##### 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 March 29, 2008
 OR
 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
    
    (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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Number of common shares outstandingClass
    
    as of March 29, 2008Common Stock (par value $1.00 per share)
    
    106,223,042




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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
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27Certification 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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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)FirstQuarter-End
    
    
    Year-End2008
    
    
    2007(In millions)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    38
    
    
    $
    227Trade receivables, net of allowance for doubtful accounts of $15 in 2008 and $14 in 2007
    
    
    456
    
    
    
    433Inventories:Work in process and finished goods
    
    
    109
    
    
    
    116Raw materials
    
    
    226
    
    
    
    224Supplies and other
    
    
    124
    
    
    
    121Total inventories
    
    
    459
    
    
    
    461Deferred tax asset
    
    
    77
    
    
    
    99Prepaid expenses and other
    
    
    67
    
    
    
    57Total current assets
    
    
    1,097
    
    
    
    1,277Property and EquipmentLand and buildings
    
    
    647
    
    
    
    641Machinery and equipment
    
    
    3,448
    
    
    
    3,423Construction in progress
    
    
    96
    
    
    
    120Less allowances for depreciation
    
    
    (2,574
    )
    
    
    (2,552
    )Total property and equipment
    
    
    1,617
    
    
    
    1,632Financial Assets of Special Purpose Entities
    
    
    2,383
    
    
    
    2,383Goodwill
    
    
    365
    
    
    
    365Other Assets
    
    
    278
    
    
    
    285TOTAL ASSETS
    
    $
    5,740
    
    
    $
    5,942LIABILITIESCurrent LiabilitiesAccounts payable
    
    $
    220
    
    
    $
    244Accrued employee compensation and benefits
    
    
    59
    
    
    
    108Accrued interest
    
    
    29
    
    
    
    31Accrued property taxes
    
    
    7
    
    
    
    11Accrued income taxes
    
    
    
    
    
    
    258Other accrued expenses
    
    
    185
    
    
    
    173Current portion of long-term debt
    
    
    1
    
    
    
    3Current portion of pension and postretirement benefits
    
    
    26
    
    
    
    62Total current liabilities
    
    
    527
    
    
    
    890Long-Term Debt
    
    
    1,058
    
    
    
    852Nonrecourse Financial Liabilities of Special Purpose Entities
    
    
    2,140
    
    
    
    2,140Deferred Tax Liability
    
    
    737
    
    
    
    762Liability for Pension Benefits
    
    
    79
    
    
    
    71Liability for Postretirement Benefits
    
    
    121
    
    
    
    123Other Long-Term Liabilities
    
    
    308
    
    
    
    324TOTAL LIABILITIES
    
    
    4,970
    
    
    
    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
    
    
    470
    
    
    
    475Accumulated other comprehensive loss
    
    
    (127
    )
    
    
    (139
    )Retained earnings
    
    
    963
    
    
    
    987Cost of shares held in the treasury: 17,382,302 shares in 2008 and 17,464,189 shares in 2007
    
    
    (660
    )
    
    
    (667
    )TOTAL SHAREHOLDERS EQUITY
    
    
    770
    
    
    
    780TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    5,740
    
    
    $
    5,942
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TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
 First Quarter2008
    
    
    2007(Dollars in millions, except per share)NET REVENUES
    
    $
    944
    
    
    $
    1,003COSTS AND EXPENSESCost of sales
    
    
    (876
    )
    
    
    (859
    )Selling
    
    
    (29
    )
    
    
    (29
    )General and administrative
    
    
    (33
    )
    
    
    (60
    )Other operating expense
    
    
    (12
    )
    
    
    (14
    )(950
    )
    
    
    (962
    )OPERATING INCOME (LOSS)
    
    
    (6
    )
    
    
    41Other non-operating income
    
    
    1
    
    
    
    Interest income on financial assets of special purpose entities
    
    
    24
    
    
    
    Interest expense on nonrecourse financial liabilities of special purpose entities
    
    
    (27
    )
    
    
    Interest expense on debt
    
    
    (17
    )
    
    
    (29
    )INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES
    
    
    (25
    )
    
