate
    
    
    (987
    )
    
    
    (954
    )
    
    
    (2,971
    )
    
    
    (2,863
    )Financial services
    
    
    (238
    )
    
    
    (196
    )
    
    
    (719
    )
    
    
    (568
    )(1,225
    )
    
    
    (1,150
    )
    
    
    (3,690
    )
    
    
    (3,431
    )OPERATING INCOME
    
    
    184
    
    
    
    88
    
    
    
    536
    
    
    
    302Parent company interest
    
    
    (31
    )
    
    
    (28
    )
    
    
    (98
    )
    
    
    (86
    )Other non-operating income (expense)
    
    
    1
    
    
    
    1
    
    
    
    92
    
    
    
    3INCOME BEFORE INCOME TAXES
    
    
    154
    
    
    
    61
    
    
    
    530
    
    
    
    219Income tax expense
    
    
    (58
    )
    
    
    (24
    )
    
    
    (166
    )
    
    
    (69
    )INCOME FROM CONTINUING OPERATIONS
    
    
    96
    
    
    
    37
    
    
    
    364
    
    
    
    150Discontinued operations
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2NET INCOME
    
    $
    96
    
    
    $
    38
    
    
    $
    364
    
    
    $
    152WEIGHTED AVERAGE COMMON SHARES
OUTSTANDINGBasic
    
    
    108.3
    
    
    
    112.7
    
    
    
    109.8
    
    
    
    113.0Diluted
    
    
    110.3
    
    
    
    114.1
    
    
    
    111.8
    
    
    
    115.0EARNINGS PER SHAREBasic:Income from continuing operations
    
    $
    0.88
    
    
    $
    0.33
    
    
    $
    3.31
    
    
    $
    1.33Discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    0.02Net income
    
    $
    0.88
    
    
    $
    0.34
    
    
    $
    3.31
    
    
    $
    1.35Diluted:Income from continuing operations
    
    $
    0.87
    
    
    $
    0.32
    
    
    $
    3.25
    
    
    $
    1.30Discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    0.02Net income
    
    $
    0.87
    
    
    $
    0.33
    
    
    $
    3.25
    
    
    $
    1.32DIVIDENDS PAID PER SHARE OF COMMON STOCK
    
    $
    0.25
    
    
    $
    0.22
    1/2
    
    $
    0.75
    
    
    $
    0.67
    1/2
  5




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##### Table of Contents



First Nine Months2006
    
    
    2005(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income
    
    $
    364
    
    
    $
    152Adjustments:Depreciation and amortization
    
    
    188
    
    
    
    186Amortization and accretion of financial instrument discounts and premiums, net
    
    
    22
    
    
    
    12Provision for credit losses
    
    
    1
    
    
    
    9Deferred income taxes
    
    
    31
    
    
    
    34Non-cash real estate cost of sales
    
    
    55
    
    
    
    21Real estate development expenditures
    
    
    (84
    )
    
    
    (39
    )Other non-cash charges and (credits), net
    
    
    1
    
    
    
    44Other
    
    
    10
    
    
    
    20Changes in:Trade receivables
    
    
    (51
    )
    
    
    (19
    )Inventories
    
    
    (5
    )
    
    
    20Prepaid expenses and other
    
    
    34
    
    
    
    14Accounts payable and accrued expenses
    
    
    13
    
    
    
    (15
    )Loans held for sale:Originations
    
    
    (146
    )
    
    
    (1,939
    )Sales
    
    
    397
    
    
    
    2,247Collections on loans serviced for others, net
    
    
    
    
    
    
    (122
    )830
    
    
    
    625CASH PROVIDED BY (USED FOR) INVESTINGCapital expenditures
    
    
    (176
    )
    
    
    (184
    )Sale of non-strategic assets, operations and property and equipment
    
    
    45
    
    
    
    36Securities available-for-sale, net
    
    
    96
    
    
    
    145Securities held-to-maturity, net
    
    
    497
    
    
    
    (516
    )Loans originated or acquired, net of collections
    
    
    19
    
    
    
    (476
    )Proceeds from sale of loans and mortgage servicing rights
    
    
    303
    
    
    
    47Acquisitions, net of cash acquired, and joint ventures
    
    
    (138
    )
    
    
    (29
    )Other
    
    
    32
    
    
    
    8678
    
    
    
    (969
    )CASH PROVIDED BY (USED FOR) FINANCINGPayments of debt
    
    
    (411
    )
    
    
    (581
    )Additions to debt
    
    
    73
    
    
    
    14Borrowings under accounts receivable securitization facility, net
    
    
    114
    
    
    
    50Borrowings under revolving credit facility, net
    
    
    (133
    )
    
    
    (14
    )Deposits, net
    
    
    87
    
    
    
    147Repurchase agreements and short-term borrowings, net
    
    
    (1,081
    )
    
    
    1,040Cash dividends paid to shareholders
    
    
    (82
    )
    
    
    (78
    )Repurchase of common stock
    
    
    (226
    )
    
    
    (472
    )Exercise of stock options
    
    
    45
    
    
    
    42Tax benefit on stock options exercised
    
    
    8
    
    
    
    Settlement of equity purchase contracts
    
    
    
    
    
    
    345Other
    
    
    (1
    )
    
    
    (41
    )(1,607
    )
    
    
    452Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    Discontinued operations, principally operating activities
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (99
    )
    
    
    108Cash and cash equivalents at beginning of period
    
    
    441
    
    
    
    372Cash and cash equivalents at end of period
    
    $
    342
    
    
    $
    480
  6




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##### Table of Contents



ThirdQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    48
    
    
    $
    13Trade receivables, less allowance for doubtful accounts of
$16 in 2006 and $14 in 2005
    
    
    476
    
    
    
    411Inventories:Finished goods and work in process
    
    
    107
    
    
    
    95Raw materials
    
    
    213
    
    
    
    224Supplies and other
    
    
    112
    
    
    
    106Total inventories
    
    
    432
    
    
    
    425Prepaid expenses and other
    
    
    74
    
    
    
    94Total current assets
    
    
    1,030
    
    
    
    943Investment in Financial Services
    
    
    983
    
    
    
    1,017Timber and Timberland
    
    
    356
    
    
    
    394Real Estate
    
    
    469
    
    
    
    403Property and EquipmentLand and buildings
    
    
    646
    
    
    
    619Machinery and equipment
    
    
    3,397
    
    
    
    3,337Construction in progress
    
    
    73
    
    
    
    62Less allowance for depreciation
    
    
    (2,478
    )
    
    
    (2,385
    )Total property and equipment
    
    
    1,638
    
    
    
    1,633Goodwill
    
    
    365
    
    
    
    236Assets Held for Sale
    
    
    31
    
    
    
    34Other Assets
    
    
    335
    
    
    
    341TOTAL ASSETS
    
    $
    5,207
    
    
    $
    5,001LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    240
    
    
    $
    200Accrued employee compensation and benefits
    
    
    102
    
    
    
    101Accrued interest
    
    
    28
    
    
    
    19Accrued property taxes
    
    
    30
    
    
    
    27Other accrued expenses
    
    
    134
    
    
    
    136Liabilities of discontinued operations
    
    
    8
    
    
    
    9Current portion of long-term debt
    
    
    8
    
    
    
    12Total current liabilities
    
    
    550
    
    
    
    504Long-Term Debt
    
    
    1,620
    
    
    
    1,599Deferred Income Taxes
    
    
    193
    
    
    
    165Pension Liability
    
    
    258
    
    
    
    270Postretirement Benefits Liability
    
    
    134
    
    
    
    137Other Long-Term Liabilities
    
    
    263
    
    
    
    246Total liabilities
    
    
    3,018
    
    
    
    2,921Shareholders Equity
    
    
    2,189
    
    
    
    2,080TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    5,207
    
    
    $
    5,001
  7




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##### Table of Contents



Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)NET REVENUES
    
    $
    1,115
    
    
    $
    981
    
    
    $
    3,350
    
    
    $
    3,015COSTS AND EXPENSESCost of sales
    
    
    (895
    )
    
    
    (855
    )
    
    
    (2,715
    )
    
    
    (2,578
    )Selling
    
    
    (35
    )
    
    
    (30
    )
    
    
    (103
    )
    
    
    (92
    )General and administrative
    
    
    (52
    )
    
    
    (57
    )
    
    
    (166
    )
    
    
    (155
    )Other operating income (expense)
    
    
    (5
    )
    
    
    (12
    )
    
    
    13
    
    
    
    (38
    )(987
    )
    
    
    (954
    )
    
    
    (2,971
    )
    
    
    (2,863
    )128
    
    
    
    27
    
    
    
    379
    
    
    
    152FINANCIAL SERVICES PRE-TAX EARNINGS
    
    
    56
    
    
    
    61
    
    
    
    157
    
    
    
    150OPERATING INCOME
    
    
    184
    
    
    
    88
    
    
    
    536
    
    
    
    302Interest expense
    
    
    (31
    )
    
    
    (28
    )
    
    
    (98
    )
    
    
    (86
    )Other non-operating income (expense)
    
    
    1
    
    
    
    1
    
    
    
    92
    
    
    
    3INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES
    
    
    154
    
    
    
    61
    
    
    
    530
    
    
    
    219Income tax expense
    
    
    (58
    )
    
    
    (24
    )
    
    
    (166
    )
    
    
    (69
    )INCOME FROM CONTINUING OPERATIONS
    
    
    96
    
    
    
    37
    
    
    
    364
    
    
    
    150Discontinued operations
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2NET INCOME
    
    $
    96
    
    
    $
    38
    
    
    $
    364
    
    
    $
    152
  8




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##### Table of Contents



First Nine Months2006
    
    
    2005(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income
    
    $
    364
    
    
    $
    152Adjustments:Depreciation and amortization
    
    
    171
    
    
    
    167Non-cash share-based compensation
    
    
    32
    
    
    
    22Non-cash pension and postretirement expense
    
    
    42
    
    
    
    44Cash contribution to pension and postretirement plans
    
    
    (57
    )
    
    
    (55
    )Deferred income taxes (benefit)
    
    
    26
    
    
    
    20Net earnings of financial services
    
    
    (98
    )
    
    
    (95
    )Dividends of earnings from financial services
    
    
    135
    
    
    
    25Earnings of joint ventures
    
    
    (25
    )
    
    
    (41
    )Dividends of earnings from joint ventures
    
    
    12
    
    
    
