##### 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 April 1, 2006
 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, Austin, Texas 78746
 (512) 434-5800
 Not Applicable
 þ o
  þ o o
 o þ
  Number of common shares outstandingClass
    
    as of April 1, 2006Common Stock (par value $1.00 per share)
    
    110,491,122




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##### 



PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Temple-Inland Inc. and Subsidiaries
    
    
    3Consolidated Balance Sheets
    
    
    3Consolidated Statements of Income
    
    
    5Consolidated Statements of Cash Flows
    
    
        6Parent Company (Temple-Inland Inc. and its manufacturing and real estate subsidiaries)
    
    
    7Summarized Balance Sheets
    
    
        7Summarized Statements of Income
    
    
        8Summarized Statements of Cash Flows
    
    
       9Financial Services
    
    
    10Summarized Balance Sheets
    
    
        10Summarized Statements of Income
    
    
        11Summarized Statements of Cash Flows
    
    
        12Notes to the Consolidated Financial Statements
    
    
    13Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    46PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    46Item 1A. Risk Factors
    
    
    47Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    47Item 3. Defaults Upon Senior Securities
    
    
    47Item 4. Submission of Matters to a Vote of Security Holders
    
    
    47Item 5. Other Information
    
    
    47Item 6. Exhibits
    
    
    47SIGNATURES
    
    
    48Certification of Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification of Chief Executive Officer Pursuant to Section 906Certification of Chief Financial Officer Pursuant to Section 906




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
  
    Parent
    
    
    FinancialCompany
    
    
    Services
    
    
    Consolidated(In millions)ASSETSCash and cash equivalents
    
    $
    11
    
    
    $
    338
    
    
    $
    349Trade receivables, less allowances of $14
    
    
    472
    
    
    
    
    
    
    
    472Inventories
    
    
    422
    
    
    
    
    
    
    
    422Timber and timberland
    
    
    386
    
    
    
    
    
    
    
    386Real estate
    
    
    412
    
    
    
    
    
    
    
    412Loans held for sale
    
    
    
    
    
    
    49
    
    
    
    49Loans, net of allowance for loan losses of $69
    
    
    
    
    
    
    10,037
    
    
    
    10,037Securities available-for-sale
    
    
    
    
    
    
    621
    
    
    
    621Securities held-to-maturity
    
    
    
    
    
    
    5,616
    
    
    
    5,616Investment in Federal Home Loan Bank stock
    
    
    
    
    
    
    303
    
    
    
    303Property, premises, and equipment
    
    
    1,675
    
    
    
    203
    
    
    
    1,878Goodwill
    
    
    365
    
    
    
    159
    
    
    
    524Other intangible assets
    
    
    
    
    
    
    30
    
    
    
    30Prepaid expenses and other assets
    
    
    433
    
    
    
    214
    
    
    
    595Investment in financial services
    
    
    1,050
    
    
    
    
    
    
    
    TOTAL ASSETS
    
    $
    5,226
    
    
    $
    17,570
    
    
    $
    21,694LIABILITIESAccounts payable, accrued expenses, and other liabilities
    
    $
    716
    
    
    $
    166
    
    
    $
    860Long-term debt and other borrowings
    
    
    1,834
    
    
    
    101
    
    
    
    1,935Deposits
    
    
    
    
    
    
    9,284
    
    
    
    9,273Obligations to settle trade date securities
    
    
    
    
    
    
    356
    
    
    
    356Federal Home Loan Bank borrowings
    
    
    
    
    
    
    6,308
    
    
    
    6,308Deferred income taxes
    
    
    167
    
    
    
    
    
    
    
    148Pension liability
    
    
    266
    
    
    
    
    
    
    
    266Postretirement benefits
    
    
    137
    
    
    
    
    
    
    
    137Preferred stock issued by subsidiaries
    
    
    
    
    
    
    305
    
    
    
    305TOTAL LIABILITIES
    
    
    3,120
    
    
    
    16,520
    
    
    
    19,588SHAREHOLDERS EQUITYPreferred stock  par value $1 per share:authorized 25,000,000 shares; none issued
    
    
    
    
    
    
    
    
    
    
    Common stock  par value $1 per share: authorized 200,000,000 shares;
issued 123,605,344 shares, including shares held in the treasury
    
    
    
    
    
    
    
    
    
    
    124Additional paid-in capital
    
    
    