    
    12Income tax (expense) benefit
    
    
    12
    
    
    
    (5
    )INCOME (LOSS) FROM CONTINUING OPERATIONS
    
    
    (13
    )
    
    
    7Discontinued operations
    
    
    
    
    
    
    31NET INCOME (LOSS)
    
    $
    (13
    )
    
    $
    38WEIGHTED AVERAGE COMMON SHARES OUTSTANDINGBasic
    
    
    106.7
    
    
    
    105.6Diluted
    
    
    107.6
    
    
    
    107.7EARNINGS PER SHAREBasic:Income (loss) from continuing operations
    
    $
    (0.12
    )
    
    $
    0.07Discontinued operations
    
    
    
    
    
    
    0.29Net income (loss)
    
    $
    (0.12
    )
    
    $
    0.36Diluted:Income from continuing operations
    
    $
    N/A
    
    
    $
    0.07Discontinued operations
    
    
    N/A
    
    
    
    0.28Net income
    
    $
    N/A
    
    
    $
    0.35DIVIDENDS PER SHARE OF COMMON STOCK
    
    $
    0.10
    
    
    $
    0.28
  4




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TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 First Quarter2008
    
    
    2007(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income (loss)
    
    $
    (13
    )
    
    $
    38Adjustments:Depreciation and amortization
    
    
    50
    
    
    
    55Non-cash share-based compensation
    
    
    4
    
    
    
    19Non-cash pension and postretirement plans
    
    
    27
    
    
    
    11Cash contribution to pension and postretirement plans
    
    
    (39
    )
    
    
    (20
    )Deferred income taxes
    
    
    (11
    )
    
    
    1Earnings of joint ventures
    
    
    (3
    )
    
    
    (1
    )Dividends from joint ventures
    
    
    5
    
    
    
    1Other
    
    
    (1
    )
    
    
    6Changes in:Receivables
    
    
    (24
    )
    
    
    (27
    )Inventories
    
    
    2
    
    
    
    4Accounts payable and accrued expenses
    
    
    (327
    )
    
    
    (58
    )Prepaid expenses and other
    
    
    (9
    )
    
    
    (339
    )
    
    
    29CASH PROVIDED BY (USED FOR) INVESTINGCapital expenditures
    
    
    (34
    )
    
    
    (40
    )Sale of non-strategic assets and operations
    
    
    3
    
    
    
    5Investment in joint ventures
    
    
    (2
    )
    
    
    Other
    
    
    (2
    )
    
    
    (7
    )(35
    )
    
    
    (42
    )CASH PROVIDED BY (USED FOR) FINANCINGPayments of debt
    
    
    (9
    )
    
    
    (5
    )Borrowings under accounts receivable securitization facility, net
    
    
    207
    
    
    
    86Borrowings under revolving credit facility, net
    
    
    6
    
    
    
    (13
    )Changes in book overdrafts
    
    
    (11
    )
    
    
    (6
    )Other additions to debt
    
    
    
    
    
    
    4Cash dividends paid to shareholders
    
    
    (11
    )
    
    
    (29
    )Repurchase of common stock
    
    
    
    
    
    
    (24
    )Exercise of stock options
    
    
    
    
    
    
    12Tax benefit on share-based compensation
    
    
    1
    
    
    
    7183
    
    
    
    32CASH PROVIDED BY (USED FOR) DISCONTINUED OPERATIONSNet cash provided by operating activities
    
    
    
    
    
    
    140Net cash provided by investing activities
    
    
    
    
    
    
    347Net cash used for financing activities
    
    
    
    
    
    
    (517
    )
    
    
    
    (30
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (189
    )
    
    
    (11
    )Cash and cash equivalents at beginning of period
    
    
    227
    
    
    
    30Cash and cash equivalents at end of period
    
    $
    38
    
    
    $
    19
  5




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TEMPLE-INLAND INC. AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1  Basis of Presentation
   Note 2  New Accounting Pronouncements
  
