##### 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 1934for the
Quarterly Period Ended September 27, 2008
 OR
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934for the Transition Period From  to
 Commission File Number: 001-08634
 Temple-Inland Inc.
  Delaware
    
    75-1903917(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)
 1300 MoPac Expressway South, 3 rd Floor, Austin, Texas 78746
 (512) 434-5800
 Not Applicable
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Number of common shares outstandingClass
    
    as of September 27, 2008Common Stock (par value $1.00 per share)
    
    106,509,710
   Page 1 of 37
    
    The Exhibit Index is page 31.




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    4Consolidated Statements of Cash Flows
    
    
    5Notes to the Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    30EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)ThirdQuarter-
    
    
    Year-EndEnd 2008
    
    
    2007(In millions)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    50
    
    
    $
    227Trade receivables, net of allowance for doubtful accounts of $16 in 2008 and $14 in 2007
    
    
    469
    
    
    
    433Inventories:Work in process and finished goods
    
    
    116
    
    
    
    116Raw materials
    
    
    220
    
    
    
    224Supplies and other
    
    
    135
    
    
    
    121Total inventories
    
    
    471
    
    
    
    461Deferred tax asset
    
    
    73
    
    
    
    99Prepaid expenses and other
    
    
    80
    
    
    
    57Total current assets
    
    
    1,143
    
    
    
    1,277Property and EquipmentLand and buildings
    
    
    669
    
    
    
    641Machinery and equipment
    
    
    3,589
    
    
    
    3,423Construction in progress
    
    
    56
    
    
    
    120Less allowances for depreciation
    
    
    (2,634
    )
    
    
    (2,552
    )Total property and equipment
    
    
    1,680
    
    
    
    1,632Financial Assets of Special Purpose Entities
    
    
    2,383
    
    
    
    2,383Goodwill
    
    
    393
    
    
    
    365Other Assets
    
    
    272
    
    
    
    285TOTAL ASSETS
    
    $
    5,871
    
    
    $
    5,942LIABILITIESCurrent LiabilitiesAccounts payable
    
    $
    226
    
    
    $
    244Accrued employee compensation and benefits
    
    
    82
    
    
    
    108Accrued interest
    
    
    28
    
    
    
    31Accrued property taxes
    
    
    19
    
    
    
    11Accrued income taxes
    
    
    
    
    
    
    258Other accrued expenses
    
    
    147
    
    
    
    173Current portion of long-term debt
    
    
    1
    
    
    
    3Current portion of pension benefits
    
    
    6
    
    
    
    48Current portion of postretirement benefits
    
    
    13
    
    
    
    14Total current liabilities
    
    
    522
    
    
    
    890Long-Term Debt
    
    
    1,192
    
    
    
    852Nonrecourse Financial Liabilities of Special Purpose Entities
    
    
    2,140
    
    
    
    2,140Deferred Tax Liability
    
    
    749
    
    
    
    762Liability for Pension Benefits
    
    
    73
    
    
    
    71Liability for Postretirement Benefits
    
    
    118
    
    
    
    123Other Long-Term Liabilities
    
    
    312
    
    
    
    324TOTAL LIABILITIES
    
    
    5,106
    
    
    
    5,162SHAREHOLDERS 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 in 2008 and 2007, including shares held in the treasury
    
    
    124
    
    
    
    124Additional paid-in capital
    
    
    461
    
    
    
    475Accumulated other comprehensive loss
    
    
    (124
    )
    
    
    (139
    )Retained earnings
    
    
    953
    
    
    
    987Cost of shares held in the treasury: 17,095,634 shares in 2008 and 17,464,189 shares in 2007
    
    
    (649
    )
    
    
    (667
    )TOTAL SHAREHOLDERS EQUITY
    
    
    765
    
    
    
    780TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    5,871
    
    
    $
    5,942
  3




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##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions, except per share)NET REVENUES
    
    $
    976
    
    
    $
    963
    
    
    $
    2,911
    
    
    $
    2,989COSTS AND EXPENSESCost of sales
    
    
    (891
    )
    
    
    (835
    )
    
    
    (2,660
    )
    
    
    (2,571
    )Selling
    
    
    (29
    )
    
    
    (28
    )
    
    
    (86
    )
    
    
    (86
    )General and administrative
    
    
    (40
    )
    
    
    (42
    )
    
    
    (112
    )
    
    
    (155
    )Other operating expense
    
    
    
    
    
    
    (5
    )
    
    
    (13
    )
    
    
    (14
    )(960
    )
    
    
    (910
    )
    
    
    (2,871
    )
    
    
    (2,826
    )OPERATING INCOME
    
    
    16
    
    
    
    53
    
    
    
    40
    
    
    
    163Other non-operating income (expense)
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    1Interest income on financial assets of special purpose entities
    
    
    17
    
    
    
    
    
    
    
    59
    
    
    
    Interest expense on nonrecourse financial liabilities of
special purpose entities
    
    
    (18
    )
    
    
    
    
    
    
    (63
    )
    
    
    Interest expense on debt
    
    
    (21
    )
    
    
    (29
    )
    
    
    (58
    )
    
    
    (86
    )INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
    
    
    (9
    )
    
    
    24
    
    
    
    (23
    )
    
    
    78Income tax (expense) benefit
    
    
    12
    
    
    
    (13
    )
    
    
    21
    
    
    
    (34
    )INCOME (LOSS) FROM CONTINUING OPERATIONS
    
    
    3
    
    
    
    11
    
    
    
    (2
    )
    
    
    44Discontinued operations
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    96NET INCOME (LOSS)
    