    
    
    
    
    
    
    
    454Accumulated other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    (191
    )Retained earnings
    
    
    
    
    
    
    
    
    
    
    2,1902,577Cost of shares held in the treasury: 13,114,222 shares
    
    
    
    
    
    
    
    
    
    
    (471
    )TOTAL SHAREHOLDERS EQUITY
    
    
    
    
    
    
    
    
    
    
    2,106TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    
    
    
    $
    21,694
  3




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##### Table of Contents



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




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##### Table of Contents



First Quarter2006
    
    
    2005(In millions, except per share)REVENUESManufacturing and real estate
    
    $
    1,101
    
    
    $
    999Financial services
    
    
    283
    
    
    
    2221,384
    
    
    
    1,221COSTS AND EXPENSESManufacturing and real estate
    
    
    (992
    )
    
    
    (939
    )Financial services
    
    
    ( 237
    )
    
    
    (180
    )(1,229
    )
    
    
    (1,119
    )OPERATING INCOME
    
    
    155
    
    
    
    102Parent company interest
    
    
    (33
    )
    
    
    (29
    )Other non-operating income (expense)
    
    
    
    
    
    
    1INCOME BEFORE INCOME TAXES
    
    
    122
    
    
    
    74Income tax expense
    
    
    (46
    )
    
    
    (29
    )INCOME FROM CONTINUING OPERATIONS
    
    
    76
    
    
    
    45Discontinued operations
    
    
    
    
    
    
    NET INCOME
    
    $
    76
    
    
    $
    45WEIGHTED AVERAGE COMMON SHARES OUTSTANDINGBasic
    
    
    111.1
    
    
    
    112.5Diluted
    
    
    113.4
    
    
    
    115.7EARNINGS PER SHAREBasic:Income from continuing operations
    
    $
    0.68
    
    
    $
    0.40Discontinued operations
    
    
    
    
    
    
    Net income
    
    $
    0.68
    
    
    $
    0.40Diluted:Income from continuing operations
    
    $
    0.67
    
    
    $
    0.39Discontinued operations
    
    
    
    
    
    
    Net income
    
    $
    0.67
    
    
    $
    0.39DIVIDENDS PAID PER SHARE OF COMMON STOCK
    
    $
    0.25
    
    
    $
    0.225
  5




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##### Table of Contents



First Quarter2006
    
    
    2005(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income
    
    $
    76
    
    
    $
    45Adjustments:Depreciation and amortization
    
    
    61
    
    
    
    62Amortization and accretion of financial instruments discounts and premiums, net
    
    
    7
    
    
    
    4Provision for credit losses
    
    
    2
    
    
    
    2Deferred income taxes
    
    
    6
    
    
    
    10Non-cash real estate cost of sales
    
    
    14
    
    
    
    12Real estate development expenditures
    
    
    (10
    )
    
    
    (11
    )Other non-cash charges and (credits), net
    
    
    
    
    
    
    4Other
    
    
    6
    
    
    
    15Changes in:Receivables
    
    
    (43
    )
    
    
    (65
    )Inventories
    
    
    9
    
    
    
    (6
    )Prepaid expenses and other
    
    
    31
    
    
    
    9Accounts payable and accrued expenses
    
    
    (61
    )
    
    
    50Loans held for sale:Originations
    
    
    (116
    )
    
    
    (575
    )Sales
    
    
    347
    
    
    
    694Collections on loans serviced for others, net
    
    
    
    
    
    
    (117
    )329
    
    
    
    133CASH PROVIDED BY (USED FOR) INVESTINGCapital expenditures
    
    
    (46
    )
    
    
    (63
    )Sale of non-strategic assets and operations
    
    
    3
    
    
    
    9Securities available-for-sale, net
    
    
    33
    
    
    
    47Securities held-to-maturity, net
    
    
    293
    
    
    
    281Loans originated or acquired, net of principal collected
    
    
    (194
    )
    
    
    (144
    )Proceeds from sale of loans and mortgage servicing rights
    
    
    
    
    
    
    42Acquisitions, net of cash acquired, and joint ventures
    
    
    (136
    )
    
    
    (33
    )Other
    
    
    1
    
    
    
    (4
    )(46
    )
    
    
    135CASH PROVIDED BY (USED FOR) FINANCINGPayments of debt
    
    
    (372
    )
    