    32Non-cash real estate cost of sales
    
    
    55
    
    
    
    21Real estate development expenditures
    
    
    (84
    )
    
    
    (39
    )Other non-cash charges (credits)
    
    
    1
    
    
    
    44Other
    
    
    7
    
    
    
    8Changes in:Trade receivables
    
    
    (51
    )
    
    
    (19
    )Inventories
    
    
    (5
    )
    
    
    20Prepaid expenses and other
    
    
    34
    
    
    
    14Accounts payable and accrued expenses
    
    
    13
    
    
    
    (15
    )572
    
    
    
    305CASH PROVIDED BY (USED FOR) INVESTINGCapital expenditures
    
    
    (142
    )
    
    
    (155
    )Sales of non-strategic assets, operations and property and equipment
    
    
    45
    
    
    
    36Acquisitions, net of cash acquired, and joint ventures
    
    
    (136
    )
    
    
    (9
    )Other
    
    
    
    
    
    
    7(233
    )
    
    
    (121
    )CASH PROVIDED BY (USED FOR) FINANCINGPayments of debt
    
    
    (35
    )
    
    
    (56
    )Additions of debt
    
    
    13
    
    
    
    13Borrowings under accounts receivable securitization facility, net
    
    
    114
    
    
    
    50Borrowings under revolving credit facility, net
    
    
    (133
    )
    
    
    (14
    )Cash dividends paid to shareholders
    
    
    (82
    )
    
    
    (78
    )Repurchase of common stock
    
    
    (226
    )
    
    
    (472
    )Exercise of stock options
    
    
    45
    
    
    
    42Tax benefit on stock options exercised
    
    
    8
    
    
    
    Settlement of equity purchase contracts
    
    
    
    
    
    
    345Other
    
    
    (8
    )
    
    
    (20
    )(304
    )
    
    
    (190
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    Discontinued operations, principally operating cash flows
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    35
    
    
    
    (6
    )Cash and cash equivalents at beginning of period
    
    
    13
    
    
    
    22Cash and cash equivalents at end of period
    
    $
    48
    
    
    $
    16
  9




---



##### Table of Contents



ThirdQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)ASSETSCash and cash equivalents
    
    $
    294
    
    
    $
    431Loans held for sale
    
    
    29
    
    
    
    280Loans, net of allowance for loan losses of $64 in 2006 and $74 in 2005
    
    
    9,535
    
    
    
    9,845Securities available-for-sale
    
    
    555
    
    
    
    654Securities held-to-maturity
    
    
    5,041
    
    
    
    5,558Investment in Federal Home Loan Bank stock
    
    
    279
    
    
    
    300Property and equipment, net
    
    
    209
    
    
    
    193Accounts, notes, and accrued interest receivable
    
    
    109
    
    
    
    120Goodwill
    
    
    141
    
    
    
    159Other intangible assets
    
    
    27
    
    
    
    31Other assets
    
    
    102
    
    
    
    120TOTAL ASSETS
    
    $
    16,321
    
    
    $
    17,691LIABILITIES AND STOCKHOLDERS EQUITYDeposits
    
    $
    9,288
    
    
    $
    9,201Federal Home Loan Bank borrowings
    
    
    5,436
    
    
    
    6,892Other liabilities
    
    
    148
    
    
    
    175Other borrowings
    
    
    161
    
    
    
    101Preferred stock issued by subsidiaries
    
    
    305
    
    
    
    305TOTAL LIABILITIES
    
    
    15,338
    
    
    
    16,674Shareholders Equity
    
    
    983
    
    
    
    1,017TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    16,321
    
    
    $
    17,691
  10




---



##### Table of Contents



First NineThird Quarter
    
    
    Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)INTEREST INCOMELoans and loans held for sale
    
    $
    174
    
    
    $
    157
    
    
    $
    516
    
    
    $
    428Securities available-for-sale
    
    
    12
    
    
    
    10
    
    
    
    35
    
    
    
    40Securities held-to-maturity
    
    
    61
    
    
    
    41
    
    
    
    187
    
    
    
    105Other earning assets
    
    
    2
    
    
    
    1
    
    
    
    5
    
    
    
    3Total interest income
    
    
    249
    
    
    
    209
    
    
    
    743
    
    
    
    576INTEREST EXPENSEDeposits
    
    
    (74
    )
    
    
    (49
    )
    
    
    (202
    )
    
    
    (133
    )Borrowed funds
    
    
    (75
    )
    
    
    (57
    )
    
    
    (230
    )
    
    
    (148
    )Total interest expense
    
    
    (149
    )
    
    
    (106
    )
    
    
    (432
    )
    
    
    (281
    )NET INTEREST INCOME
    
    
    100
    
    
    
    103
    
    
    
    311
    
    
    
    295(Provision) credit for credit losses
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )
    
    
    (9
    )NET INTEREST INCOME AFTER (PROVISION) CREDIT FOR
CREDIT LOSSES
    
    
    99
    
    
    
    104
    
    
    
    310
    
    
    
    286NONINTEREST INCOMELoan origination and sale of loans
    
    
    
    
    
    
    5
    
    
    
    2
    
    
    
    19Insurance commissions and fees
    
    
    17
    
    
    
    17
    
    
    
    50
    
    
    
    48Service charges on deposits
    
    
    13
    
    
    
    12
    
    
    
    37
    
    
    
    33Operating lease income
    
    
    2
    
    
    
    1
    
    
    
    6
    
    
    
    4Other
    
    
    13
    
    
    
    13
    
    
    
    38
    
    
    
    38Total noninterest income
    
    
    45
    
    
    
    48
    
    
    
    133
    
    
    
    142NONINTEREST EXPENSECompensation and benefits
    
    
    (42
    )
    
    
    (46
    )
    
    
    (136
    )
    
    
    (135
    )Insurance operations, other than compensation
    
    
    (5
    )
    
    
    (4
    )
    
    
    (13
    )
    
    
    (12
    )Occupancy
    
    
    (7
    )
    
    
    (6
    )
    
    
    (19
    )
    
    
    (18
    )Information systems and technology
    
    
    (3
    )
    
    
    (3
    )
    
    
    (10
    )
    
    
    (11
    )Charges related to asset impairments and severance
    
    
    (2
    )
    
    
    
    
    
    
    (12
    )
    
    
    Other
    
    
    (29
    )
    
    
    (32
    )
    
    
    (96
    )
    
    
    (102
    )Total noninterest expense
    
    
    (88
    )
    
    
    (91
    )
    
    
    (286
    )
    
    
    (278
    )INCOME BEFORE INCOME TAXES
    
    
    56
    
    
    
    61
    
    
    
    157
    
    
    
    150Income tax expense
    
    
    (21
    )
    
    
    (22
    )
    
    
    (59
    )
    
    
    (55
    )NET INCOME
    
    $
    35
    
    
    $
    39
    
    
    $
    98
    
    
    $
    95
  11




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##### Table of Contents



First Nine Months2006
    
    
    2005(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income
    
    $
    98
    
    
    $
    95Adjustments:Depreciation
    
    
    12
    
    
    
    15Depreciation of leased assets
    
    
    5
    
    
    
    4Provision for credit losses
    
    
    1
    
    
    
    9Amortization and accretion of financial instrument discounts and premiums, net
    
    
    22
    
    
    
    12Deferred income taxes
    
    
    5
    
    
    
    14Changes in:Loans held for sale:Originations
    
    
    (146
    )
    
    
    (1,939
    )Sales
    
    
    397
    
    
    
    2,247Collections on loans serviced for others, net
    
    
    
    
    
    
    (122
    )Other
    
    
    (1
    )
    
    
    10393
    
    
    
    345CASH PROVIDED BY (USED FOR) INVESTINGSecurities available-for-sale:Purchases
    
    
    (2
    )
    
    
    Principal payments and maturities
    
    
    98
    
    
    
    145Securities held-to-maturity:Purchases
    
    
    (597
    )
    
    
    (1,523
    )Principal payments and maturities
    
    
    1,094
    
    
    
    1,007Loans originated or acquired, net of collections
    
    
    19
    
    
    
    (476
    )Collection of mortgage servicing rights sale receivables
    
    
    
    
    
    
    46Sales of loans
    
    
    303
    
    
    
    1Acquisitions, net of cash acquired
    
    
    (2
    )
    
    
    (20
    )Capital expenditures
    
    
    (34
    )
    
    
    (29
    )Other
    
    
    32
    
    
    
    1911
    
    
    
    (848
    )CASH PROVIDED BY (USED FOR) FINANCINGDeposits, net
    
    
    87
    
    
    
    147Repurchase agreements and short-term borrowings, net
    
    
    (1,081
    )
    
    
    1,040Long-term FHLB and other borrowings:Additions
    
    
    60
    
    
    
    1Payments
    
    
    (375
    )
    
    
    (525
    )Dividends paid to parent company
    
    
    (135
    )
    
    
    (25
    )Other
    
    
    3
    
    
    
    (21
    )(1,441
    )
    
    
    617Net increase (decrease) in cash and cash equivalents
    
    
    (137
    )
    
    
    114Cash and cash equivalents at beginning of period
    
    
    431
    
    
    
    350Cash and cash equivalents at end of period
    
    $
    294
    
    
    $
    464
  12




---



##### Table of Contents



Note 1
 Basis of Presentation
      Note 2
 New Accounting Pronouncements
 Share-Based Compensation
 Share-Based
Payment , Accounting for Stock-Based Compensation-Transition and Disclosure, an
amendment of FASB Statement No. 123
 13




---



##### Table of Contents




    
    The fair value of awards granted to retirement eligible employees is expensed at the
date of grant because our stock option awards and some of our other awards provide for
accelerated or continued vesting upon retirement. Previously, the fair value of these
awards was expensed over the expected service period. The change accelerated about $7 million of expense into first quarter 2006 related to awards
granted in 2006. We will continue to expense the fair value of awards granted prior to 2006
over the expected service period.
    
    Forfeitures over the expected term of the award are estimated at the date of grant and
the estimates adjusted to reflect actual subsequent forfeitures. Previously, we had
reflected forfeitures as they occurred. The effect of this change was not significant.
    
    Tax benefits recognized as a result of the exercise of employee stock options are
classified as a financing cash flow. Previously, we had classified these tax benefits as
an operating cash flow.
    