    $
    3
    
    
    $
    36
    
    
    $
    (2
    )
    
    $
    140WEIGHTED AVERAGE COMMON SHARES OUTSTANDINGBasic
    
    
    106.7
    
    
    
    106.2
    
    
    
    106.7
    
    
    
    105.9Diluted
    
    
    107.6
    
    
    
    107.8
    
    
    
    107.6
    
    
    
    107.9EARNINGS PER SHAREBasic:Income (loss) from continuing operations
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    (0.02
    )
    
    $
    0.41Discontinued operations
    
    
    
    
    
    
    0.23
    
    
    
    
    
    
    
    0.92Net income (loss)
    
    $
    0.03
    
    
    $
    0.34
    
    
    $
    (0.02
    )
    
    $
    1.33Diluted:Income from continuing operations
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    N/A
    
    
    $
    0.41Discontinued operations
    
    
    
    
    
    
    0.22
    
    
    
    N/A
    
    
    
    0.89Net income
    
    $
    0.03
    
    
    $
    0.33
    
    
    $
    N/A
    
    
    $
    1.30DIVIDENDS PER SHARE
    
    $
    0.10
    
    
    $
    0.28
    
    
    $
    0.30
    
    
    $
    0.84
  4




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TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 First Nine Months2008
    
    
    2007(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income (loss)
    
    $
    (2
    )
    
    $
    140Adjustments:Depreciation and amortization
    
    
    151
    
    
    
    162Non-cash share-based compensation
    
    
    16
    
    
    
    36Non-cash pension and postretirement plans
    
    
    49
    
    
    
    33Cash contribution to pension and postretirement plans
    
    
    (73
    )
    
    
    (62
    )Deferred income taxes
    
    
    4
    
    
    
    5Earnings of joint ventures
    
    
    (7
    )
    
    
    (4
    )Dividends from joint ventures
    
    
    11
    
    
    
    3Other
    
    
    (7
    )
    
    
    22Changes in:Receivables
    
    
    (27
    )
    
    
    6Inventories
    
    
    2
    
    
    
    18Accounts payable and accrued expenses
    
    
    (337
    )
    
    
    (5
    )Prepaid expenses and other
    
    
    (23
    )
    
    
    (36
    )(243
    )
    
    
    318CASH PROVIDED BY (USED FOR) INVESTINGCapital expenditures
    
    
    (116
    )
    
    
    (141
    )Acquisition, net of cash acquired
    
    
    (57
    )
    
    
    Sale of non-strategic assets and operations
    
    
    4
    
    
    
    15Investment in joint ventures
    
    
    (5
    )
    
    
    (2
    )Other
    
    
    (5
    )
    
    
    (11
    )(179
    )
    
    
    (139
    )CASH PROVIDED BY (USED FOR) FINANCINGPayments of debt
    
    
    (63
    )
    
    
    (57
    )Borrowings under accounts receivable securitization facility, net
    
    
    229
    
    
    
    66Borrowings under revolving credit facility, net
    
    
    121
    
    
    
    (13
    )Changes in book overdrafts
    
    
    (10
    )
    
    
    (6
    )Cash dividends paid to shareholders
    
    
    (32
    )
    
    
    (88
    )Repurchase of common stock
    
    
    
    
    
    
    (24
    )Exercise of stock options
    
    
    1
    
    
    
    19Tax benefit (expense) on share-based compensation
    
    
    (1
    )
    
    
    11245
    
    
    
    (92
    )CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONSNet cash provided by operating activities
    
    
    
    
    
    
    170Net cash used for investing activities
    
    
    
    
    
    
    (5
    )Net cash used for financing activities
    
    
    
    
    
    
    (247
    )
    
    
    
    (82
    )Net increase (decrease) in cash and cash equivalents
    
    
    (177
    )
    
    
    5Cash and cash equivalents at beginning of period
    
    
    227
    
    
    
    30Cash and cash equivalents at end of period
    
    $
    50
    
    
    $
    35
  5




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TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Note 1  Basis of Presentation
   Note 2  New Accounting Pronouncements
  
    
    Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements
This standard defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. The adoption of this statement
did not have a significant effect on our earnings or financial position.
    
    SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
This standard permits the election of fair value as the initial and subsequent
measurement method for many financial assets and liabilities. Subsequent changes in
the fair value would be recognized in earnings as they occur. We did not elect the
fair value option.
  
    
    SFAS No. 141(R), Business Combinations This new standard requires most
identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a
business combination to be recorded at full fair value, and is effective for business
combinations occurring after our year-end 2008. The new standard also changes the
approach to determining the purchase price; the accounting for acquisition cost; and
the accounting practices for acquired contingencies, restructuring costs, long-lived
assets, share-based payment awards, indemnification costs, and tax benefits.
    
    SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements This
new standard specifies that noncontrolling interests be reported as a part of equity,
not as a liability or other item outside of equity, and is effective for our first
quarter 2009.
    
    SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities 
This new standard requires enhanced disclosures about how and why an entity uses
derivative instruments; how derivative instruments and related hedged items are
accounted for; how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows; and is effective for our
first quarter 2009.
 6




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##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 Note 3  Acquisition
  Total(In millions)Current assets
    
    $
    26Property and equipment
    
    
    81Goodwill (estimated at acquisition date)
    
    
    28Other assets
    
    
    1Total assets
    
    
    136Current liabilities
    
    
    (15
    )Current portion of long-term debt
    
    
    (51
    )Total liabilities
    
    
    (66
    )Net assets at date of acquisition
    
    $
    70
  7




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##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 Note 4  Employee Benefit Plans
  Defined Benefits
    
    
    PostretirementQualified
    
    
    Supplemental
    
    
    Total
    
    
    Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Third QuarterService costs  benefits earned
during the period
    
    $
    6
    
    
    $
    6
    
    
    $
    1
    
    
    $
    1
    
    
    $
    8
    
    
    $
    7
    
    
    $
    
    
    
    $
    Interest cost on projected benefit
obligation
    
    
    20
    
    
    
    19
    
    
    
    1
    
    
    
    1
    
    
    
    21
    
    
    
    20
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (21
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial net loss
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    Defined benefit expense
    
    $
    7
    
    
    $
    6
    
    
    $
    2
    
    
    $
    3
    
    
    $
    10
    
    
    $
    9
    
    
    $
    2
    
    
    $
    2First Nine MonthsService costs  benefits earned
during the period
    
    $
    20
    
    
    $
    20
    
    
    $
    1
    
    
    $
    1
    
    
    $
    21
    
    
    $
    21
    
    
    $
    1
    
    
    $
    Interest cost on projected benefit
obligation
    
    
    60
    
    
    
    57
    
    
    
    2
    
    
    
    2
    
    
    
    62
    
    
    
    59
    
    
    
    6
    
    
    
    6Expected return on plan assets
    
    
    (63
    )
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )
    
    
    (63
    )
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    Amortization of actuarial net loss
    
    
    2
    
    
    
    8
    
    
    
    1
    
    
    
    3
    
    
    
    3
    
    
    
    11
    
    
    
    
    
    
    
    Defined benefit expense
    
    $
    22
    
    
    $
    22
    
    
    $
    6
    
    
    $
    6
    
    
    $
    28
    
    
    $
    28
    
    
    $
    6
    
    
    $
    6
  Note 5  Share-Based Compensation
   Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Restricted or performance units
    
    $
    8
    
    
    $
    1
    
    
    $
    7
    
    
    $
    27Restricted stock
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Stock options
    
    
    2
    
    
    
    
    
    
    
    8
    
    
    
    7Total share-based compensation expense
    
    $
    10
    
    
    $
    2
    
    
    $
    16
    
    
    $
    34
  8




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
  Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Cost of sales
    
    $
    1
    
    
    $
    1
    
    
    $
    5
    
    
    $
    6Selling expense
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    2General and administrative
    
    
    9
    
    
    
    1
    
    
    
    10
    
    
    
    26Total share-based compensation expense
    
    $
    10
    
    
    $
    2
    
    
    $
    16
    
    
    $
    34
 Restricted or performance units
   WeightedAverage Grant
    
    
    AggregateDate Fair Value
    
    
    CurrentShares
    
    
    Per Share
    
    
    Value(In thousands)
    
    
    
    
    
    
    (In millions)Not vested beginning of the year
    
    
    1,416
    
    
    $
    48Granted
    
    
    794
    
    
    
    20Vested and settled
    
    
    (295
    )
    
    
    40Forfeited
    
    
    (6
    )
    
    
    41Not vested end of third quarter 2008
    
    
    1,909
    
    
    
    37
    
    
    $
    30
  Restricted stock
  Stock options
  9




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
  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
    
    
    4,711
    
    
    $
    15Granted
    
    
    2,355
    
    
    
    20Exercised
    
    
    (65
    )
    
    
    11Forfeited
    
    
    (104
    )
    
    
    15Outstanding end of third quarter 2008
    
    
    6,897
    
    
    
    17
    
    
    
    7
    
    
    $
    14Exercisable end of third quarter 2008
    
    
    3,681
    
    
    
    13
    
    
    
    5
    
    
    $
    14
   First Nine Months2008
    
    
    2007Expected life of options (in years)
    
    
    8
    
    
    
    6Expected stock price volatility
    
    
    28.2
    %
    
    
    22.8
    %Expected dividend yield
    
    
    2.1
    %
    
    
    2.3
    %Risk-free interest rate
    
    
    3.3
    %
    
    
    4.9
    %Weighted average estimated fair value of options granted: (a)Temple-Inland options
    
    $
    2.02
    
    
    $
    7.39Forestar options
    
    
    N/A
    
    
    
    3.09Guaranty options
    
    
    N/A
    
    
    
    1.99Weighted average estimated fair value of options at original grant date
    
    $
    2.02
    
    
    $
    12.47
 
 (a)
    
    The weighted average estimated fair value of options granted prior to 2008 has
been adjusted to reflect the spin-off of Forestar and Guaranty. The share-based compensation
expense on options held by employees of Temple-Inland will be based on the original grant date
Black-Scholes-Merton value. Note 6  Other Operating Income (Expense)
 Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Equity in earnings of joint ventures
    
    $
    2
    
    
    $
    2
    
    
    $
    7
    
    
    $
    4Loss on sale of property and equipment
    
    
    (1
    )
    
    
    (4
    )
    
    
    (4
    )
    
    
    (5
    )Litigation and other
    
    
    (1
    )
    
    
    
    
    
    
    4
    
    
    
    (10
    )Transformation and other costs
    
    
    
    
    
    
    (3
    )
    
    
    (20
    )
    
    
    (11
    )Gain on sale of non-strategic timber leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8$
    
    
    
    $
    (5
    )
    
    $
    (13
    )
    
    $
    (14
    )
  Note 7  Contingencies
  10




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##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
    Note 8  Earnings Per Share
   Third Quarter
    
    First Nine Months2008
    
    2007
    
    2008
    
    2007(In millions)Weighted average common shares outstanding -
basic
    
    
    106.7
    
    
    
    106.2
    
    
    
    106.7
    
    
    