    
    (214
    )Additions to debt
    
    
    277
    
    
    
    134Borrowings under accounts receivable securitization facility, net
    
    
    139
    
    
    
    Deposits, net
    
    
    79
    
    
    
    165Repurchase agreements and short-term borrowings, net
    
    
    (453
    )
    
    
    (332
    )Cash dividends paid to shareholders
    
    
    (27
    )
    
    
    (25
    )Repurchase of common stock
    
    
    (51
    )
    
    
    (104
    )Exercise of stock options
    
    
    27
    
    
    
    30Tax benefit on stock options exercised
    
    
    6
    
    
    
    Settlement of equity purchase contracts
    
    
    
    
    
    
    26Other
    
    
    
    
    
    
    (58
    )(375
    )
    
    
    (378
    )Discontinued operations, principally operating activities
    
    
    
    
    
    
    (2
    )Net increase (decrease) in cash and cash equivalents
    
    
    (92
    )
    
    
    (112
    )Cash and cash equivalents at beginning of period
    
    
    441
    
    
    
    372Cash and cash equivalents at end of period
    
    $
    349
    
    
    $
    260
  6




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##### Table of Contents



FirstQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)ASSETSCurrent AssetsCash and cash equivalents
    
    $
    11
    
    
    $
    13Trade receivables, less allowance for doubtful accounts of $14 in 2006 and 2005
    
    
    472
    
    
    
    411Inventories:Finished goods and work in process
    
    
    99
    
    
    
    95Raw materials
    
    
    211
    
    
    
    224Supplies and other
    
    
    112
    
    
    
    106Total inventories
    
    
    422
    
    
    
    425Prepaid expenses and other
    
    
    67
    
    
    
    94Total current assets
    
    
    972
    
    
    
    943Investment in Financial Services
    
    
    1,050
    
    
    
    1,017Timber and Timberland
    
    
    386
    
    
    
    394Real Estate
    
    
    412
    
    
    
    403Property and EquipmentLand and buildings
    
    
    644
    
    
    
    619Machinery and equipment
    
    
    3,409
    
    
    
    3,337Construction in progress
    
    
    66
    
    
    
    62Less allowances for depreciation
    
    
    (2,444
    )
    
    
    (2,385
    )Total property and equipment
    
    
    1,675
    
    
    
    1,633Goodwill
    
    
    365
    
    
    
    236Assets Held for Sale
    
    
    34
    
    
    
    34Other Assets
    
    
    332
    
    
    
    341TOTAL ASSETS
    
    $
    5,226
    
    
    $
    5,001LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    192
    
    
    $
    200Accrued employee compensation and benefits
    
    
    64
    
    
    
    101Accrued interest
    
    
    32
    
    
    
    19Accrued property taxes
    
    
    15
    
    
    
    27Other accrued expenses
    
    
    142
    
    
    
    136Liabilities of discontinued operations
    
    
    9
    
    
    
    9Current portion of long-term debt
    
    
    9
    
    
    
    12Total current liabilities
    
    
    463
    
    
    
    504Long-Term Debt
    
    
    1,834
    
    
    
    1,599Deferred Income Taxes
    
    
    167
    
    
    
    165Pension Liability
    
    
    266
    
    
    
    270Postretirement Benefits
    
    
    137
    
    
    
    137Other Long-Term Liabilities
    
    
    253
    
    
    
    246Total liabilities
    
    
    3,120
    
    
    
    2,921Shareholders Equity
    
    
    2,106
    
    
    
    2,080TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    5,226
    
    
    $
    5,001
  7




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##### Table of Contents



First Quarter2006
    
    
    2005(In millions)NET REVENUES
    
    $
    1,101
    
    
    $
    999COSTS AND EXPENSESCost of sales
    
    
    (914
    )
    
    
    (851
    )Selling
    
    
    (34
    )
    
    
    (31
    )General and administrative
    
    
    (55
    )
    
    
    (45
    )Other operating income (expense)
    
    
    11
    
    
    
    (12
    )(992
    )
    
    
    (939
    )109
    
    
    
    60FINANCIAL SERVICES EARNINGS
    
    
    46
    
    
    
    42OPERATING INCOME
    
    
    155
    
    
    
    102Interest expense
    
    
    (33
    )
    
    
    (29
    )Other non-operating income (expense)
    
    
    
    
    