    The fair value of unvested outstanding options at the beginning of first quarter 2006
will be expensed over the remaining service period. The effect of this change was not
significant because of our accounting for options at fair value determined at the date of
grant beginning in 2003. As a result this applied only to our unvested outstanding options
granted prior to 2003.
   Third Quarter 2005
    
    
    First Nine Months2005
    
    
    2005(In millions, except per share)Net income, as reported
    
    $
    38
    
    
    $
    152Add: Stock-based
compensation expense,
net of related tax
effects, included in
the determination of
reported net income
    
    
    4
    
    
    
    14Deduct: Total
stock-based
compensation expense,
net of related tax
effects, determined
under the fair value
based method for all
awards
    
    
    (5
    )
    
    
    (17
    )Pro forma net income
    
    $
    37
    
    
    $
    149Earnings per share:Basic, as reported
    
    $
    0.34
    
    
    $
    1.35Basic, pro forma
    
    $
    0.33
    
    
    $
    1.32Diluted, as reported
    
    $
    0.33
    
    
    $
    1.32Diluted, pro forma
    
    $
    0.32
    
    
    $
    1.30
 Accounting for Purchases and Sales of Inventory with the Same Counterparty
 Accounting for Purchases and Sales of Inventory with the Same Counterparty
  14




---



##### Table of Contents



Pending Accounting Pronouncements
 Fair Value Measures
 Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans.
 How Taxes Collected From Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement (That is, Gross versus Net
Presentation).
 Accounting for Uncertainty in Income Taxes
 Accounting for Planned Major Maintenance
Activities Interim
Financial Reporting
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements
 15




---



##### Table of Contents



Note 3  Employee Benefit Plans
  Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Service costs  benefits earned during the period
    
    $
    7
    
    
    $
    6
    
    
    $
    21
    
    
    $
    19Interest cost on projected benefit obligation
    
    
    18
    
    
    
    18
    
    
    
    54
    
    
    
    54Expected return on plan assets
    
    
    (20
    )
    
    
    (18
    )
    
    
    (60
    )
    
    
    (54
    )Amortization of prior service costs
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    Amortization of actuarial net loss
    
    
    6
    
    
    
    7
    
    
    
    18
    
    
    
    19Defined benefit expense
    
    $
    12
    
    
    $
    13
    
    
    $
    36
    
    
    $
    38
   Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Service costs  benefits earned during the period
    
    $
    1
    
    
    $
    1
    
    
    $
    3
    
    
    $
    3Interest cost on projected benefit obligation
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    6Amortization of prior service costs
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )Amortization of actuarial net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Defined benefit expense
    
    $
    2
    
    
    $
    2
    
    
    $
    6
    
    
    $
    6
 Note 4  Share-Based Compensation
  Restricted or performance units
  16




---



##### Table of Contents






WeightedAverageGrant DateFair Value
    
    
    AggregateShares
    
    
    Per Share
    
    
    Current Value(In thousands)
    
    
    
    
    
    
    (In millions)Not vested beginning of the year
    
    
    744
    
    
    $
    32Granted
    
    
    690
    
    
    
    46Vested and settled
    
    
    (5
    )
    
    
    30Forfeited
    
    
    (18
    )
    
    
    37Not vested end of third quarter 2006
    
    
    1,411
    
    
    
    39
    
    
    $
    56Not vested end of third quarter 2006 subject toTime vesting requirements
    
    
    822
    
    
    
    
    
    
    $
    33Performance requirements
    
    
    589
    
    
    
    
    
    
    
    23Total
    
    
    1,411
    
    
    
    
    
    
    $
    56Not vested end of third quarter 2006 to be settled inCash
    
    
    882
    
    
    
    
    
    
    $
    35Stock
    
    
    529
    
    
    
    
    
    
    
    21Total
    
    
    1,411
    
    
    
    
    
    
    $
    56
  Restricted stock
  Stock options
  Weighted
    
    
    AggregateWeighted
    
    
    Average
    
    
    Intrinsic ValueAverage
    
    
    Remaining
    
    
    (Current valueExercise Price
    
    
    Contractual
    
    
    less exerciseShares
    
    
    Per Share
    
    
    Term
    
    
    price)(In thousands)
    
    
    
    
    
    
    (In years)
    
    
    (In millions)Outstanding beginning of the year
    
    
    6,832
    
    
    $
    28Granted
    
    
    1,103
    
    
    
    46Exercised
    
    
    (1,719
    )
    
    
    27Forfeited
    
    
    (126
    )
    
    
    32Outstanding end of third quarter 2006
    
    
    6,090
    
    
    
    32
    
    
    
    6
    
    
    $
    57Exercisable end of third quarter 2006
    
    
    3,387
    
    
    
    28
    
    
    
    5
    
    
    $
    42
  17




---



##### Table of Contents



First Nine Months2006
    
    2005Expected life of options
    
    6.0 years
    
    8.0 yearsExpected stock price volatility
    
    
    25.1
    %
    
    
    28.2
    %Expected dividend yield
    
    
    2.4
    %
    
    
    2.3
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    4.2
    %Weighted average
estimated fair value per
option of options granted
    
    $
    11.53
    
    
    $
    11.16
  Share-based compensation expense
  Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Restricted or performance units
    
    $
    6
    
    
    $
    5
    
    
    $
    19
    
    
    $
    12Restricted stock
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    1Stock options
    
    
    2
    
    
    
    2
    
    
    
    11
    
    
    
    6Total pre-tax share-based
compensation expense
    
    $
    8
    
    
    $
    7
    
    
    $
    32
    
    
    $
    19
    18




---



##### Table of Contents



Other information
 Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005(In millions)Cash paid to settle restricted or performance units
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cash received from the exercise of stock options
    
    
    11
    
    
    
    7
    
    
    
    45
    
    
    
    42Income tax benefit recognized from the exercise of
stock options
    
    
    1
    
    
    
    
    
    
    
    8
    
    
    
    
 Note 5  Earnings Per Share
  Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005(In millions)Weighted average common shares outstanding  basic
    
    
    108.3
    
    
    
    112.7
    
    
    
    109.8
    
    
    
    113.0Dilutive effect of equity purchase contracts
(settled in first and second quarter 2005)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.5Dilutive effect of stock options
    
    
    2.0
    
    
    
    1.4
    
    
    
    2.0
    
    
    
    1.5Weighted average shares outstanding  diluted
    
    
    110.3
    
    
    
    114.1
    
    
    
    111.8
    
    
    
    115.0
  Note 6  Comprehensive Income
  Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Net income
    
    $
    96
    
    
    $
    38
    
    
    $
    364
    
    
    $
    152Other comprehensive income (loss), net
of taxes:Unrealized gains (losses) on:Available-for-sale securities
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Derivative instruments
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )Minimum pension liability adjustment
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Foreign currency translation adjustments
    
    
    3
    
    
    
    
    
    
    
    (4
    )
    
    
    3Other comprehensive income (loss)
    
    
    2
    
    
    
    (3
    )
    
    
    (6
    )
    
    
    (1
    )Comprehensive income
    
    $
    98
    
    
    $
    35
    
    
    $
    358
    
    
    $
    151
   19




---



##### Table of Contents



Note 7
 Contingencies
  Note 8
 Segment Information
    20




---



##### Table of Contents



Expenses NotAllocated toCorrugated
    
    
    Forest
    
    
    Real
    
    
    Financial
    
    
    Segments andPackaging
    
    
    Products
    
    
    Estate
    
    
    Services
    
    
    Eliminations
    
    
    TotalFor Third Quarter 2006(In millions)Revenues from external customers
    
    $
    746
    
    
    $
    310
    
    
    $
    59
    
    
    $
    294
    
    
    $
    
    
    
    $
    1,409Depreciation and amortization
    
    
    39
    
    
    
    15
    
    
    
    1
    
    
    
    6
    
    
    
    3
    
    
    
    64Segment operating income or income
(loss) before taxes
    
    
    74
    
    
    
    83
    
    
    
    15
    
    
    
    58
    
    
    
    (76)
    (a)
    
    
    154Financial services, net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    100Capital expenditures
    
    
    30
    
    
    
    18
    
    
    
    1
    
    
    
    13
    
    
    
    14
    
    
    
    76For First Nine Months 2006 or at Third
Quarter-End 2006(In millions)Revenues from external customers
    
    $
    2,225
    
    
    $
    984
    
    
    $
    141
    
    
    $
    876
    
    
    $
    
    
    
    $
    4,226Depreciation and amortization
    
    
    116
    
    
    
    43
    
    
    
    2
    
    
    
    17
    
    
    
    10
    
    
    
    188Segment operating income or income
(loss) before taxes
    
    
    181
    
    
    
    266
    
    
    
    50
    
    
    
    169
    
    
    
    (136)
    (a)
    
    
    530Financial services, net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311
    
    
    
    
    
    
    
    311Total assets
    
    
    2,298
    
    
    
    1,020
    
    
    
    502
    
    
    
    16,321
    
    
    
    376
    
    
    
    20,517Investment in equity method investees
and joint ventures
    
    
    10
    
    
    
    23
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    110Capital expenditures
    
    
    77
    
    
    
    44
    
    
    
    1
    
    
    
    34
    
    
    
    20
    
    
    
    176Goodwill
    
    
    236
    
    
    
    129
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    506For Third Quarter 2005(In millions)Revenues from external customersAs reported
    
    $
    690
    
    
    $
    257
    
    
    $
    
    
    
    $
    271
    
    
    $
    
    
    
    $
    1,218Reclassification
    
    
    1
    
    
    
    7
    
    
    
    26
    
    
    
    (14
    )
    
    
    
    
    
    
    20
    (b)As reclassified
    
    
    691
    
    
    
    264
    
    
    
    26
    
    
    
    257
    
    
    
    
    
    
    
    1,238Depreciation and amortizationAs reported
    
    
    41
    
    
    
    12
    
    
    
    
    
    
    
    6
    
    
    
    2
    
    
    
    61Reclassification
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    As reclassified
    
    
    41
    
    
    
    11
    
    
    
    1
    
    
    
    6
    
    
    
    2
    
    
    
    61Segment operating income or income
(loss) before taxesAs reported
    
    
    15
    
    
    
    64
    
    
    
    
    
    
    
    67
    
    
    
    (85
    )
    
    
    61Reclassification
    
    
    
    
    
    
    (3
    )
    
    
    10
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    As reclassified
    
    
    15
    
    
    
    61
    
    
    
    10
    
    
    
    61
    
    
    
    (86)
    (a)
    