    105.9Dilutive effect of stock options held by
our employees
    
    
    0.8
    
    
    
    1.6
    
    
    
    0.8
    
    
    
    2.0Dilutive effect of stock options held by
Forestar and Guaranty employees
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    Weighted average shares outstanding  diluted
    
    
    107.6
    
    
    
    107.8
    
    
    
    107.6
    
    
    
    107.9
   Note 9  Comprehensive Income
  Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Net income (loss)
    
    $
    3
    
    
    $
    36
    
    
    $
    (2
    )
    
    $
    140Other comprehensive income (loss), net of taxes:Foreign currency translation adjustment
    
    
    (4
    )
    
    
    (1
    )
    
    
    2
    
    
    
    Defined benefit plans
    
    
    1
    
    
    
    3
    
    
    
    13
    
    
    
    9Other comprehensive income (loss)
    
    
    (3
    )
    
    
    2
    
    
    
    15
    
    
    
    9Comprehensive income
    
    $
    
    
    
    $
    38
    
    
    $
    13
    
    
    $
    149
 Note 10  Segment Information
  11




---



##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
   Items NotIncluded inCorrugated
    
    Building
    
    Timber and
    
    Segments andPackaging
    
    Products
    
    Timberland
    
    Eliminations
    
    Total(In millions)Third Quarter 2008:Revenues from external customers
    
    $
    797
    
    
    $
    179
    
    
    
    N/A
    
    
    $
    
    
    
    $
    976Depreciation and amortization
    
    
    37
    
    
    
    11
    
    
    
    N/A
    
    
    
    3
    
    
    
    51Equity income from joint ventures
    
    
    2
    (a)
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    
    2Income (loss) from continuing
operations before taxes
    
    
    50
    
    
    
    (6
    )
    
    
    N/A
    
    
    
    (53
    )(b)
    
    
    (9
    )Capital expenditures
    
    
    35
    
    
    
    5
    
    
    
    N/A
    
    
    
    
    
    
    
    40First Nine Months 2008 or at Third
Quarter-End 2008:Revenues from external customers
    
    $
    2,371
    
    
    $
    540
    
    
    
    N/A
    
    
    $
    
    
    
    $
    2,911Depreciation and amortization
    
    
    108
    
    
    
    35
    
    
    
    N/A
    
    
    
    8
    
    
    
    151Equity income from joint ventures
    
    
    6
    (a)
    
    
    1
    
    
    
    N/A
    
    
    
    
    
    
    
    7Income (loss) from continuing
operations before taxes
    
    
    157
    
    
    
    (26
    )
    
    
    N/A
    
    
    
    (154
    )(b)
    
    
    (23
    )Total assets
    
    
    2,430
    
    
    
    609
    
    
    
    N/A
    
    
    
    2,832
    
    
    
    5,871Investment in equity method investees
and joint ventures
    
    
    3
    (a)
    
    
    24
    
    
    
    N/A
    
    
    
    
    
    
    
    27Goodwill
    
    
    264
    
    
    
    129
    
    
    
    N/A
    
    
    
    
    
    
    
    393Capital expenditures
    
    
    98
    
    
    
    15
    
    
    
    N/A
    
    
    
    3
    
    
    
    116Third Quarter 2007:Revenues from external customers
    
    $
    748
    
    
    $
    195
    
    
    $
    20
    
    
    $
    
    
    
    $
    963Depreciation and amortization
    
    
    35
    
    
    
    12
    
    
    
    1
    
    
    
    5
    
    
    
    53Equity income from joint ventures
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Income (loss) from continuing
operations before taxes
    
    
    70
    
    
    
    (4
    )
    
    
    18
    
    
    
    (60
    )(b)
    
    
    24Capital expenditures and reforestation
    
    
    40
    
    
    
    10
    
    
    
    4
    
    
    
    3
    
    
    
    57First Nine Months 2007 or at Third
Quarter-End 2007:Revenues from external customers
    
    $
    2,288
    
    
    $
    642
    
    
    $
    59
    
    
    $
    
    
    
    $
    2,989Depreciation and amortization
    
    
    107
    
    
    
    35
    
    
    
    8
    
    
    
    12
    
    
    
    162Equity income from joint ventures
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    4Income (loss) from continuing
operations before taxes
    
    
    212
    
    
    
    23
    
    
    
    53
    
    
    
    (210
    )(b)
    
    
    78Total assets
    
    
    2,233
    
    
    
    613
    
    
    
    328
    
    
    
    406
    
    
    
    3,580
    (c)Investment in equity method investees
and joint ventures
    
    
    13
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    35Goodwill
    
    
    236
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    365Capital expenditures and reforestation
    
    
    99
    
    
    
    30
    
    
    
    10
    
    
    
    11
    
    
    
    150
 
 (a)
    
    In July 2008, we purchased our partners 50 percent interest in PBL. Please read
Note 3 for further information. 12




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##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 (b)
    
    Items not included in segments consist of: Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)General and administrative expense
    
    $
    (17
    )
    
    $
    (23
    )
    
    $
    (59
    )
    
    $
    (75
    )Share-based compensation
    
    
    (10
    )
    
    
    (2
    )
    
    
    (16
    )
    
    
    (34
    )Other operating income (expense)
    
    
    (1
    )
    
    
    (6
    )
    
    
    (16
    )
    
    
    (16
    )Other non-operating income (expense)
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    1Net interest income (expense) on financial
assets and nonrecourse financial liabilities of
special purpose entities
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    Interest expense on debt
    
    
    (21
    )
    
    
    (29
    )
    
    
    (58
    )
    