    
    1INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
    
    
    122
    
    
    
    74Income tax expense
    
    
    (46
    )
    
    
    (29
    )INCOME FROM CONTINUING OPERATIONS
    
    
    76
    
    
    
    45Discontinued operations
    
    
    
    
    
    
    NET INCOME
    
    $
    76
    
    
    $
    45
  8




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##### Table of Contents



First Quarter2006
    
    
    2005(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income
    
    $
    76
    
    
    $
    45Adjustments:Depreciation and amortization
    
    
    56
    
    
    
    56Non-cash share-based compensation
    
    
    16
    
    
    
    10Non-cash pension and postretirement expense
    
    
    14
    
    
    
    15Cash contribution to pension and postretirement plans
    
    
    (18
    )
    
    
    (17
    )Deferred income taxes (benefit)
    
    
    2
    
    
    
    8Net earnings of financial services
    
    
    (29
    )
    
    
    (26
    )Earnings of joint ventures
    
    
    (12
    )
    
    
    (12
    )Dividends of earnings from joint ventures
    
    
    1
    
    
    
    7Non-cash real estate cost of sales
    
    
    14
    
    
    
    12Real estate development expenditures
    
    
    (10
    )
    
    
    (11
    )Other non-cash charges (credits)
    
    
    
    
    
    
    4Other
    
    
    (3
    )
    
    
    (1
    )Changes in:Receivables
    
    
    (43
    )
    
    
    (65
    )Inventories
    
    
    9
    
    
    
    (6
    )Prepaid expenses and other
    
    
    31
    
    
    
    9Accounts payable and accrued expenses
    
    
    (61
    )
    
    
    5043
    
    
    
    78CASH PROVIDED BY (USED FOR) INVESTINGCapital expenditures
    
    
    (32
    )
    
    
    (56
    )Sales of non-strategic assets and operations and proceeds from
sale of property and equipment
    
    
    3
    
    
    
    1Acquisitions, net of cash acquired, and joint ventures
    
    
    (135
    )
    
    
    (14
    )(164
    )
    
    
    (69
    )CASH PROVIDED BY (USED FOR) FINANCINGPayments of debt
    
    
    (241
    )
    
    
    (32
    )Additions to debt
    
    
    277
    
    
    
    134Borrowings under accounts receivable securitization facility, net
    
    
    139
    
    
    
    Cash dividends paid to shareholders
    
    
    (27
    )
    
    
    (25
    )Repurchase of common stock
    
    
    (51
    )
    
    
    (104
    )Exercise of stock options
    
    
    27
    
    
    
    30Tax benefit on stock options exercised
    
    
    6
    
    
    
    Settlement of equity purchase contracts
    
    
    
    
    
    
    26Other
    
    
    (11
    )
    
    
    (37
    )119
    
    
    
    (8
    )Discontinued operations, principally operating cash flows
    
    
    
    
    
    
    (2
    )Net increase (decrease) in cash and cash equivalents
    
    
    (2
    )
    
    
    (1
    )Cash and cash equivalents at beginning of period
    
    
    13
    
    
    
    22Cash and cash equivalents at end of period
    
    $
    11
    
    
    $
    21
  9




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##### Table of Contents



FirstQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)ASSETSCash and cash equivalents
    
    $
    338
    
    
    $
    431Loans held for sale
    
    
    49
    
    
    
    280Loans, net of allowance for losses of $69 in 2006 and $74 in 2005
    
    
    10,037
    
    
    
    9,845Securities available-for-sale
    
    
    621
    
    
    
    654Securities held-to-maturity
    
    
    5,616
    
    
    
    5,558Investment in Federal Home Loan Bank stock
    
    
    303
    
    
    
    300Premises and equipment, net
    
    
    203
    
    
    
    193Accounts, notes, and accrued interest receivable
    
    
    115
    
    
    
    120Goodwill
    
    
    159
    
    
    
    159Other intangible assets
    
    
    30
    
    
    
    31Other assets
    
    
    99
    
    
    
    120TOTAL ASSETS
    
    $
    17,570
    
    
    $
    17,691LIABILITIES AND STOCKHOLDERS EQUITYDeposits
    
    $
    9,284
    
    
    $
    9,201Federal Home Loan Bank borrowings
    
    
    6,308
    
    
    
    6,892Obligations to settle trade date securities
    
    
    356
    
    
    