    
    61Financial services, net interest incomeAs reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    102Reclassification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1As reclassified
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    
    
    
    
    103Capital expendituresAs reported
    
    
    20
    
    
    
    19
    
    
    
    
    
    
    
    16
    
    
    
    4
    
    
    
    59Reclassification
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )(c)As reclassified
    
    
    20
    
    
    
    18
    
    
    
    
    
    
    
    16
    
    
    
    4
    
    
    
    58
 21




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##### Table of Contents



Expenses NotAllocated toSegmentsCorrugated
    
    
    Forest
    
    
    Real
    
    
    Financial
    
    
    andPackaging
    
    
    Products
    
    
    Estate
    
    
    Services
    
    
    Eliminations
    
    
    TotalFor First Nine Months 2005 or at Third Quarter-End 2005(In millions)Revenues from external customersAs reported
    
    $
    2,146
    
    
    $
    771
    
    
    $
    
    
    
    $
    759
    
    
    $
    
    
    
    $
    3,676Reclassification
    
    
    4
    
    
    
    14
    
    
    
    80
    
    
    
    (41
    )
    
    
    
    
    
    
    57
    (b)As reclassified
    
    
    2,150
    
    
    
    785
    
    
    
    80
    
    
    
    718
    
    
    
    
    
    
    
    3,733Depreciation and amortizationAs reported
    
    
    120
    
    
    
    38
    
    
    
    
    
    
    
    20
    
    
    
    8
    
    
    
    186Reclassification
    
    
    
    
    
    
    (1
    )
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    As reclassified
    
    
    120
    
    
    
    37
    
    
    
    2
    
    
    
    19
    
    
    
    8
    
    
    
    186Segment operating income or income (loss) before taxesAs reported
    
    
    123
    
    
    
    176
    
    
    
    
    
    
    
    165
    
    
    
    (245
    )
    
    
    219Reclassification
    
    
    
    
    
    
    (9
    )
    
    
    28
    
    
    
    (15
    )
    
    
    (4
    )
    
    
    As reclassified
    
    
    123
    
    
    
    167
    
    
    
    28
    
    
    
    150
    
    
    
    (249)(a)
    
    
    
    219Financial services, net interest incomeAs reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291
    
    
    
    
    
    
    
    291Reclassification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4As reclassified
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    295Total AssetsAs reported
    
    
    2,334
    
    
    
    962
    
    
    
    
    
    
    
    17,054
    
    
    
    306
    
    
    
    20,656Reclassification
    
    
    
    
    
    
    (98
    )
    
    
    413
    
    
    
    (346
    )
    
    
    31
    
    
    
    As reclassified
    
    
    2,334
    
    
    
    864
    
    
    
    413
    
    
    
    16,708
    
    
    
    337
    
    
    
    20,656Investment in equity method investees and joint venturesAs reported
    
    
    11
    
    
    
    38
    
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    120Reclassification
    
    
    
    
    
    
    
    
    
    
    71
    
    
    
    (71
    )
    
    
    
    
    
    
    As reclassified
    
    
    11
    
    
    
    38
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    120Capital expendituresAs reported
    
    
    95
    
    
    
    48
    
    
    
    
    
    
    
    29
    
    
    
    14
    
    
    
    186Reclassification
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2)(c)As reclassified
    
    
    95
    
    
    
    46
    
    
    
    
    
    
    
    29
    
    
    
    14
    
    
    
    184GoodwillAs reported
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    394
 
 (a)
    
    See table below for expenses not allocated to segments.(b)
    
    Revenues increased because we recast segment revenues to include gross real
estate sales that had previously been reported net and certain ancillary revenues that had
previously been reported as a reduction of cost of sales.(c)
    
    Capital expenditures decreased because we reclassified real estate development
expenditures separately. 22




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##### Table of Contents



Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)General and administrative
    
    $
    (28
    )
    
    $
    (25
    )
    
    $
    (77
    )
    
    $
    (67
    )Share-based compensation
    
    
    (8
    )
    
    
    (7
    )
    
    
    (32
    )
    
    
    (19
    )Other operating income (expense)
    
    
    (10
    )
    
    
    (27
    )
    
    
    (21
    )
    
    
    (80
    )Other non-operating income (expense)
    
    
    1
    
    
    
    1
    
    
    
    92
    
    
    
    3Parent company interest
    
    
    (31
    )
    
    
    (28
    )
    
    
    (98
    )
    
    
    (86
    )$
    (76
    )
    
    $
    (86
    )
    
    $
    (136
    )
    
    $
    (249
    )Other operating income (expense) applies to:Corrugated packaging
    
    $
    (4
    )
    
    $
    (19
    )
    
    $
    (8
    )
    
    $
    (39
    )Forest products
    
    
    
    
    
    
    (8
    )
    
    
    1
    
    
    
    (35
    )Real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financial services
    
    
    (2
    )
    
    
    
    
    
    
    (12
    )
    
    
    Unallocated
    
    
    (4
    )
    
    
    
    
    
    
    (2
    )
    
    
    (6
    )$
    (10
    )
    
    $
    (27
    )
    
    $
    (21
    )
    
    $
    (80
    )
  Note 9
 Real Estate
  ThirdQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)Developed land and land under development
    
    $
    227
    
    
    $
    199Land held for investment or future development and timber
    
    
    140
    
    
    
    104Investment in real estate ventures
    
    
    77
    
    
    
    76Income producing properties, net of accumulated depreciation
    
    
    25
    
    
    
    24Total
    
    $
    469
    
    
    $
    403
   23




---



##### Table of Contents



ThirdQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)Real estate
    
    $
    172
    
    
    $
    184Total assets
    
    
    253
    
    
    
    240Borrowings, principally non-recourse
    
    
    70
    
    
    
    76Total liabilities
    
    
    85
    
    
    
    77Equity
    
    
    168
    
    
    
    163Our investment in real estate ventures:Our share of their equity
    
    $
    85
    
    
    $
    84Unrecognized deferred gain(a)
    
    
    (8
    )
    
    
    (8
    )Investment in real estate ventures
    
    $
    77
    
    
    $
    76
 
 (a)
    
    We recognize the deferred gain from our sale of real estate to the
venture as the venture sells the real estate to third parties. Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005(In millions)Revenues
    
    $
    32
    
    
    $
    59
    
    
    $
    107
    
    
    $
    162Earnings
    
    
    3
    
    
    
    22
    
    
    
    30
    
    
    
    69Our equity in their earnings
    
    
    2
    
    
    
    5
    
    
    
    15
    
    
    
    13
   Note
10  Assets Held For Sale
    24




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##### Table of Contents



Note 11  Other Operating Income (Expense)
 Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Equity in earnings of manufacturing joint ventures
    
    $
    4
    
    
    $
    10
    
    
    $
    10
    
    
    $
    29Equity in earnings of real estate ventures
    
    
    2
    
    
    
    5
    
    
    
    15
    
    
    
    13Closure and sale of converting and production facilities
    
    
    (4
    )
    
    
    (5
    )
    
    
    (5
    )
    
    
    (44
    )Antitrust litigation
    
    
    (4
    )
    
    
    (5
    )
    
    
    (4
    )
    
    
    (13
    )Proxy contest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Hurricane related costs
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Other
    
    
    (3
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )Total
    
    $
    (5
    )
    
    $
    (12
    )
    
    $
    13
    
    
    $
    (38
    )
   Beginning
    
    
    
    
    
    
    Cash
    
    
    End ofof Period
    
    
    Additions
    
    
    Payments
    
    
    Period(In millions)Involuntary
employee
terminations
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    1Demolition
    
    
    4
    
    
    
    
    
    
    
    (2
    )
    
    
    2Total
    
    $
    5
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    3
  Note
12  Acquisitions and Other Items
 Acquisitions
   25




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##### Table of Contents



Total(In millions)Current assets
    
    $
    35Property and equipment
    
    
    74Goodwill
    
    
    129Total assets
    
    
    238Current liabilities
    
    
    (13
    )Current portion of long-term debt
    
    
    (56
    )Total liabilities
    
    
    (69
    )Net assets at date of acquisition
    
    $
    169
   2005First NineMonths
    
    Year(In millions, except per share)Parent company revenues
    
    $
    3,161
    
    
    $
    4,175Income from continuing operations
    
    
    160
    
    
    
    190Income from continuing operations, per diluted share
    
    $
    1.39
    
    
    $
    1.66
  Other
    26




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##### Table of Contents



Note
13  Income Taxes and Tax Litigation Settlement
    27




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
 Forward-Looking Statements
  
    
    general economic, market or business conditions;
    
    the opportunities (or lack thereof) that may be presented to and pursued by us;
    
    the availability and price of raw materials we use;
    
    fluctuations in the cost of purchased energy;
    
    fluctuations in the cost we incur to transport the raw materials we use and the
products we manufacture;
    
    assumptions related to pension and postretirement costs, and share-based compensation;
    
    assumptions related to accounting for impaired assets;
    
    the collectibility of loans and accounts receivable and related provision for losses;
    
    competitive actions by other companies;
    
    changes in laws or regulations and actions or restrictions of regulatory agencies;
    
    the accuracy of certain judgments and estimates concerning our integration of acquired operations;
    
    our ability to execute certain strategic and business improvement initiatives; and
    
    other factors, many of which are beyond our control.
  Non-GAAP Financial Measure
    28




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##### Table of Contents



Accounting Policies
 Critical Accounting Estimates
   New and Pending Accounting Pronouncements
 Share-Based Payment Accounting
for Purchases and Sales of Inventory with the Same Counterparty
 Results of Operations for Third Quarter 2006 and 2005
 Summary
  29




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##### Table of Contents



Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share)RevenuesCorrugated packaging
    
    $
    746
    
    
    $
    691
    
    
    $
    2,225
    
    
    $
    2,150Forest products
    
    
    310
    
    
    
    264
    
    
    
    984
    
    
    
    785Real estate
    
    
    59
    
    
    
    26
    
    
    
    141
    
    
    
    80Financial services
    
    
    294
    
    
    
    257
    
    
    
    876
    
    
    
    718Total revenues
    
    $
    1,409
    
    
    $
    1,238
    
    
    $
    4,226
    
    
    $
    3,733Segment Operating IncomeCorrugated packaging
    
    $
    74
    
    
    $
    15
    
    
    $
    181
    
    
    $
    123Forest products
    
    
    83
    
    
    
    61
    
    
    
    266
    
    
    