    
    (86
    )$
    (53
    )
    
    $
    (60
    )
    
    $
    (154
    )
    
    $
    (210
    )Other operating income (expense) applies to:Corrugated packaging
    
    $
    
    
    
    $
    (4
    )
    
    $
    6
    
    
    $
    (14
    )Building products
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    8Unallocated
    
    
    (1
    )
    
    
    (2
    )
    
    
    (21
    )
    
    
    (10
    )$
    (1
    )
    
    $
    (6
    )
    
    $
    (16
    )
    
    $
    (16
    )Other non-operating income (expense) consists of:Charges related to early repayment of debt
    
    $
    (4
    )
    
    $
    
    
    
    $
    (4
    )
    
    $
    Interest and other income
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    1$
    (3
    )
    
    $
    
    
    
    $
    (1
    )
    
    $
    1
 (c)
    
    Excludes assets of discontinued operations of $17,112 million. Note 11  Discontinued Operations
  Third
    
    
    First NineQuarter
    
    
    Months2007
    
    
    2007(In millions)Real estate income before taxes
    
    $
    15
    
    
    $
    39Financial services income before taxes
    
    
    36
    
    
    
    124Chemical operations and other
    
    
    (12
    )
    
    
    (12
    )Income from discontinued operations before taxes
    
    
    39
    
    
    
    151Income tax expense
    
    
    (14
    )
    
    
    (55
    )Discontinued operations
    
    $
    25
    
    
    $
    96
 13




---



##### 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 us and that we may
pursue;
    
    fluctuations in costs and expenses including the costs of raw materials, purchased
energy, and freight;
    
    changes in interest rates;
    
    current conditions in financial markets could adversely affect our ability to
finance our operations;
    
    demand for new housing;
    
    accuracy of accounting assumptions related to impaired assets, pension and
postretirement costs, and contingency reserves;
    
    competitive actions by other companies;
    
    changes in laws or regulations;
    
    our ability to execute certain strategic and business improvement initiatives;
    
    the accuracy of certain judgments and estimates concerning the integration of
acquired operations; and
    
    other factors, many of which are beyond our control.
  Non-GAAP Financial Measures
    14




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##### Table of Contents



Accounting Policies
 Critical Accounting Estimates
  New and Pending Accounting Pronouncements
  Note 2 to the Consolidated Financial Statements
 15




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##### Table of Contents



Results of Operations for Third Quarter and First Nine Months 2008 and 2007
 Summary
   Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions, except per share)RevenuesCorrugated packaging
    
    $
    797
    
    
    $
    748
    
    
    $
    2,371
    
    
    $
    2,288Building products
    
    
    179
    
    
    
    195
    
    
    
    540
    
    
    
    642Timber and timberland
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    59Total revenues
    
    $
    976
    
    
    $
    963
    
    
    $
    2,911
    
    
    $
    2,989Segment operating incomeCorrugated packaging
    
    $
    50
    
    
    $
    70
    
    
    $
    157
    
    
    $
    212Building products
    
    
    (6
    )
    
    
    (4
    )
    
    
    (26
    )
    
    
    23Timber and timberland
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    53Total segment operating income
    
    
    44
    
    
    
    84
    
    
    
    131
    
    
    
    288Items not included in segmentsGeneral and administrative expense
    
    
    (17
    )
    
    
    (23
    )
    
    
    (59
    )
    
    
    (75
    )Share-based compensation
    
    
    (10
    )
    
    
    (2
    )
    
    
    (16
    )
    
    
    (34
    )Other operating income (expense)
    
    
    (1
    )
    
    
    (6
    )
    
    
    (16
    )
    
    
    (16
    )Other non-operating income (expense)
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    1Net interest income (expense) on financial assets and
nonrecourse financial liabilities of special purpose entities
    
    
    (1
    )
    
    
    
    
    
    
    (4
    )
    
    
    Interest expense on debt
    
    
    (21
    )
    
    
    (29
    )
    
    
    (58
    )
    
    
    (86
    )Income (loss) before taxes
    
    
    (9
    )
    
    
    24
    
    
    
    (23
    )
    
    
    78Income tax (expense) benefit
    
    
    12
    
    
    
    (13
    )
    
    
    21
    
    
    
    (34
    )Income (loss) from continuing operations
    
    
    3
    
    
    
    11
    
    
    
    (2
    )
    
    
    44Discontinued operations
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    96Net income (loss)
    
    $
    3
    
    
    $
    36
    
    
    $
    (2
    )
    
    $
    140Average basic shares outstanding
    
    
    106.7
    
    
    
    106.2
    
    
    
    106.7
    
    
    
    105.9Average diluted shares outstanding
    
    
    107.6
    
    
    
    107.8
    
    
    
    107.6
    
    
    
    107.9Income (loss) from continuing operations, per basic share
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    (0.02
    )
    
    $
    0.41Income from continuing operations, per diluted share (a)
    
    $
    0.03
    
    
    $
    0.11
    
    
    $
    N/A
    
    
    $
    0.41ROI, annualized
    
    
    
    
    
    
    
    
    
    
    3.0
    %
    
    
    8.3
    %
 
 (a)
    
    Income per diluted share is not applicable for first nine months 2008 due to our
loss from continuing operations.  
    
    We experienced lower volumes and higher pricing for our corrugated packaging
products, lower volumes for most of our building products and lower pricing for gypsum
wallboard.
    
    While we continued to see the benefits in our manufacturing operations from our
initiative to lower costs, improve asset utilization, and increase operating
efficiencies, the increased cost of energy, freight, chemicals, and fiber more than
offset these benefits.
    