    Other liabilities
    
    
    166
    
    
    
    175Other borrowings
    
    
    101
    
    
    
    101Preferred stock issued by subsidiaries
    
    
    305
    
    
    
    305TOTAL LIABILITIES
    
    
    16,520
    
    
    
    16,674Shareholders Equity
    
    
    1,050
    
    
    
    1,017TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    17,570
    
    
    $
    17,691
  10




---



##### Table of Contents



First Quarter2006
    
    
    2005(In millions)Interest IncomeLoans and loans held for sale
    
    $
    166
    
    
    $
    129Securities available-for-sale
    
    
    11
    
    
    
    15Securities held-to-maturity
    
    
    62
    
    
    
    34Other earning assets
    
    
    2
    
    
    
    1Total interest income
    
    
    241
    
    
    
    179Interest ExpenseDeposits
    
    
    (62
    )
    
    
    (39
    )Borrowed funds
    
    
    (75
    )
    
    
    (45
    )Total interest expense
    
    
    (137
    )
    
    
    (84
    )Net Interest Income
    
    
    104
    
    
    
    95Provision for credit losses
    
    
    (2
    )
    
    
    (2
    )Net Interest Income After Provision For Credit Losses
    
    
    102
    
    
    
    93Noninterest IncomeLoan origination and sale of loans
    
    
    2
    
    
    
    6Insurance commissions and fees
    
    
    14
    
    
    
    13Service charges on deposits
    
    
    11
    
    
    
    10Operating lease income
    
    
    2
    
    
    
    1Other
    
    
    13
    
    
    
    13Total noninterest income
    
    
    42
    
    
    
    43Noninterest ExpenseCompensation and benefits
    
    
    (48
    )
    
    
    (46
    )Insurance operations, other than compensation
    
    
    (4
    )
    
    
    (4
    )Occupancy
    
    
    (6
    )
    
    
    (6
    )Information systems and technology
    
    
    (3
    )
    
    
    (4
    )Charges related to asset impairments and severance
    
    
    (3
    )
    
    
    Other
    
    
    (34
    )
    
    
    (34
    )Total noninterest expense
    
    
    (98
    )
    
    
    (94
    )Income Before Income Taxes
    
    
    46
    
    
    
    42Income tax expense
    
    
    (17
    )
    
    
    (16
    )Net Income
    
    $
    29
    
    
    $
    26
  11




---



##### Table of Contents



First Quarter2006
    
    
    2005(In millions)CASH PROVIDED BY (USED FOR) OPERATIONSNet income
    
    $
    29
    
    
    $
    26Adjustments:Depreciation
    
    
    3
    
    
    
    5Depreciation of leased assets
    
    
    2
    
    
    
    1Provision for credit losses
    
    
    2
    
    
    
    2Amortization and accretion of financial instrument discounts and premiums, net
    
    
    7
    
    
    
    4Deferred income taxes
    
    
    4
    
    
    
    2Changes in:Loans held for sale:Originations
    
    
    (116
    )
    
    
    (575
    )Sales
    
    
    347
    
    
    
    694Collections on loans serviced for others, net
    
    
    
    
    
    
    (117
    )Other
    
    
    8
    
    
    
    13286
    
    
    
    55CASH PROVIDED BY (USED FOR) INVESTINGSecurities available-for-sale:Purchases
    
    
    (1
    )
    
    
    Principal payments and maturities
    
    
    34
    
    
    
    47Securities held-to-maturity:Purchases
    
    
    
    
    
    
    (3
    )Principal payments and maturities
    
    
    293
    
    
    
    284Loans originated or acquired, net of collections
    
    
    (194
    )
    
    
    (144
    )Collection of mortgage servicing rights sale receivables
    
    
    
    
    
    
    42Acquisitions, net of cash acquired
    
    
    (1
    )
    
    
    (19
    )Capital expenditures
    
    
    (14
    )
    
    
    (7
    )Other
    
    
    1
    
    
    
    4118
    
    
    
    204CASH PROVIDED BY (USED FOR) FINANCINGDeposits, net
    
    
    84
    
    
    
    165Repurchase agreements and short-term borrowings, net
    
    
    (453
    )
    
    
    (332
    )Payments of long-term FHLB and other borrowings
    
    
    (131
    )
    
    
    (182
    )Other
    
    
    3
    
    
    
    (21
    )(497
    )
    