    167Real estate
    
    
    15
    
    
    
    10
    
    
    
    50
    
    
    
    28Financial services
    
    
    58
    
    
    
    61
    
    
    
    169
    
    
    
    150Total segment operating income
    
    
    230
    
    
    
    147
    
    
    
    666
    
    
    
    468Expenses not allocated to segmentsGeneral and administrative
    
    
    (28
    )
    
    
    (25
    )
    
    
    (77
    )
    
    
    (67
    )Share-based compensation
    
    
    (8
    )
    
    
    (7
    )
    
    
    (32
    )
    
    
    (19
    )Other operating income (expense)
    
    
    (10
    )
    
    
    (27
    )
    
    
    (21
    )
    
    
    (80
    )Other non-operating income (expense)
    
    
    1
    
    
    
    1
    
    
    
    92
    
    
    
    3Parent company interest
    
    
    (31
    )
    
    
    (28
    )
    
    
    (98
    )
    
    
    (86
    )Income before income taxes
    
    
    154
    
    
    
    61
    
    
    
    530
    
    
    
    219Income taxes
    
    
    (58
    )
    
    
    (24
    )
    
    
    (166
    )
    
    
    (69
    )Income from continuing operations
    
    
    96
    
    
    
    37
    
    
    
    364
    
    
    
    150Discontinued operations
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Net income
    
    $
    96
    
    
    $
    38
    
    
    $
    364
    
    
    $
    152Average diluted shares outstanding
    
    
    110.3
    
    
    
    114.1
    
    
    
    111.8
    
    
    
    115.0Income from continuing operations, per diluted share
    
    $
    0.87
    
    
    $
    0.32
    
    
    $
    3.25
    
    
    $
    1.30ROI, annualized
    
    
    
    
    
    
    
    
    
    
    15.9
    %
    
    
    9.4
    %
  
    
    In 2006, we experienced improved markets for our corrugated packaging and forest
products, principally gypsum and particleboard, and we benefited from the acquisition
of our partners 50 percent interest in Standard Gypsum LP. The forest product markets
are beginning to moderate principally as a result of declines in the housing industry.
While we continued to see the benefit in our manufacturing operations from our
initiatives to lower costs, improve asset utilization and increase operating
efficiencies, higher costs, principally energy and freight, offset some of the benefit.
Charges and expenses related to the previous closures and current sale of converting
facilities totaled $5 million. In addition, we began classifying real estate as our
fourth business segment. Real estate operations benefited from $14 million in gains on
sales of land held for commercial use. Financial services operations are beginning to
be affected by lower average earning assets and a change in the mix of earning assets.
Actions taken to lower costs in our financial services operation associated with the
elimination of our wholesale mortgage and asset-based lending operations resulted in
charges of $12 million. As a result of the adoption of the new share-based
compensation accounting pronouncement related to awards granted to retirement eligible
employees, we accelerated the expensing of $7 million of share-based compensation. In
addition, we recognized an $89 million net pre-tax gain resulting from the tax
litigation settlement, most of which was non-taxable.
    
    In 2005, we continued to see the benefits in our manufacturing operations of our
initiatives to lower costs and improve asset utilization and increase operating
efficiencies and the benefits in our financial services operations from repositioning
our mortgage origination and servicing activities completed in late 2004. Raw material
costs, however, continued to escalate for our manufacturing operations, offsetting some
of the benefits. Actions taken to lower cost, improve asset utilization, and increase
operating efficiencies resulted in charges and expenses of $44 million, principally
related to the
 30




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##### Table of Contents



closure or pending closure of four corrugated packaging converting
facilities and the sale of our Pembroke, Canada MDF facility. As a result of the sale of
this facility, we recognized a one-time tax benefit of $16 million. In third quarter
2005 and continuing into the early part of fourth quarter 2005, Hurricanes Katrina and
Rita forced us to curtail operations at seven of our converting and production
facilities for varying periods, which we estimate adversely affected segment operating
income by about $11 million due to production downtime and start-up expenses. In
addition, in third quarter 2005, we recognized hurricane related losses and unusual
expenses of $16 million principally related to impairment of our Texas and Louisiana
forests, facility damage, and employee and community assistance.
  Corrugated Packaging
   Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Revenues
    
    $
    746
    
    
    $
    691
    
    
    $
    2,225
    
    
    $
    2,150Costs and expenses
    
    
    (672
    )
    
    
    (676
    )
    
    
    (2,044
    )
    
    
    (2,027
    )Segment operating income
    
    $
    74
    
    
    $
    15
    
    
    $
    181
    
    
    $
    123Segment ROI
    
    
    
    
    
    
    
    
    
    
    11.8
    %
    
    
    7.7
    %
  Third Quarter 2006
    
    First Nine Monthsversus Third
    
    2006 versus FirstQuarter 2005
    
    Nine Months 2005Increase (Decrease)Corrugated packagingAverage prices
    
    
    11
    %
    
    
    4
    %Shipments, average week
    
    
    (3
    )%
    
    
    (1
    )%Industry shipments, average week (a)
    
    
    3
    %
    
    
    3
    %LinerboardAverage prices
    
    
    44
    %
    
    
    16
    %Shipments, tons
    
    
    (10
    )%
    
    
    (16
    )%
 
 (a)
    
    Source: Fibre Box Association  31




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##### Table of Contents



Third Quarter 2006
    
    First Nine Monthsversus Third
    
    2006 versus FirstQuarter 2005
    
    Nine Months 2005Increase (Decrease)(In millions)Wood fiber
    
    $
    6
    
    
    $
    7Recycled fiber
    
    
    2
    
    
    
    (14
    )Freight
    
    
    8
    
    
    
    30Energy
    
    
    (4
    )
    
    
    9Depreciation
    
    
    (2
    )
    
    
    (4
    )Pension and postretirement
    
    
    (1
    )
    
    
    (3
    )
   Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005Number of converting facilities (at quarter-end)
    
    
    64
    
    
    
    68
    
    
    
    64
    
    
    
    68Mill capacity, in thousand tons
    
    
    892
    
    
    
    860
    
    
    
    2,675
    
    
    
    2,578Mill production, in thousand tons
    
    
    890
    
    
    
    830
    
    
    
    2,662
    
    
    
    2,568Percent mill production used internally
    
    
    92
    %
    
    
    91
    %
    
    
    93
    %
    
    
    92
    %Percent of total fiber requirements sourced from recycled fiber
    
    
    34
    %
    
    
    37
    %
    
    
    34
    %
    
    
    36
    %Corrugating medium purchases from our Premier Boxboard Limited
LLC joint venture, in thousand tons
    
    
    28
    
    
    
    15
    
    
    
    65
    
    
    
    52
 Forest Products
  32




---



##### Table of Contents



Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005Pro
    
    
    
    
    
    
    
    
    
    
    ProActual
    
    
    Actual
    
    
    forma(a)
    
    
    Actual
    
    
    Actual
    
    
    forma(a)(Dollars in millions)Revenues
    
    $
    310
    
    
    $
    264
    
    
    $
    314
    
    
    $
    984
    
    
    $
    785
    
    
    $
    931Costs and expenses
    
    
    (227
    )
    
    
    (203
    )
    
    
    (245
    )
    
    
    (718
    )
    
    
    (618
    )
    
    
    (740
    )Segment operating income
    
    $
    83
    
    
    $
    61
    
    
    $
    69
    
    
    $
    266
    
    
    $
    167
    
    
    $
    191Segment ROI
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36.0
    %
    
    
    26.3
    %
    
    
    24.4
    %
 
 (a) Pro forma to reflect the consolidation of Standard Gypsum LP.  Third Quarter 2006
    
    First Nine Monthsversus Third
    
    2006 versus FirstQuarter 2005
    
    Nine Months 2005Increase (Decrease)Lumber:Average prices
    
    
    (26
    )%
    
    
    (14
    )%Shipments
    
    
    8
    %
    
    
    10
    %Gypsum:Average prices
    
    
    31
    %
    
    
    31
    %Shipments
    
    
    101
    %
    
    
    142
    %Particleboard:Average prices
    
    
    28
    %
    
    
    12
    %Shipments
    
    
    7
    %
    
    
    1
    %MDF:Average prices
    
    
    15
    %
    
    
    3
    %Shipments
    
    
    
    %
    
    
    (30
    )%
    First NineThird Quarter
    
    
    Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Our share of joint venture operating income
    
    $
    2
    
    
    $
    7
    
    
    $
    3
    
    
    $
    21Mineral and hunting leases
    
    
    10
    
    
    
    10
    
    
    
    38
    
    
    
    24$
    12
    
    
    $
    17
    
    
    $
    41
    
    
    $
    45
 33




---



##### Table of Contents



Third Quarter 2006
    
    First Nine Monthsversus Third
    
    2006 versus FirstQuarter 2005
    
    Nine Months 2005Increase (Decrease)(In millions)Wood fiber
    
    $
    (2
    )
    
    $
    (5
    )Energy, principally natural gas
    
    
    2
    
    
    
    17Freight
    
    
    6
    
    
    
    23Chemical
    
    
    1
    
    
    
    (2
    )Depreciation
    
    
    4
    
    
    
    6Pension and postretirement
    
    
    (1
    )
    
    
    (3
    )
   Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005Timber harvest, in million tons:Sawtimber
    
    
    0.7
    
    
    
    0.5
    
    
    
    1.9
    
    
    
    1.7Pulpwood
    
    
    1.0
    
    
    
    0.8
    
    
    
    2.5
    
    
    
    2.4Total
    
    
    1.7
    
    
    
    1.3
    
    
    
    4.4
    
    
    
    4.1Number of converting and manufacturing facilities (at quarter-end)
    
    
    17
    
    
    
    17
    
    
    
    17
    
    
    
    17Average operating rates for all product lines excluding sold or closed
facilities:High
    
    
    99
    %
    
    
    107
    %
    
    
    108
    %
    
    
    99
    %Low
    
    
    88
    %
    
    
    87
    %
    
    
    91
    %
    
    
    78
    %Average
    
    
    92
    %
    
    
    96
    %
    
    
    97
    %
    
    
    91
    %Gypsum facing paper purchases from our Premier Boxboard Limited LLC joint
venture, in thousand tons
    
    
    17
    
    
    
    15
    
    
    
    54
    
    
    
    53Percent of gypsum facing paper supplied by our Premier Boxboard Limited LLC
joint venture
    
    
    
    
    
    
    
    
    