    
    Statement of Financial Accounting Standard
(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 this
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 Interest in Consolidated Financial Statements This
new standard specifies that noncontrolling interest 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, which is effective for our first quarter 2009, requires enhanced
disclosures about how and why an entity uses derivative instruments; how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and its
related interpretations; and how derivative instruments and related hedged items affect
an entitys financial position, financial performance, and cash flows.
 6




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 Note 3  Employee Benefit Plans
  Defined Benefits
    
    
    PostretirementQualified
    
    
    Supplemental
    
    
    Total
    
    
    Benefits2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)Service costs  benefits earned
during the period
    
    $
    7
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    7
    
    
    $
    7
    
    
    $
    
    
    
    $
    Interest cost on projected benefit
obligation
    
    
    20
    
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    21
    
    
    
    19
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (21
    )
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial net loss
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    Defined benefit expense
    
    $
    8
    
    
    $
    8
    
    
    $
    2
    
    
    $
    1
    
    
    $
    10
    
    
    $
    9
    
    
    $
    2
    
    
    $
    2
  Note 4  Share-Based Compensation
   First Quarter2008
    
    
    2007(In millions)Restricted or performance units
    
    $
    
    
    
    $
    14Restricted stock
    
    
    1
    
    
    
    Stock options
    
    
    3
    
    
    
    5Total share-based compensation expense
    
    $
    4
    
    
    $
    19
   First Quarter2008
    
    
    2007(In millions)Cost of sales
    
    $
    6
    
    
    $
    3Selling expense
    
    
    
    
    
    
    1General and administrative
    
    
    (2
    )
    
    
    15Total share-based compensation expense
    
    $
    4
    
    
    $
    19
 7




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 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
    
    
    (44
    )
    
    
    49Forfeited
    
    
    
    
    
    
    Not vested end of first quarter 2008
    
    
    2,166
    
    
    
    37
    
    
    $
    28
 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
    
    
    4,711
    
    
    $
    15Granted
    
    
    2,355
    
    
    
    20Exercised
    
    
    (58
    )
    
    
    11Forfeited
    
    
    (5
    )
    
    
    23Outstanding end of first quarter 2008
    
    
    7,003
    
    
    
    17
    
    
    
    7
    
    
    $
    7Exercisable end of first quarter 2008
    
    
    3,699
    
    
    
    13
    
    
    
    5
    
    
    $
    7
  8




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
  First Quarter2008
    
    
    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 5  Other Operating Income (Expense)
 First Quarter2008
    
    
    2007(In millions)Equity in earnings of joint ventures
    
    $
    3
    
    
    $
    1Litigation
    
    
    5
    
    
    
    (10
    )Transformation costs
    
    
    (20
    )
    
    
    (4
    )Other
    
    
    
    
    
    
    (1
    )$
    (12
    )
    
    $
    (14
    )
 Note 6  Contingencies and Other
     9




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 Note 7  Earnings Per Share
   First Quarter2008
    
    
    2007(In millions)Weighted average common shares outstanding  basic
    
    
    106.7
    
    
    
    105.6Dilutive effect of stock options held by our employees
    
    
    0.8
    
    
    
    2.1Dilutive effect of stock options held by Forestar and Guaranty employees
    
    
    0.1
    
    
    
    Weighted average shares outstanding  diluted
    
    
    107.6
    
    
    
    107.7
  Note 8  Comprehensive Income (Loss)
  First Quarter2008
    
    
    2007(In millions)Net income (loss)
    
    $
    (13
    )
    
    $
    38Other comprehensive income (loss), net of taxes:Foreign currency translation adjustment
    
    
    1
    
    
    
    (1
    )Defined benefit plans
    
    
    11
    
    
    
    4Other comprehensive income (loss)
    
    
    12
    
    
    
    3Comprehensive income (loss)
    
    $
    (1
    )
    
    $
    41
 Note 9  Segment Information
   10




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TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 Items NotAllocated toCorrugated
    
    Building
    
    Timber and
    
    Segments andPackaging
    
    Products
    
    Timberland
    
    Eliminations
    
    TotalFor First Quarter 2008 or at First
Quarter-End 2008:(In millions)Revenues from external customers
    
    $
    776
    
    
    $
    168
    
    
    