    
    (370
    )Net increase (decrease) in cash and cash equivalents
    
    
    (93
    )
    
    
    (111
    )Cash and cash equivalents at beginning of period
    
    
    431
    
    
    
    350Cash and cash equivalents at end of period
    
    $
    338
    
    
    $
    239
  12




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##### Table of Contents



Note 1  Basis of Presentation
     Note 2  New Accounting Pronouncements
 Share-Based Compensation
 Share-Based
Payment , Accounting for Stock-Based Compensation-Transition and Disclosure, an
amendment of FASB Statement No. 123
 
    
    The fair value of awards granted to retirement eligible employees is expensed at the
date of grant because our stock option awards and some of our other awards provide for
accelerated or continued vesting upon retirement. Previously, the fair value of these
awards was expensed over the expected service period. The change accelerated about $7
million of expense into first quarter 2006 related to awards granted in 2006. We will
continue to expense the fair value of awards granted prior to 2006 over the expected
service period.
    
    Forfeitures over the expected term of the award are estimated at the date of grant and
the estimates adjusted to reflect actual subsequent forfeitures. Previously, we had
reflected forfeitures as they occurred. The effect of this change was not significant.
 13




---



##### Table of Contents




    
    Tax benefits recognized as a result of the exercise of employee stock options are
classified as a financing cash flow. Previously, we had classified tax benefits as an
operating cash flow.
    
    The fair value of unvested outstanding options at the beginning of first quarter 2006
will be expensed over the remaining service period. The effect of this change was not
significant because of our accounting for options at fair value determined at the date of
grant beginning in 2003. As a result this applied only to our unvested outstanding options
granted prior to 2003.
   First Quarter2005(In millions,except per share)Net income, as reported
    
    $
    45Add: Share-based compensation expense, net of
related tax effects, included in the
determination of reported net income
    
    
    6Deduct: Total share-based compensation
expense, net of related tax effects,
determined under the fair value based method
for all awards
    
    
    (7
    )Pro forma net income
    
    $
    44Earnings per share:Basic, as reported
    
    $
    0.40Basic, pro forma
    
    $
    0.39Diluted, as reported
    
    $
    0.39Diluted, pro forma
    
    $
    0.38
 Pending Accounting Pronouncements
 Accounting for
Purchases and Sales of Inventory with the Same Counterparty
  14




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##### Table of Contents



Note 3  Employee Benefit Plans
  PostretirementDefined Benefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Service costs  benefits earned during the period
    
    $
    7
    
    
    $
    7
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    18
    
    
    
    18
    
    
    
    2
    
    
    
    2Expected return on plan assets
    
    
    (20
    )
    
    
    (18
    )
    
    
    
    
    
    
    Amortization of prior service costs
    
    
    1
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Amortization of actuarial net loss
    
    
    6
    
    
    
    6
    
    
    
    
    
    
    
    Defined benefit expense
    
    $
    12
    
    
    $
    13
    
    
    $
    2
    
    
    $
    2
  Note 4  Share-Based Compensation
  Restricted or performance units
  WeightedAverageGrant Date
    
    
    AggregateFair Value
    
    
    CurrentShares
    
    
    Per Share
    
    
    Value(In thousands)
    
    
    
    
    
    
    (In millions)Not vested beginning first quarter 2006
    
    
    744
    
    
    $
    32Granted
    
    
    682
    
    
    
    46Vested and settled
    
    
    
    
    
    
    Forfeited
    
    
    (14
    )
    
    
    32Not vested first quarter-end 2006
    
    
    1,412
    
    
    
    39
    
    
    $
    63Not vested first quarter-end 2006 subject toTime vesting requirements
    
    
    828
    
    
    
    
    
    
    $
    37Performance requirements
    
    
    584
    
    
    
    
    
    
    
    26Total
    
    
    1,412
    
    
    
    
    
    
    $
    63Not vested first quarter-end 2006 to be settled inCash
    
    
    880
    
    
    
    
    
    
    $
    39Stock
    
    
    532
    
    
    
    
    
    
    
    24Total
    
    
    1,412
    
    
    
    
    
    
    $
    63
 15




---



##### Table of Contents



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 first quarter 2006
    
    
    6,832
    
    
    $
    28Granted
    
    
    1,097
    
    
    
    46Exercised
    
    
    (1,041
    )
    