    Share-based compensation decreased due to the effect of the lower share price on our
cash-settled awards.
    
    We incurred $20 million of costs primarily related to our transformation plan, of
which $15 million is related to the settlement of supplemental retirement benefits. We
also decreased litigation reserves by $5 million due to the settlement of the remaining
claim related to our antitrust litigation.
 16




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##### Table of Contents




    
    Interest expense decreased primarily due to the December 2007 early retirement of
$286 million of 6.75% Notes and $213 million of 7.875% Senior Notes.
    
    In July 2008, we purchased the remaining 50 percent interest in Premier Boxboard
Limited LLC for $62 million. Subsequent to the purchase we incurred a penalty of $4
million from the prepayment of $50 million in joint venture debt.
  
    
    We experienced higher prices for our corrugated packaging products and lower prices
and volumes for our building products, principally lumber and gypsum wallboard.
    
    While we continued to see the benefit in our manufacturing operations from our
initiatives to lower costs, improve asset utilization, and increase operating
efficiencies, the cost of recycled fiber, energy and freight offset some of the
benefits.
    
    We recognized $4 million in business interruption insurance proceeds from a prior
year claim related to one of our paper mills and an $8 million gain on sale of
non-strategic timber leases.
    
    We incurred $10 million of costs associated with our transformation plan, primarily
legal and advisory fees.
    
    We recognized a one-time tax benefit of $3 million related to Texas tax legislation
enacted in May 2007.
  Corrugated Packaging
   Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions)Revenues
    
    $
    797
    
    
    $
    748
    
    
    $
    2,371
    
    
    $
    2,288Costs and expenses
    
    
    (747
    )
    
    
    (678
    )
    
    
    (2,214
    )
    
    
    (2,076
    )Segment operating income
    
    $
    50
    
    
    $
    70
    
    
    $
    157
    
    
    $
    212Segment ROI
    
    
    
    
    
    
    
    
    
    
    10.5
    %
    
    
    14.1
    %
  17




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##### Table of Contents



Third Quarter 2008
    
    First Nine Months 2008versus
    
    versusThird Quarter 2007
    
    First Nine Months 2007Increase/(Decrease)Corrugated packagingAverage prices
    
    
    5
    %
    
    
    3
    %Shipments, average week
    
    
    (3)
    %
    
    
    (1)
    %Industry shipments, average week(a)
    
    
    (3)
    %
    
    
    (3)
    %PaperboardAverage prices
    
    
    1
    %
    
    
    3
    %Shipments, in thousand tons
    
    
    83
    (b)
    
    
    61
    (b)
 
 (a)
    
    Source: Fibre Box Association(b)
    
    The increase includes 18,000 tons of light-weight gypsum facing paper and
9,000 tons of containerboard shipped by PBL since its purchase in July 2008.     Third Quarter 2008
    
    First Nine Months 2008versus
    
    versusThird Quarter 2007
    
    First Nine Months 2007Increase/(Decrease)(In millions)Wood fiber
    
    $
    (2
    )
    
    $
    4Recycled fiber
    
    
    3
    
    
    
    19Energy, principally natural gas
    
    
    23
    
    
    
    44Chemicals
    
    
    7
    
    
    
    15Freight
    
    
    10
    
    
    
    23
  18




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##### Table of Contents



Third Quarter
    
    First Nine Months2008
    
    2007
    
    2008
    
    2007Number of converting facilities (at quarter-end)
    
    
    64
    
    
    
    64
    
    
    
    64
    
    
    
    64Corrugated packaging shipments, in thousand tons
    
    
    810
    
    
    
    839
    
    
    
    2,504
    
    
    
    2,535Paperboard production, in thousand tons
    
    
    947
    
    
    
    909
    
    
    
    2775
    
    
    
    2,712Percent containerboard production used internally
    
    
    86
    %
    
    
    93
    %
    
    
    90
    %
    
    
    91
    %Percent of total fiber requirements sourced from
recycled fiber
    
    
    41
    %
    
    
    36
    %
    
    
    37
    %
    
    
    37
    %
   Building Products
   Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions)Revenues
    
    $
    179
    
    
    $
    195
    
    
    $
    540
    
    
    $
    642Costs and expenses
    
    
    (185
    )
    
    
    (199
    )
    
    
    (566
    )
    
    
    (619
    )Segment operating income (loss)
    
    $
    (6
    )
    
    $
    (4
    )
    
    $
    (26
    )
    
    $
    23Segment ROI
    
    
    
    
    
    
    
    
    
    
    (6.2)
    %
    
    
    5.5
    %
  Third Quarter 2008
    
    First Nine Months 2008versus
    
    versusThird Quarter 2007
    
    First Nine Months 2007Increase/(DecreaseLumber:Average prices
    
    
    6
    %
    
    
    1
    %Shipments
    
    
    (12
    )%
    
    
    (7
    )%Gypsum wallboard:Average prices
    
    
    (6
    )%
    
    
    (23
    )%Shipments
    
    
    (31
    )%
    
    
    (30
    )%Particleboard:Average prices
    
    
    9
    %
    
    
    2
    %Shipments
    
    
    (2
    )%
    
    
    (6
    )%MDF:Average prices
    
    
    17
    %
    
    
    10
    %Shipments
    
    
    6
    %
    
    
    4
    %
   19




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##### Table of Contents



Third Quarter 2008
    
    First Nine Months 2008versus
    
    versusThird Quarter 2007
    
    First Nine Months 2007Increase/(Decrease)(In millions)Wood fiber
    
    $
    (9
    )
    
    $
    (27
    )Energy, principally natural gas
    
    
    2
    
    
    