    N/A
    
    
    $
    
    
    
    $
    944Depreciation and amortization
    
    
    35
    
    
    
    12
    
    
    
    N/A
    
    
    
    3
    
    
    
    50Equity income from joint ventures
    
    
    2
    
    
    
    1
    
    
    
    N/A
    
    
    
    
    
    
    
    3Income (loss) from continuing
operations before taxes
    
    
    55
    
    
    
    (21
    )
    
    
    N/A
    
    
    
    (59
    ) (a)
    
    
    (25
    )Total assets
    
    
    2,312
    
    
    
    620
    
    
    
    N/A
    
    
    
    2,808
    
    
    
    5,740Investment in equity method investees
and joint ventures
    
    
    11
    
    
    
    23
    
    
    
    N/A
    
    
    
    
    
    
    
    34Goodwill
    
    
    236
    
    
    
    129
    
    
    
    N/A
    
    
    
    
    
    
    
    365Capital expenditures
    
    
    27
    
    
    
    6
    
    
    
    N/A
    
    
    
    1
    
    
    
    34For First Quarter 2007 or at First
Quarter-End 2007:(In millions)Revenues from external customers
    
    $
    761
    
    
    $
    223
    
    
    $
    19
    
    
    $
    
    
    
    $
    1,003Depreciation and amortization
    
    
    37
    
    
    
    12
    
    
    
    3
    
    
    
    3
    
    
    
    55Equity income from joint ventures
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Income (loss) from continuing
operations before taxes
    
    
    64
    
    
    
    16
    
    
    
    19
    
    
    
    (87
    )      (a)
    
    
    12Total assets
    
    
    2,266
    
    
    
    644
    
    
    
    338
    
    
    
    349
    
    
    
    3,597
    (b)Investment in equity method investees
and joint ventures
    
    
    11
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    33Goodwill
    
    
    236
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    365Capital expenditures and reforestation
    
    
    25
    
    
    
    10
    
    
    
    2
    
    
    
    5
    
    
    
    42
 
 (a)
    
    Items not allocated to segments consist of: First Quarter2008
    
    
    2007(In millions)General and administrative
    
    $
    (21
    )
    
    $
    (25
    )Share-based compensation
    
    
    (4
    )
    
    
    (19
    )Other operating expense
    
    
    (15
    )
    
    
    (14
    )Other non-operating income
    
    
    1
    
    
    
    Net interest income (expense) on financial
assets and nonrecourse financial
liabilities of special purpose entities
    
    
    (3
    )
    
    
    Interest expense
    
    
    (17
    )
    
    
    (29
    )$
    (59
    )
    
    $
    (87
    )Other operating income (expense) applies to:Corrugated packaging
    
    $
    6
    
    
    $
    (10
    )Building products
    
    
    (1
    )
    
    
    Unallocated
    
    
    (20
    )
    
    
    (4
    )$
    (15
    )
    
    $
    (14
    )
 
 (b)
    
    Excludes assets of discontinued operations of $16,337 million. 11




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##### Table of Contents



TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)
 Note 10  Discontinued Operations
  First Quarter2007(In millions)Real estate income before taxes
    
    $
    3Financial services income before taxes
    
    
    46Chemical operations and other
    
    
    Income from discontinued operations before taxes
    
    
    49Income tax expense
    
    
    (18
    )Discontinued operations
    
    $
    31
 12




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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 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;
    
    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; and
    
    other factors, many of which are beyond our control.
  Non-GAAP Financial Measure
    13




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##### Table of Contents



Accounting Policies
 Critical Accounting Estimates
  New and Pending Accounting Pronouncements
  Note 2 to the Consolidated Financial Statements
 Results of Operations for First Quarter 2008 and 2007
 Summary
  14




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##### Table of Contents



First Quarter2008
    
    
    2007(Dollars in millions, except per share)RevenuesCorrugated packaging
    
    $
    776
    
    
    $
    761Building products
    
    
    168
    
    
    
    223Timber and timberland
    
    
    
    
    