    
    77
    %
    
    
    76
    %
  34




---



##### Table of Contents



Real Estate
   Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Revenues
    
    $
    59
    
    
    $
    26
    
    
    $
    141
    
    
    $
    80Costs and expenses
    
    
    (46
    )
    
    
    (21
    )
    
    
    (106
    )
    
    
    (65
    )Our share of real estate ventures income
    
    
    2
    
    
    
    5
    
    
    
    15
    
    
    
    13Segment operating income
    
    $
    15
    
    
    $
    10
    
    
    $
    50
    
    
    $
    28Segment ROI
    
    
    
    
    
    
    
    
    
    
    16.2
    %
    
    
    10.0
    %
   Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005(Dollars in millions)Residential real estate revenue
    
    $
    18
    
    
    $
    16
    
    
    $
    54
    
    
    $
    39Lots sold
    
    
    344
    
    
    
    304
    
    
    
    1,149
    
    
    
    852Commercial real estate revenue
    
    $
    26
    
    
    $
    1
    
    
    $
    44
    
    
    $
    11Acres sold
    
    
    137
    
    
    
    14
    
    
    
    181
    
    
    
    144Land held for investment or
future development revenue
    
    $
    5
    
    
    $
    3
    
    
    $
    18
    
    
    $
    11Acres sold
    
    
    621
    
    
    
    478
    
    
    
    2,389
    
    
    
    1,440Income producing properties,
timber and other revenues
    
    $
    10
    
    
    $
    6
    
    
    $
    25
    
    
    $
    19Total revenues
    
    $
    59
    
    
    $
    26
    
    
    $
    141
    
    
    $
    80
  35




---



##### Table of Contents



ThirdQuarter-End2006Owned and consolidated ventures:Developed land and land under developmentNumber of projects
    
    
    33Residential lots remaining
    
    
    11,784Commercial acres remaining
    
    
    637Land held for investment or future developmentNumber of projects
    
    
    22Acres in entitlement process
    
    
    26,770Acres undeveloped
    
    
    191,344Ventures accounted for using the equity method:Ventures lot sales, (for first nine months 2006)Lots sold
    
    
    1,418
    (a)Revenue per lot sold
    
    $
    53,737Ventures developed land and land under developmentNumber of projects
    
    
    22Residential lots remaining
    
    
    11,210Commercial acres remaining
    
    
    675Land held for investment or future development, in acres
    
    
    6,480
    (b)
 
 (a)
    
    The previously discussed elimination of the one month reporting lag resulted in a
one-time increase in the number of lots sold of 122 lots.(b)
    
    Sales in third quarter 2006 totaled 39 acres. Financial Services
   Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005(Dollars in millions)Net interest income
    
    $
    100
    
    
    $
    103
    
    
    $
    311
    
    
    $
    295Segment operating income
    
    
    58
    
    
    
    61
    
    
    
    169
    
    
    
    150Segment ROI
    
    
    
    
    
    
    
    
    
    
    22.2
    %
    
    
    21.6
    %
 Net Interest Income and Earning Assets and Deposits
  36




---



##### Table of Contents



Third Quarter
    
    First Nine Months2006
    
    2005
    
    2006
    
    2005Average
    
    Yield/
    
    Average
    
    Yield/
    
    Average
    
    Yield/
    
    Average
    
    Yield/Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate
    
    Balance
    
    Rate(Dollars in millions)Earning assets
    
    $
    15,605
    
    
    
    6.37
    %
    
    $
    15,437
    
    
    
    5.42
    %
    
    $
    16,181
    
    
    
    6.12
    %
    
    $
    15,106
    
    
    
    5.08
    %Interest-bearing liabilities
    
    
    14,415
    
    
    
    (4.13
    )%
    
    
    14,366
    
    
    
    (3.00
    )%
    
    
    14,987
    
    
    
    (3.84
    )%
    
    
    14,069
    
    
    
    (2.67
    )%Impact of noninterest bearing funds
    
    
    
    
    
    
    0.31
    %
    
    
    
    
    
    
    0.21
    %
    
    
    
    
    
    
    0.28
    %
    
    
    
    
    
    
    0.19
    %Net interest margin
    
    
    
    
    
    
    2.55
    %
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    2.56
    %
    
    
    
    
    
    
    2.60
    %
 Quantitative and Qualitative Disclosures About Market Risk,
  Third Quarter-End2006
    
    
    2005(Dollars in millions)Residential housing assets:Loans held for sale
    
    $
    29
    
    
    $
    189Loans
    
    
    6,521
    
    
    
    7,311Securities
    
    
    5,875
    
    
    
    5,434Total residential housing assets
    
    
    12,425
    
    
    
    12,934Other earning assets
    
    
    3,227
    
    
    
    3,068Total earning assets
    
    $
    15,652
    
    
    $
    16,002Residential housing assets as a percentage of total earning assets
    
    
    79
    %
    
    
    81
    %Noninterest bearing deposit accounts
    
    $
    815
    
    
    $
    825Interest bearing deposit accounts
    
    
    3,562
    
    
    
    3,689Certificates of deposit
    
    
    4,911
    
    
    
    4,596Total deposits
    
    $
    9,288
    
    
    $
    9,110
    37




---



##### Table of Contents



Asset Quality and Allowance for Credit Losses
  Third Quarter-End
    
    
    Year-End2006
    
    
    2005
    
    
    2005(Dollars in millions)Non-performing loans
    
    $
    27
    
    
    $
    38
    
    
    $
    35Foreclosed real estate
    
    
    3
    
    
    
    2
    
    
    
    2Non-performing assets
    
    $
    30
    
    
    $
    40
    
    
    $
    37Non-performing loans as a percentage of total loans
    
    
    0.27
    %
    
    
    0.37
    %
    
    
    0.35
    %Non-performing assets ratio
    
    
    0.31
    %
    
    
    0.40
    %
    
    
    0.37
    %Allowance for loan losses as a percentage of non-performing loans
    
    
    241
    %
    
    
    204
    %
    
    
    213
    %Allowance for loan losses as a percentage of total loans
    
    
    0.66
    %
    
    
    0.76
    %
    
    
    0.75
    %
  Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Loans:Balance at beginning of period
    
    $
    71
    
    
    $
    78
    
    
    $
    74
    
    
    $
    85Provision (credit) for loan losses
    
    
    1
    
    
    
    (1
    )
    
    
    1
    
    
    
    7Net charge-offs
    
    
    (8
    )
    
    
    
    
    
    
    (11
    )
    
    
    (15
    )Balance at end of period
    
    
    64
    
    
    
    77
    
    
    
    64
    
    
    
    77Unfunded credit commitments:Balance at beginning of period
    
    
    7
    
    
    
    6
    
    
    
    7
    
    
    
    7Provision for commitment-related credit losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Net charge-offs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Balance at end of period
    
    
    7
    
    
    
    6
    
    
    
    7
    
    
    
    6Combined allowances for credit losses at period end
    
    $
    71
    
    
    $
    83
    
    
    $
    71
    
    
    $
    83Provision (credit) for:Loan losses
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1
    
    
    $
    7Commitment-related credit losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Combined provision (credit) for credit losses
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1
    
    
    $
    9Net charge-offs as a percentage of average loans outstanding
    
    
    0.30
    %
    
    
    (0.02
    )%
    
    
    0.15
    %
    
    
    0.24
    %
   38




---



##### Table of Contents



Noninterest Income and Noninterest Expense
  Expenses Not Allocated to Segments
    Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Closure of converting and production facilities and
sale of non-strategic assets
    
    $
    (4
    )
    
    $
    (5
    )
    
    $
    (5
    )
    
    $
    (44
    )Elimination of wholesale mortgage origination network
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    Goodwill impairment and severance related to the
sale of the asset-based lending operation
    
    
    (2
    )
    
    
    
    
    
    
    (9
    )
    
    
    Antitrust litigation
    
    
    (4
    )
    
    
    (5
    )
    
    
    (4
    )
    
    
    (13
    )Proxy contest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Hurricane related costs
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Other
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (3
    )Total
    
    $
    (10
    )
    
    $
    (27
    )
    
    $
    (21
    )
    
    $
    (80
    )
     Income Taxes
  39




---



##### Table of Contents



Average Shares Outstanding
  Capital Resources and Liquidity for First Nine Months 2006
  Sources and Uses of Cash
  40




---



##### Table of Contents



Parent Company Sources and Uses of Cash
 First Nine Months2006
    
    
    2005(In millions)We received cash from:Operations
    
    $
    386
    
    
    $
    298Dividends from financial services(a)
    
    
    135
    
    
    
    25Proceeds from tax litigation settlement, net
    
    
    89
    
    
    
    Real estate development expenditures net of non-cash cost of sales
    
    
    (29
    )
    
    
    (18
    )Working capital changes
    
    
    (9
    )
    
    
    From operations
    
    
    572
    
    
    
    305Sale of non-strategic and other assets
    
    
    45
    
    
    
    43Exercise of options and related tax benefits, and in 2005 the settlement of
equity purchase contracts
    
    
    53
    
    
    
    387Total sources
    
    
    670
    
    
    
    735We used cash to:Reduce borrowings, net
    
    
    (41
    )
    
    
    (7
    )Return to shareholders through:Dividends
    
    
    (82
    )
    
    
    (78
    )Repurchase of common stock
    
    
    (226
    )
    
    
    (472
    )Reinvest in the business through:Capital expenditures
    
    
    (142
    )
    
    
    (155
    )Acquisition, joint ventures, and other
    
    
    (144
    )
    
    
    (29
    )Total uses
    
    
    (635
    )
    
    
    (741
    )Change in cash and cash equivalents
    
    $
    35
    
    
    $
    (6
    )
 
 (a)
    
    Dividends we receive from financial services are eliminated in the consolidated
statements of cash flows.    1 2
   41




---



##### Table of Contents



Financial Services Sources and Uses of Cash
 First Nine Months2006
    
    
    2005(In millions)We received cash from:Operations
    
    $
    143
    
    
    $
    149Changes in loans held for sale, and other
    
    
    250
    
    
    
    196From operations
    
    
    393
    
    
    
    345Net repayments on loans and securities
    
    
    612
    
    
    
    Sale of asset-based operations
    
    
    303
    
    
    
    Collection of mortgage servicing rights sale receivables
    
    
    
    
    
    
    46Increase in deposits and borrowings
    
    
    
    
    
    
    663Total sources
    
    
    1,308
    
    
    