    2Chemicals
    
    
    7
    
    
    
    13Freight
    
    
    (1
    )
    
    
    (4
    )
   Third Quarter
    
    First Nine Months2008
    
    2007
    
    2008
    
    2007Number of
converting and
manufacturing
facilities (at
quarter-end)
    
    
    16
    
    
    
    17
    
    
    
    16
    
    
    
    17Average operating
rates for all
product lines
excluding sold or
closed facilities:High
    
    
    98
    %
    
    
    104
    %
    
    
    98
    %
    
    
    102
    %Low
    
    
    51
    %
    
    
    47
    %
    
    
    47
    %
    
    
    59
    %Average
    
    
    70
    %
    
    
    76
    %
    
    
    69
    %
    
    
    80
    %Gypsum facing paper
purchases from
corrugated
packaging
(previously the PBL
joint venture):In thousand tons
    
    
    10
    
    
    
    10
    
    
    
    24
    
    
    
    34Percent supplied
    
    
    
    
    
    
    
    
    
    
    65
    %
    
    
    68
    %
  Items Not Included in Segments
  Note 5 to the Consolidated Financial Statements
 20




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##### Table of Contents



Income Taxes
   Average Shares Outstanding
  Capital Resources and Liquidity for First Nine Months 2008
 Sources and Uses of Cash
  21




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##### Table of Contents



First Nine Months2008
    
    
    2007(In millions)Cash received from:Operations (including payments in 2008 related to our 2007
transformation plan of $50 million)
    
    $
    142
    (a)
    
    $
    335
    (a)Working capital (including payments in 2008 related to
our 2007 transformation plan of $297 million)
    
    
    (385
    )
    
    
    (17
    )Cash received from (used for) operations
    
    
    (243
    )
    
    
    318Exercise of options and related tax benefits
    
    
    
    
    
    
    30Sale of non-strategic assets and other
    
    
    (6
    )
    
    
    9Borrowing, net
    
    
    287
    
    
    
    (4
    )Total sources
    
    
    38
    
    
    
    353Cash used to:Return to shareholders through:Dividends
    
    
    (32
    )
    
    
    (88
    )Repurchase of common stock
    
    
    
    
    
    
    (24
    )Reinvest in the business through:Capital expenditures
    
    
    (116
    )
    
    
    (141
    )Acquisition of PBL, net of cash acquired
    
    
    (57
    )
    
    
    Joint ventures and other
    
    
    (10
    )
    
    
    (13
    )Total uses
    
    
    (215
    )
    
    
    (266
    )Discontinued operations, net
    
    
    
    
    
    
    (82
    )Change in cash and cash equivalents
    
    $
    (177
    )
    
    $
    5
 
 (a)
    
    Includes voluntary, discretionary contributions to our qualified defined benefit
plan of $15 million in 2008 and $45 million in 2007.      22




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##### Table of Contents



Liquidity
  AccountsCommitted
    
    
    ReceivableCredit
    
    
    SecuritizationAgreements
    
    
    Facility
    
    
    Total(In millions)Committed
    
    $
    835
    
    
    $
    250
    
    
    $
    1,085Less: borrowings and commitments
    
    
    (139
    )
    
    
    (230
    )
    
    
    (369
    )Unused borrowing capacity at third quarter-end 2008
    
    $
    696
    
    
    $
    20
    
    
    $
    716
    Off-Balance Sheet Arrangements
  Pension and Postretirement Matters
  Energy
  Litigation and Related Matters
  23




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##### Table of Contents



Calculation of Non-GAAP Financial Measure
 Corrugated
    
    
    Building
    
    
    Timber andConsolidated
    
    
    Packaging
    
    
    Products
    
    
    Timberland(Dollars in millions)RETURN ON INVESTMENT (ROI)First Nine Months 2008Return:Segment operating income determined in accordance with
GAAP
    
    $
    131
    
    
    $
    157
    
    
    $
    (26
    )
    
    $
    N/AItems not included in segments:General and administrative
    
    
    (59
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AShare-based compensation
    
    
    (16
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A$
    56
    
    
    $
    157
    
    
    $
    (26
    )
    
    $
    N/AInvestment:Beginning of year total assets or segment assets
determined in accordance with GAAP
    
    $
    5,942
    
    
    $
    2,301
    
    
    $
    623
    
    
    $
    N/AAdjustments:Current liabilities (excluding
current portion of long-term
debt)
    
    
    (887
    )
    
    
    (311
    )
    
    
    (63
    )
    
    
    N/AFinancial assets of special
purpose entities
    
    
    (2,383
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMunicipal bonds related to
capital leases included in other
assets
    
    
    (188
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A$
    2,484
    
    
    $
    1,990
    
    
    $
    560
    
    
    $
    N/AROI, annualized
    
    
    3.0
    %
    
    
    10.5
    %
    
    
    (6.2
    )%
    
    
    N/AFirst Nine Months 2007Return:Segment operating income determined in accordance with
GAAP
    
    $
    288
    
    
    $
    212
    
    
    $
    23
    
    
    $
    53Items not included in segments:General and administrative
    
    
    (75
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AShare-based compensation
    
    
    (34
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A$
    179
    
    
    $
    212
    
    
    $
    23
    
    
    $
    53Investment:Beginning of year total assets or segment assets
determined in accordance with GAAP
    
    $
    20,474
    
    
    $
    2,275
    
    
    $
    638
    
    
    $
    330Adjustments:Current liabilities (excluding
current portion of long-term
debt)
    
    
    (550
    )
    
    
    (271
    )
    
    
    (76
    )
    