    
    19Total revenues
    
    $
    944
    
    
    $
    1,003Segment operating incomeCorrugated packaging
    
    $
    55
    
    
    $
    64Building products
    
    
    (21
    )
    
    
    16Timber and timberland
    
    
    
    
    
    
    19Total segment operating income
    
    
    34
    
    
    
    99Items not allocated to segmentsGeneral and administrative
    
    
    (21
    )
    
    
    (25
    )Share-based compensation
    
    
    (4
    )
    
    
    (19
    )Other operating income (expense)
    
    
    (15
    )
    
    
    (14
    )Other non-operating income (expense)
    
    
    1
    
    
    
    Net interest income (expense) on financial assets and
nonrecourse financial liabilities of special purpose
entities
    
    
    (3
    )
    
    
    Interest expense on debt
    
    
    (17
    )
    
    
    (29
    )Income (loss) before taxes
    
    
    (25
    )
    
    
    12Income tax (expense) benefit
    
    
    12
    
    
    
    (5
    )Income (loss) from continuing operations
    
    
    (13
    )
    
    
    7Discontinued operations
    
    
    
    
    
    
    31Net income (loss)
    
    $
    (13
    )
    
    $
    38Average basic shares outstanding
    
    
    106.7
    
    
    
    105.6Average diluted shares outstanding
    
    
    107.6
    
    
    
    107.7Income (loss) from continuing operations, per basic share
    
    $
    (0.12
    )
    
    $
    0.07Income from continuing operations, per diluted share(a)
    
    $
    N/A
    
    
    $
    0.07ROI, annualized
    
    
    1.4
    %
    
    
    7.6
    %
 
 (a)
    
    Earnings per diluted share is not applicable for first quarter 2008 due to our
loss from continuing operations.  
    
    We experienced higher prices and higher volumes for our corrugated packaging
products, while we continued to experience lower prices and volumes for most of our
building products.
    
    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, 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 and no shared-based compensation expense being recognized on the
stock options awarded in first quarter 2008, as they were subject to shareholder
approval, which was not obtained until second quarter 2008.
    
    We incurred $20 million of costs associated with our transformation plan, of which
$15 million is related to a one-time 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.
    
    Interest expense decreased primarily due to the December 2007 early pay-off of $286
million of 6.75% notes and $213 million of 7.875% notes.
 15




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##### Table of Contents




    
    We experienced higher prices and lower volumes for our corrugated packaging
products.
    
    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 used at our containerboard mills offset some
of the benefits.
    
    We experienced lower pricing and volumes for our building products, principally
lumber and gypsum.
    
    We increased litigation reserves by $10 million as a result of a recent California
Supreme Court decision related to meal break cases and incurred $4 million of costs
associated with our transformation plan.
    
    We expensed $3 million of share-based compensation due to the higher share price at
first quarter-end 2007.
  Corrugated Packaging
   First Quarter2008
    
    
    2007(Dollars in millions)Revenues
    
    $
    776
    
    
    $
    761Costs and expenses
    
    
    (721
    )
    
    
    (697
    )Segment operating income
    
    $
    55
    
    
    $
    64Segment ROI
    
    
    11.1
    %
    
    
    12.8
    %
  First Quarter 2008versusFirst Quarter 2007Increase/(Decrease)Corrugated packagingAverage prices
    
    
    3
    %Shipments, average week
    
    
    3
    %Industry shipments, average week(a)
    
    
    (1
    )%LinerboardAverage prices
    
    
    6
    %Shipments, in thousand tons
    
    
    (18
    )
 
 (a)
    
    Source: Fibre Box Association 16




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##### Table of Contents



First Quarter 2008versusFirst Quarter 2007Increase/(Decrease)(In millions)Wood fiber
    
    $
    2Recycled fiber
    
    
    10Energy, principally natural gas
    
    
    6Freight
    
    
    4Depreciation
    
    
    (2
    )
   First Quarter2008
    
    2007Number of converting facilities (at quarter-end)
    
    
    64
    
    
    
    64Corrugated packaging shipments, in thousand tons
    
    
    827
    
    
    
    830Mill production, in thousand tons
    
    
    914
    
    
    