    
    27Forfeited
    
    
    (73
    )
    
    
    31Outstanding end of first quarter 2006
    
    
    6,815
    
    
    
    31
    
    
    
    7
    
    
    $
    90Exercisable end of first quarter 2006
    
    
    3,903
    
    
    
    28
    
    
    
    6
    
    
    $
    66
   First Quarter2006
    
    
    2005Expected life of options
    
    
    6.0

    years
    
    

    8.0
    yearsExpected stock price volatility
    
    
    25.1
    %
    
    
    28.2
    %Expected dividend yield
    
    
    2.4
    %
    
    
    2.3
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    4.1
    %Weighted average estimated fair value of options granted
    
    $
    11.53
    
    
    $
    11.13
  16




---



##### Table of Contents



Share-based compensation expense
  First Quarter2006
    
    
    2005(In millions)Restricted or performance units
    
    $
    8
    
    
    $
    3Restricted stock
    
    
    1
    
    
    
    1Stock options
    
    
    7
    
    
    
    2Total pre-tax share-based compensation expense
    
    $
    16
    
    
    $
    6
    Other information
 First Quarter2006
    
    
    2005(In millions)Cash paid to settle restricted or performance units
    
    $
    
    
    
    $
    Cash received from the exercise of stock options
    
    
    27
    
    
    
    30Income tax benefit recognized from employee exercise of options
    
    
    6
    
    
    
    
 Note 5  Earnings Per Share
  First Quarter2006
    
    
    2005(In millions)Weighted average common shares outstanding  basic
    
    
    111.1
    
    
    
    112.5Dilutive effect of equity purchase contracts
(settled in first and second quarter of 2005)
    
    
    
    
    
    
    1.5Dilutive effect of stock options
    
    
    2.3
    
    
    
    1.7Weighted average shares outstanding  diluted
    
    
    113.4
    
    
    
    115.7
   17




---



##### Table of Contents



Note 6  Comprehensive Income
  First Quarter2006
    
    
    2005(In millions)Net income
    
    $
    76
    
    
    $
    45Other comprehensive income (loss), net of taxes:Unrealized gains (losses) on:Available-for-sale securities
    
    
    
    
    
    
    (3
    )Derivative instruments
    
    
    
    
    
    
    Foreign currency translation adjustments
    
    
    (2
    )
    
    
    Other comprehensive income (loss)
    
    
    (2
    )
    
    
    (3
    )Comprehensive income
    
    $
    74
    
    
    $
    42
  Note 7  Contingencies
  Note 8  Segment Information
    18




---



##### Table of Contents



ExpensesNotAllocated toSegmentsCorrugated
    
    
    Forest
    
    
    Real
    
    
    Financial
    
    
    andPackaging
    
    
    Products
    
    
    Estate
    
    
    Services
    
    
    Eliminations
    
    
    TotalFor First Quarter 2006 or at First
Quarter-End 2006:(In millions)Revenues from external customers
    
    $
    721
    
    
    $
    333
    
    
    $
    47
    
    
    $
    283
    
    
    $
    
    
    
    $
    1,384Depreciation and amortization
    
    
    38
    
    
    
    14
    
    
    
    1
    
    
    
    5
    
    
    
    3
    
    
    
    61Segment operating income or income
(loss) before taxes
    
    
    40
    
    
    
    82
    
    
    
    26
    
    
    
    49
    
    
    
    (75
    )(a)
    
    
    122Financial services, net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    104Total assets
    
    
    2,314
    
    
    
    1,071
    
    
    
    435
    
    
    
    17,570
    
    
    
    304
    
    
    
    21,694Capital expenditures
    
    
    19
    
    
    
    10
    
    
    
    
    
    
    
    14
    
    
    
    3
    
    
    
    46Goodwill
    
    
    236
    
    
    
    129
    
    
    
    
    
    
    
    159
    
    
    
    
    
    
    
    524For First Quarter 2005 or at First
Quarter-End 2005:(In millions)Revenues from external customersAs reported
    
    $
    718
    
    
    $
    249
    
    
    $
    
    
    
    $
    236
    
    
    $
    
    
    
    $
    1,203Reclassification
    
    
    1
    
    
    
    2
    
    
    
    29
    
    
    
    (14
    )
    
    
    
    
    
    
    18
    (b)As reclassified
    
    
    719
    
    
    
    251
    
    
    