    1,054We used cash to:Pay dividends to the parent company
    
    
    (135
    )
    
    
    (25
    )Net funding of loans and securities
    
    
    
    
    
    
    (846
    )Decrease in deposits and borrowings
    
    
    (1,309
    )
    
    
    Reinvest in the business through
capital expenditures, acquisitions and other
    
    
    (1
    )
    
    
    (69
    )Total uses
    
    
    (1,445
    )
    
    
    (940
    )Change in cash and cash equivalents
    
    $
    (137
    )
    
    $
    114
     Liquidity
  42




---



##### Table of Contents



Parent Company Liquidity
   AccountsReceivableCredit
    
    
    SecuritizationAgreements
    
    
    Facility
    
    
    Total(In millions)Committed
    
    $
    850
    
    
    $
    250
    
    
    $
    1,100Less: borrowings
    
    
    (5
    )
    
    
    (145
    )
    
    
    (150
    )Unused borrowing capacity at third quarter-end 2006
    
    $
    845
    
    
    $
    105
    
    
    $
    950
   Financial Services Liquidity
   Off-Balance Sheet Arrangements
 Parent Company
  
    
    $28 million as a result of the Standard Gypsum LP acquisition and
    
    $20 million as a result of the refinancing by the parent company of borrowings by a
financial services subsidiary related to real estate.
 43




---



##### Table of Contents



Financial Services
  ThirdQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)Single-family mortgage loans
    
    $
    91
    
    
    $
    204Unused lines of credit
    
    
    1,932
    
    
    
    2,209Unfunded portion of loan commitments
    
    
    4,261
    
    
    
    4,141Commitments to originate commercial loans
    
    
    811
    
    
    
    571Letters of credit
    
    
    435
    
    
    
    373Total
    
    $
    7,530
    
    
    $
    7,498
 Capital Adequacy and Other Regulatory Matters
   Regulatory
    
    For Categorization asActual
    
    Minimum
    
    Well CapitalizedRegulatory capital ratios:Tangible capital
    
    
    7.26
    %
    
    
    2.00
    %
    
    
    N/ALeverage capital
    
    
    7.26
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-based capital
    
    
    10.41
    %
    
    
    8.00
    %
    
    
    10.00
    %
 Pension and Postretirement Matters
   Energy
  44




---



##### Table of Contents



Litigation and Related Matters
   Calculation of Non-GAAP Financial Measure
 Parent
    
    
    Corrugated
    
    
    Forest
    
    
    Real
    
    
    FinancialCompany
    
    
    Packaging
    
    
    Products
    
    
    Estate
    
    
    Services(Dollars in millions)First Nine Months 2006ReturnOperating income or segment operating income determined in
accordance with GAAP
    
    $
    536
    (a)
    
    $
    181
    
    
    $
    266
    
    
    $
    50
    
    
    $
    169Adjustments for significant unusual items
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    536
    
    
    $
    181
    
    
    $
    266
    
    
    $
    50
    
    
    $
    169InvestmentBeginning of year total assets, segment assets or
investment in financial services determined in accordance
with GAAP
    
    $
    5,001
    
    
    $
    2,318
    
    
    $
    866
    
    
    $
    422
    
    
    $
    1,017Adjustments:Current liabilities
(excluding current
portion of
long-term debt)
    
    
    (492
    )
    
    
    (269
    )
    
    
    (76
    )
    
    
    (11
    )
    
    
    N/AAssets held for sale
    
    
    (34
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMunicipal bonds
related to capital
leases included in
other assets
    
    
    (188
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAcquisition of
Standard Gypsum, LP
in January 2006
    
    
    196
    
    
    
    N/A
    
    
    
    196
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    4,483
    
    
    $
    2,049
    
    
    $
    986
    
    
    $
    411
    
    
    $
    1,017ROI, annualized
    
    
    15.9
    %
    
    
    11.8
    %
    
    
    36.0
    %
    
    
    16.2
    %
    
    
    22.2
    %First Nine Months 2005ReturnOperating income or segment operating income determined in
accordance with GAAP
    
    $
    302
    (a)
    
    $
    123
    
    
    $
    167
    
    
    $
    28
    
    
    $
    150Adjustments for significant unusual items
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    302
    
    
    $
    123
    
    
    $
    167
    
    
    $
    28
    
    
    $
    150InvestmentBeginning of year total assets, segment assets or
investment in financial services determined in accordance
with GAAP
    
    $
    5,006
    
    
    $
    2,459
    
    
    $
    919
    
    
    $
    381
    
    
    $
    927Adjustments:Current liabilities
(excluding current
portion of
long-term debt)
    
    
    (519
    )
    
    
    (323
    )
    
    
    (71
    )
    
    
    (9
    )
    
    
    N/AAssets held for sale
    
    
    (34
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMunicipal bonds
related to capital
leases included in
other assets
    
    
    (188
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    4,265
    
    
    $
    2,136
    
    
    $
    848
    
    
    $
    372
    
    
    $
    927ROI, annualized
    
    
    9.4
    %
    
    
    7.7
    %
    
    
    26.3
    %
    
    
    10.0
    %
    
    
    21.6
    %
 
 (a)
    
    Net of expenses not allocated to segments of $130 million in 2006 and
$166 million in 2005.  45




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##### Table of Contents



STATISTICAL AND OTHER DATA
 Parent Company
   Third Quarter
    
    
    First Nine Months2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)RevenuesCorrugated PackagingCorrugated packaging
    
    $
    713
    
    
    $
    666
    
    
    $
    2,148
    
    
    $
    2,072Linerboard
    
    
    33
    
    
    
    25
    
    
    
    77
    
    
    
    78Total
    
    $
    746
    
    
    $
    691
    
    
    $
    2,225
    
    
    $
    2,150Forest ProductsPine lumber
    
    $
    64
    
    
    $
    79
    
    
    $
    224
    
    
    $
    238Gypsum wallboard(a)
    
    
    102
    
    
    
    39
    
    
    
    330
    
    
    
    104Particleboard
    
    
    62
    
    
    
    46
    
    
    
    169
    
    
    
    150Medium density fiberboard(a)
    
    
    17
    
    
    
    15
    
    
    
    52
    
    
    
    72Fiberboard
    
    
    16
    
    
    
    21
    
    
    
    59
    
    
    
    62Mineral and hunting leases
    
    
    10
    
    
    
    10
    
    
    
    38
    
    
    
    24Fiber and other
    
    
    39
    
    
    
    54
    
    
    
    112
    
    
    
    135Total
    
    $
    310
    
    
    $
    264
    
    
    $
    984
    
    
    $
    785Unit salesCorrugated PackagingCorrugated packaging, thousands of tons
    
    
    829
    
    
    
    852
    
    
    
    2,582
    
    
    
    2,595Linerboard, thousands of tons
    
    
    70
    
    
    
    79
    
    
    
    177
    
    
    
    211Total, thousands of tons
    
    
    899
    
    
    
    931
    
    
    
    2,759
    
    
    
    2,806Forest ProductsPine lumber, million board feet
    
    
    207
    
    
    
    191
    
    
    
    641
    
    
    
    584Gypsum wallboard, million square feet(a)
    
    
    453
    
    
    
    225
    
    
    
    1,553
    
    
    
    643Particleboard, million square feet
    
    
    162
    
    
    
    152
    
    
    
    491
    
    
    
    487Medium density fiberboard, million square feet(a)
    
    
    35
    
    
    
    35
    
    
    
    115
    
    
    
    165Fiberboard, million square feet
    
    
    89
    
    
    
    113
    
    
    
    297
    
    
    
    329
 
 (a)
    
    Comparisons of revenue and unit sales of gypsum wallboard are affected by the
January 2006 acquisition of Standard Gypsum LP and of MDF are affected by the June 2005
sale of the Pembroke facility. 46




---



##### Table of Contents



(a)
 ProjectProject
    
    County
    
    Acres(b)CaliforniaHidden Creek Estates
    
    Los Angeles
    
    
    700Terrace at Hidden Hills
    
    Los Angeles
    
    
    30GeorgiaBay Springs
    
    Carroll
    
    
    440Dry Pond
    
    Cherokee
    
    
    950Four Seasons
    
    Coweta
    
    
    750Fox Hall
    
    Coweta
    
    
    350Friendship Road
    
    Cherokee
    
    
    110Garland Mountain
    
    Cherokee
    
    
    350Gold Creek
    
    Dawson
    
    
    1,090Grove Park
    
    Coweta
    
    
    160Happy Valley Farm
    
    Coweta
    
    
    750Jackson Park
    
    Jackson
    
    
    690Legion Lake
    
    Carroll
    
    
    210Lithia Springs
    
    Haralson
    
    
    260Mill Creek
    
    Coweta
    
    
    770Pickens School
    
    Pickens
    
    
    420The Overlook at Waleska
    
    Cherokee
    
    
    510Town West
    
    Bartow
    
    
    1,110Wolf Creek
    
    Carroll
    
    
    11,810Yellow Creek
    
    Cherokee
    
    
    1,060TexasLake Houston
    
    Harris/Liberty
    
    
    3,630Woodlake Village(c)
    
    Montgomery
    
    
    620Total
    
    
    
    
    26,770
 
 (a)
    
    A project is deemed to be in the entitlement process when customary steps
necessary for the preparation and submittal of an application, like conducting
pre-application meetings or similar discussions with governmental officials, have
commenced, or an application has been filed. Projects listed may have significant steps
remaining, and there is no assurance that entitlements ultimately will be received.(b)
    
    Project acres are approximate. The actual number of acres entitled may vary.(c)
    
    We own a 33 percent interest in this project. 47




---



##### Table of Contents



(a)
 Residential Lots
    
    
    Commercial Acres(c)Lots Sold
    
    
    
    
    
    
    Acres SoldInterest
    
    
    Since
    
    
    Lots
    
    
    Since
    
    
    AcresProject
    
    County
    
    Owned (b)
    
    
    Inception
    
    
    Remaining
    
    
    Inception
    
    
    RemainingProjects we ownColoradoBuffalo Highlands
    
    Weld
    
    
    100
    %
    
    
    
    
    
    
    645
    
    
    
    
    
    
    
    Johnstown Farms
    
    Weld
    
    
    100
    %
    
    
    115
    
    
    
    699
    
    
    
    
    
    
    
    Stonebraker
    
    Weld
    
    
    100
    %
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    TexasCaruth Lakes
    