    897Percent mill production used internally
    
    
    91
    %
    
    
    89
    %Percent of total fiber requirements sourced from recycled fiber
    
    
    36
    %
    
    
    37
    %Containerboard purchases from our Premier Boxboard Limited LLC
joint venture, in thousand tons
    
    
    13
    
    
    
    20
 Building Products
   First Quarter2008
    
    
    2007(Dollars in millions)Revenues
    
    $
    168
    
    
    $
    223Costs and expenses
    
    
    (189
    )
    
    
    (207
    )Segment operating income (loss)
    
    $
    (21
    )
    
    $
    16Segment ROI
    
    
    (15.0
    )%
    
    
    11.4
    %
 17




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##### Table of Contents



First Quarter 2008versusFirst Quarter 2007Increase/(Decrease)Lumber:Average prices
    
    
    (8
    )%Shipments
    
    
    (2
    )%Gypsum wallboard:Average prices
    
    
    (35
    )%Shipments
    
    
    (27
    )%Particleboard:Average prices
    
    
    (2
    )%Shipments
    
    
    (16
    )%MDF:Average prices
    
    
    6
    %Shipments
    
    
    2
    %
    First Quarter 2008versusFirst Quarter 2007Increase/(Decrease)(In millions)Wood fiber
    
    $
    (9
    )Energy, principally natural gas
    
    
    (1
    )Freight
    
    
    (3
    )Chemicals
    
    
    2Depreciation
    
    
    
   18




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##### Table of Contents



First Quarter2008
    
    2007Number of converting and manufacturing facilities (at quarter-end)
    
    
    16
    
    
    
    17Average operating rates for all product lines excluding sold or closed facilities:High
    
    
    86
    %
    
    
    91
    %Low
    
    
    47
    %
    
    
    67
    %Average
    
    
    66
    %
    
    
    79
    %Gypsum facing paper purchases from our Premier Boxboard Limited LLC joint venture, in
thousand tons
    
    
    8
    
    
    
    12Percent of gypsum facing paper supplied by our Premier Boxboard Limited LLC joint
venture
    
    
    63
    %
    
    
    78
    %
  Items Not Allocated to Segments
  Note 4 to the Consolidated Financial Statements
     19




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##### Table of Contents



Income Taxes
  Average Shares Outstanding
  Capital Resources and Liquidity for First Quarter 2008
 Sources and Uses of Cash
  First Quarter2008
    
    
    2007(In millions)Cash received from:Funds from operations
    
    $
    53
    
    
    $
    110Exercise of options and related tax benefits
    
    
    1
    
    
    
    19Sale of non-strategic assets and other
    
    
    3
    
    
    
    5Borrowing, net
    
    
    193
    
    
    
    66Total sources
    
    
    250
    
    
    
    200Cash used to:Pay income taxes related to 2007 sale of timberland
    
    
    (258
    )
    
    
    Pay lump-sum settlements of supplemental benefits
    
    
    (34
    )
    
    
    Return to shareholders through:Dividends
    
    
    (11
    )
    
    
    (29
    )Repurchase of common stock
    
    
    
    
    
    
    (24
    )Reinvest in the business through:Working capital changes
    
    
    (100
    )
    
    
    (81
    )Capital expenditures
    
    
    (34
    )
    
    
    (42
    )Joint ventures and other
    
    
    (4
    )
    
    
    (5
    )Total uses
    
    
    (441
    )
    
    
    (181
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2
    
    
    
    Discontinued operations, net
    
    
    
    
    
    
    (30
    )Change in cash and cash equivalents
    
    $
    (189
    )
    
    $
    (11
    )
   20




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##### Table of Contents



Liquidity
  AccountsCommitted
    
    
    ReceivableCredit
    
    
    SecuritizationAgreements
    
    
    Facility
    
    
    Total(In millions)Committed
    
    $
    835
    
    
    $
    228
    
    
    $
    1,063Less: borrowings and commitments
    
    
    (19
    )
    
    
    (208
    )
    
    
    (227
    )Unused borrowing capacity at first quarter-end 2008
(subject to covenant restrictions)
    