    
    (11
    )Assets of discontinued operations
    
    
    (16,847
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMunicipal bonds related to
capital leases included in other
assets
    
    
    (188
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A$
    2,889
    
    
    $
    2,004
    
    
    $
    562
    
    
    $
    319ROI, annualized
    
    
    8.3
    %
    
    
    14.1
    %
    
    
    5.5
    %
    
    
    22.2
    %
  24




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##### Table of Contents



STATISTICAL AND OTHER DATA
  Third Quarter
    
    
    First Nine Months2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions)RevenuesCorrugated PackagingCorrugated packaging
    
    $
    729
    
    
    $
    717
    
    
    $
    2,231
    
    
    $
    2,178Paperboard (a) (b)
    
    
    68
    
    
    
    31
    
    
    
    140
    
    
    
    110$
    797
    
    
    $
    748
    
    
    $
    2,371
    
    
    
    2,288Building ProductsPine lumber
    
    $
    60
    
    
    $
    64
    
    
    $
    177
    
    
    $
    190Particleboard
    
    
    46
    
    
    
    42
    
    
    
    138
    
    
    
    143Gypsum wallboard
    
    
    33
    
    
    
    52
    
    
    
    101
    
    
    
    189Medium density fiberboard
    
    
    18
    
    
    
    15
    
    
    
    56
    
    
    
    49Fiberboard
    
    
    11
    
    
    
    13
    
    
    
    33
    
    
    
    41Other
    
    
    11
    
    
    
    9
    
    
    
    35
    
    
    
    30$
    179
    
    
    $
    195
    
    
    $
    540
    
    
    $
    642Timber and timberland(c)Fiber and other
    
    
    N/A
    
    
    $
    20
    
    
    
    N/A
    
    
    $
    59Unit salesCorrugated PackagingCorrugated packaging, thousands of tons
    
    
    810
    
    
    
    839
    
    
    
    2,504
    
    
    
    2,535Paperboard, thousands of tons (a) (b)
    
    
    150
    
    
    
    67
    
    
    
    304
    
    
    
    243960
    
    
    
    906
    
    
    
    2,808
    
    
    
    2,778Building ProductsPine lumber, million board feet
    
    
    189
    
    
    
    215
    
    
    
    593
    
    
    
    640Particleboard, million square feet
    
    
    117
    
    
    
    119
    
    
    
    372
    
    
    
    396Gypsum wallboard, million square feet
    
    
    255
    
    
    
    368
    
    
    
    813
    
    
    
    1,164Medium density fiberboard, million square feet
    
    
    34
    
    
    
    32
    
    
    
    110
    
    
    
    106Fiberboard, million square feet
    
    
    52
    
    
    
    75
    
    
    
    170
    
    
    
    228
 
 (a)
    
    Paperboard includes containerboard and light-weight gypsum facing paper.(b)
    
    Comparisons of revenue and unit sales of paperboard are affected by the July 25,
2008 purchase of our partners interest in Premier Boxboard Limited LLC. The effects on
revenues and unit sales for the periods presented are not material.(c)
    
    We no longer have a timber and timberlands segment as a result of the fourth
quarter 2007 sale of our timberlands. 25




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
      Increase (Decrease)Third Quarter-End 2008
    
    Year-End 2007Special
    
    
    
    
    
    
    
    
    
    SpecialVariable
    
    Purpose
    
    
    
    
    
    Variable
    
    PurposeRate Debt
    
    Entities - Net
    
    Total
    
    Rate Debt
    
    Entities - Net
    
    Total(In millions)Change in
Interest Rates+2%
    
    $
    (7
    )
    
    $
    5
    
    
    $
    (2
    )
    
    $
    (1
    )
    
    $
    5
    
    
    $
    4+1%
    
    
    (3
    )
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    2
    
    
    
    2-1%
    
    
    3
    
    
    
    (2
    )
    
    
    1
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )-2%
    
    
    7
    
    
    
    (5
    )
    
    
    2
    
    
    
    1
    
    
    
    (5
    )
    
    
    (4
    )
 Foreign Currency Risk
  Commodity Price Risk
  
 Item 4. Controls and Procedures
   26




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##### Table of Contents



27




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings
  
 Item 1A. Risk Factors
  Current conditions in financial markets could have adverse consequences on our ability to finance
our operations.
  
 Item 2 . Unregistered Sales of Equity Securities and Use of Proceeds
  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 (7/1/2008  7/31/2008)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,650,000Month 2 (8/1/2008  8/30/2008)
    
    
    1,243
    (a)
    
    $
    15.97
    
    
    
    
    
    
    
    6,650,000Month 3 (9/1/2008  9/30/2008)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,650,000Total
    
    
    1,243
    
    
    $
    15.97
    
    
    
    
    
    
    
    6,650,000
 
 (a)
    
    Represents shares purchased from employees to pay taxes related to the vesting of
restricted shares.  28




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##### Table of Contents



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
 31.1 
    
    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 2002.31.2 
    
    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 2002.32.1 
    
    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 2002.32.2 
    
    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.
 
 29




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##### Table of Contents



SIGNATURES
  TEMPLE-INLAND INC.
     (Registrant)Dated:  November 4, 2008
    By:
    /s/ Randall D. LevyRandall D. LevyChief Financial OfficerBy:
    /s/ Troy L. HesterTroy L. HesterCorporate Controller and


Principal Accounting Officer 30




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##### Table of Contents



Exhibit No.
    
    Description
    
    Page No.31.1
    
    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
    
    
    3231.2
    
    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
    
    
    3432.1
    
    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
    
    
    3632.2
    
    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
    
    
    37
 31