    Rockwall
    
    
    100
    %
    
    
    245
    
    
    
    629
    
    
    
    
    
    
    
    Cibolo Canyons
    
    Bexar
    
    
    100
    %
    
    
    302
    
    
    
    1,447
    
    
    
    32
    
    
    
    113Harbor Lakes
    
    Hood
    
    
    100
    %
    
    
    177
    
    
    
    401
    
    
    
    
    
    
    
    13Hunters Crossing
    
    Bastrop
    
    
    100
    %
    
    
    215
    
    
    
    362
    
    
    
    19
    
    
    
    95Katy Freeway
    
    Harris
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Maxwell Creek
    
    Collin
    
    
    100
    %
    
    
    517
    
    
    
    506
    
    
    
    
    
    
    
    Oakcreek Estates
    
    Comal
    
    
    100
    %
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    The Colony
    
    Bastrop
    
    
    100
    %
    
    
    332
    
    
    
    1,093
    
    
    
    22
    
    
    
    50The Gables at North Hill
    
    Collin
    
    
    100
    %
    
    
    171
    
    
    
    111
    
    
    
    
    
    
    
    The Preserve at Pecan Creek
    
    Denton
    
    
    100
    %
    
    
    20
    
    
    
    799
    
    
    
    
    
    
    
    9The Ridge at Ribelin Ranch
    
    Travis
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    77Other Texas Projects (8)
    
    Various
    
    
    100
    %
    
    
    2,478
    
    
    
    193
    
    
    
    118
    
    
    
    49Georgia, Missouri, Tennessee, and UtahOther Projects (5)
    
    Various
    
    
    100
    %
    
    
    873
    
    
    
    502
    
    
    
    
    
    
    
    5,445
    
    
    
    8,617
    
    
    
    317
    
    
    
    446Projects in entities we consolidateTexasCity Park
    
    Harris
    
    
    75
    %
    
    
    571
    
    
    
    730
    
    
    
    36
    
    
    
    129Lantana
    
    Denton
    
    
    55
    % (d)
    
    
    114
    
    
    
    2,236
    
    
    
    
    
    
    
    Other Texas Projects (4)
    
    Various
    
    Various
    
    
    244
    
    
    
    201
    
    
    
    2
    
    
    
    62929
    
    
    
    3,167
    
    
    
    38
    
    
    
    191Total owned and consolidated
    
    
    
    
    
    
    
    
    6,374
    
    
    
    11,784
    
    
    
    355
    
    
    
    637Projects in ventures that we account
for using the equity methodGeorgiaSeven Hills
    
    Paulding
    
    
    50
    %
    
    
    510
    
    
    
    569
    
    
    
    4
    
    
    
    22The Georgian
    
    Paulding
    
    
    38
    %
    
    
    278
    
    
    
    1,108
    
    
    
    
    
    
    
    Other Georgia Projects (5)
    
    Various
    
    Various
    
    
    1,732
    
    
    
    358
    
    
    
    
    
    
    
    TexasBar C Ranch
    
    Tarrant
    
    
    50
    %
    
    
    120
    
    
    
    1,061
    
    
    
    
    
    
    
    Fannin Farms West
    
    Tarrant
    
    
    50
    %
    
    
    224
    
    
    
    219
    
    
    
    
    
    
    
    Lantana
    
    Denton
    
    Various (d)
    
    
    1,601
    
    
    
    247
    
    
    
    1
    
    
    
    79Long Meadow Farms
    
    Fort Bend
    
    
    19
    %
    
    
    404
    
    
    
    2,308
    
    
    
    
    
    
    
    134Southern Trails
    
    Brazoria
    
    
    40
    %
    
    
    162
    
    
    
    897
    
    
    
    
    
    
    
    Stonewall Estates
    
    Bexar
    
    
    25
    %
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    Summer Creek
    
    Fort Bend
    
    
    50
    %
    
    
    
    
    
    
    525
    
    
    
    
    
    
    
    37Summer Creek Ranch
    
    Tarrant
    
    
    50
    %
    
    
    772
    
    
    
    1,673
    
    
    
    
    
    
    
    374Summer Lakes
    
    Fort Bend
    
    
    50
    %
    
    
    294
    
    
    
    850
    
    
    
    42
    
    
    
    9Village Park
    
    Collin
    
    
    30
    %
    
    
    285
    
    
    
    284
    
    
    
    
    
    
    
    5Other Texas Projects (5)
    
    Various
    
    Various
    
    
    782
    
    
    
    329
    
    
    
    
    
    
    
    15FloridaOther Projects (3)
    
    Various
    
    Various
    
    
    449
    
    
    
    396
    
    
    
    
    
    
    
    Total in ventures
    
    
    
    
    
    
    
    
    7,613
    
    
    
    11,210
    
    
    
    47
    
    
    
    675Combined Total
    
    
    
    
    
    
    
    
    13,987
    
    
    
    22,994
    
    
    
    402
    
    
    
    1,312
 
 (a)
    
    A project is deemed entitled when all major discretionary land-use
approvals have been received. Some projects may require additional permits for
development.(b)
    
    Interest owned reflects our net equity interest in the project, whether owned
directly or indirectly. There are some projects that have multiple ownership
structures within them. Accordingly, portions of these projects may appear as owned,
consolidated, and/or accounted for on the equity method.(c)
    
    Commercial acres are net developable acres, and may be fewer than the gross
acres available in the project.(d)
    
    The Lantana project consists of a series of 17 partnerships in which our
interests range from 25 percent to 55 percent. We account for eight of these
partnerships in which our interests range from 25 percent to 50 percent using the
equity method and we consolidate the remaining partnerships. 48




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##### Table of Contents



Financial Services
  Third Quarter-End
    
    
    Year-End2006
    
    
    2005
    
    
    2005(In millions)Single-family mortgage
    
    $
    2,542
    
    
    $
    3,275
    
    
    $
    3,112Single-family mortgage warehouse
    
    
    715
    
    
    
    857
    
    
    
    757Single-family construction
    
    
    2,001
    
    
    
    1,719
    
    
    
    1,665Multifamily and senior housing
    
    
    1,263
    
    
    
    1,460
    
    
    
    1,469Total residential housing
    
    
    6,521
    
    
    
    7,311
    
    
    
    7,003Commercial real estate
    
    
    1,047
    
    
    
    680
    
    
    
    758Commercial and business
    
    
    967
    
    
    
    822
    
    
    
    843Energy lending
    
    
    918
    
    
    
    699
    
    
    
    756Asset-based lending and leasing
    
    
    
    
    
    
    396
    
    
    
    395Consumer and other
    
    
    146
    
    
    
    182
    
    
    
    164Total loans
    
    
    9,599
    
    
    
    10,090
    
    
    
    9,919Less allowance for loan losses
    
    
    (64
    )
    
    
    (77
    )
    
    
    (74
    )Loans receivable, net
    
    $
    9,535
    
    
    $
    10,013
    
    
    $
    9,845
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Increase (Decrease) in Income Before Income TaxesThird Quarter-End 2006
    
    Year-End 2005Parent
    
    Financial
    
    Parent
    
    FinancialCompany
    
    Services
    
    Company
    
    Services(In millions)Change in Interest Rates+2%
    
    $
    (3
    )
    
    $
    (37
    )
    
    $
    
    
    
    $
    (31
    )+1%
    
    
    (1
    )
    
    
    (14
    )
    
    
    
    
    
    
    (12
    )-1%
    
    
    1
    
    
    
    (14
    )
    
    
    
    
    
    
    (20
    )-2%
    
    
    3
    
    
    
    (40
    )
    
    
    
    
    
    
    (49
    )
   49




---



##### Table of Contents



Foreign Currency Risk
  Commodity Price Risk
  
 Item 4. Controls and Procedures
     
 PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings
  Antitrust Litigation
   50




---



##### Table of Contents



Indiana Environmental Matter
   Texas Environmental Matter
  Bogalusa
  Tax-Exempt Bonds
  
 Item 1A. Risk Factors
  51




---



##### Table of Contents



Item 2 . Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
 MaximumTotal Number
    
    
    Number ofof Shares
    
    
    Shares ThatPurchased as
    
    
    May Yet beAverage
    
    
    Part of Publicly
    
    
    PurchasedTotal Number
    
    
    Price
    
    
    Announced
    
    
    Under theof Shares
    
    
    Paid per
    
    
    Plans or
    
    
    PlansPeriod
    
    Purchased
    
    
    Share
    
    
    Programs
    
    
    or ProgramsMonth 1 (7/1/2006 7/31/2006)
    
    
    
    
    
    
    
    
    
    
    Month 2 (8/1/2006  8/31/2006)
    
    
    200,000
    
    
    $
    44.17
    
    
    
    200,000
    
    
    
    5,800,000Month 3 (9/1/2006  9/30/2006)
    
    
    1,950,000
    
    
    $
    40.68
    
    
    
    1,950,000
    
    
    
    3,850,000Total
    
    
    2,150,000
    
    
    $
    41.01
    
    
    
    2,150,000
 
 (a)
    
    On August 4, 2006, we announced that our Board of Directors authorized the
repurchase of up to six million shares of our common stock. This plan has no expiration date. We
have no plans or programs that expired during the period covered by the table above and no plans or
programs that we intend to terminate prior to expiration or under which we no longer intend to make
further purchases. 
 Item 3. Defaults Upon Senior Securities
  
 Item 4 . Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
         52




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##### Table of Contents



SIGNATURES
  TEMPLE-INLAND INC.
(Registrant)Dated:  November 6, 2006
    By
    /s/ Randall D. LevyRandall D. LevyChief Financial OfficerBy
    /s/ Troy L. HesterTroy L. HesterCorporate Controller and Principal
Accounting Officer 53




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##### Table of Contents



Exhibit No.
    
    Description
    
    Page No.10.1
    
    First Amendment to the Temple-Inland Inc. 1993
Stock Option Plan
    
    
    5510.2
    
    First Amendment to the Temple-Inland Inc. 1997
Stock Option Plan
    
    
    5610.3
    
    First Amendment to the Temple-Inland Inc. 2001
Stock Incentive Plan
    
    
    5710.4
    
    First Amendment to the Temple-Inland Inc. 2003
Stock Incentive Plan
    
    
    5831.1
    
    Certification of Chief Executive Officer
pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    5931.2
    
    Certification of Chief Financial Officer
pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    
    6132.1
    
    Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
    
    
    6332.2
    
    Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
    
    
    64
 54