    $
    816
    
    
    $
    20
    
    
    $
    836
   Off-Balance Sheet Arrangements
  Pension and Postretirement Matters
  Energy
  Litigation and Related Matters
  21




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##### Table of Contents



Calculation of Non-GAAP Financial Measure
 Corrugated
    
    
    Building
    
    
    Timber andConsolidated
    
    
    Packaging
    
    
    Products
    
    
    Timberland(Dollars in millions)First Quarter 2008Return:Segment operating income determined in accordance with
GAAP
    
    $
    34
    
    
    $
    55
    
    
    $
    (21
    )
    
    $
    N/AItems not allocated to segments:General and administrative
    
    
    (21
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AShare-based compensation
    
    
    (4
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A$
    9
    
    
    $
    55
    
    
    $
    (21
    )
    
    $
    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
    
    
    1.4
    %
    
    
    11.1
    %
    
    
    (15.0)
    %
    
    
    N/AFirst Quarter 2007Return:Segment operating income determined in accordance with
GAAP
    
    $
    99
    
    
    $
    64
    
    
    $
    16
    
    
    $
    19Items not allocated to segments:General and administrative
    
    
    (25
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AShare-based compensation
    
    
    (19
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A$
    55
    
    
    $
    64
    
    
    $
    16
    
    
    $
    19Investment: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
    
    
    7.6
    %
    
    
    12.8
    %
    
    
    11.4
    %
    
    
    23.8
    %
  22




---



##### Table of Contents



STATISTICAL AND OTHER DATA
  First Quarter2008
    
    
    2007(Dollars in millions)RevenuesCorrugated PackagingCorrugated packaging
    
    $
    737
    
    
    $
    717Linerboard
    
    
    39
    
    
    
    44$
    776
    
    
    $
    761Building ProductsPine lumber
    
    $
    53
    
    
    $
    59Particleboard
    
    
    43
    
    
    
    52Gypsum wallboard
    
    
    34
    
    
    
    70Medium density fiberboard
    
    
    19
    
    
    
    17Fiberboard
    
    
    9
    
    
    
    14Other
    
    
    10
    
    
    
    11$
    168
    
    
    $
    223Timber and TimberlandFiber and other
    
    
    N/A
    
    
    $
    19Unit salesCorrugated PackagingCorrugated packaging, thousands of tons
    
    
    827
    
    
    
    830Linerboard, thousands of tons
    
    
    82
    
    
    
    100909
    
    
    
    930Building ProductsPine lumber, million board feet
    
    
    200
    
    
    
    203Particleboard, million square feet
    
    
    120
    
    
    
    143Gypsum wallboard, million square feet
    
    
    280
    
    
    
    382Medium density fiberboard, million square feet
    
    
    38
    
    
    
    37Fiberboard, million square feet
    
    
    50
    
    
    
    74
 23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
      Increase (Decrease)First 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%
    
    $
    (4
    )
    
    $
    5
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    5
    
    
    $
    4+1%
    
    
    (2
    )
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2-1%
    
    
    2
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )-2%
    
    
    4
    
    
    
    (5
    )
    
    
    (1
    )
    
    
    1
    
    
    
    (5
    )
    
    
    (4
    )
 Foreign Currency Risk
  Commodity Price Risk
  
 Item 4. Controls and Procedures
   24




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings
   
 Item 1A. Risk Factors
  
 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 (1/1/2008 - 1/31/2008)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    6,650,000Month 2 (2/1/2008 - 2/29/2008)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    6,650,000Month 3 (3/1/2008 - 3/31/2008)
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    6,650,000Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    6,650,000
  25




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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.
 26




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##### Table of Contents



SIGNATURES
  TEMPLE-INLAND INC.(Registrant)Dated: May 6, 2008
    
    By
    
    /s/ Randall D. LevyRandall D. LevyChief Financial OfficerBy
    
    /s/ Troy L. HesterTroy L. HesterCorporate Controller andPrincipal Accounting Officer
 27




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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
    
    
    2931.2
    
    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
    
    
    3132.1
    
    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
    
    
    3332.2
    
    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
    
    
    34
 28