    29
    
    
    
    222
    
    
    
    
    
    
    
    1,221Depreciation and amortizationAs reported
    
    
    40
    
    
    
    13
    
    
    
    
    
    
    
    7
    
    
    
    2
    
    
    
    62Reclassification
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    As reclassified
    
    
    40
    
    
    
    13
    
    
    
    1
    
    
    
    6
    
    
    
    2
    
    
    
    62Segment operating income or income
(loss) before taxesAs reported
    
    
    50
    
    
    
    54
    
    
    
    
    
    
    
    47
    
    
    
    (77
    )
    
    
    74Reclassification
    
    
    
    
    
    
    (3
    )
    
    
    9
    
    
    
    (5
    )
    
    
    (1
    )
    
    
    As reclassified
    
    
    50
    
    
    
    51
    
    
    
    9
    
    
    
    42
    
    
    
    (78
    )(a)
    
    
    74Financial services, net interest incomeAs reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    94
    
    
    
    
    
    
    
    94Reclassification
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1As reclassified
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    95Total assetsAs reported
    
    
    2,473
    
    
    
    1,024
    
    
    
    
    
    
    
    15,979
    
    
    
    259
    
    
    
    19,735Reclassification
    
    
    
    
    
    
    (97
    )
    
    
    398
    
    
    
    (336
    )
    
    
    26
    
    
    
    (9
    )(c)As reclassified
    
    
    2,473
    
    
    
    927
    
    
    
    398
    
    
    
    15,643
    
    
    
    285
    
    
    
    19,726Capital expendituresAs reported
    
    
    39
    
    
    
    14
    
    
    
    
    
    
    
    7
    
    
    
    4
    
    
    
    64Reclassification
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )(d)As reclassified
    
    
    39
    
    
    
    13
    
    
    
    
    
    
    
    7
    
    
    
    4
    
    
    
    63Goodwill, as reported
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    394
 
 (a)
    
    See table below for expenses not allocated to segments.(b)
    
    Revenues increased because we reclassified some revenue that had previously been
reported as a reduction of cost of sales, principally minerals and other lease revenues.(c)
    
    Total assets decreased primarily because we are now including a deferred tax
asset within the deferred tax liability caption.(d)
    
    Capital expenditures decreased because we reclassified real estate development
expenditures separately. 19




---



##### Table of Contents



First Quarter2006
    
    
    2005(In millions)General and administrative
    
    $
    (23
    )
    
    $
    (20
    )Share-based compensation
    
    
    (16
    )
    
    
    (6
    )Other operating income (expense)
    
    
    (3
    )
    
    
    (24
    )Other non-operating income (expense)
    
    
    
    
    
    
    1Parent company interest
    
    
    (33
    )
    
    
    (29
    )$
    (75
    )
    
    $
    (78
    )Other operating income (expense) applies to:Corrugated packaging
    
    $
    (2
    )
    
    $
    (18
    )Forest products
    
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    Financial services
    
    
    (3
    )
    
    
    Unallocated
    
    
    2
    
    
    
    (6
    )$
    (3
    )
    
    $
    (24
    )
 Note 9  Real Estate
  FirstQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)Developed land and land under development
    
    $
    201
    
    
    $
    199Land held for investment or future development
    
    
    113
    
    
    
    104Investment in real estate ventures
    
    
    74
    
    
    
    76Income producing properties, net of accumulated depreciation
    
    
    24
    
    
    
    24Total
    
    $
    412
    
    
    $
    403
   FirstQuarter-End
    
    
    Year-End2006
    
    
    2006(In millions)Real estate
    
    $
    168
    
    
    $
    184Total assets
    
    
    236
    
    
    
    240Borrowings, principally non-recourse
    
    
    77
    
    
    
    76Total liabilities
    
    
    83
    
    
    
    77Equity
    
    
    153
    
    
    
    163Our investment in real estate ventures:Our share of their equity
    
    $
    82
    
    
    $
    84Unrecognized deferred gain (a)
    
    
    (8
    )
    
    
    (8
    )Investment in real estate ventures
    
    $
    74
    
    
    $
    76
 
 (a)
    
    We recognize the deferred gain from our sale to the venture as the
venture sells the real estate to third parties. 20




---



##### Table of Contents



First Quarter2006
    
    
    2005(In millions)Revenues
    
    $
    53
    
    
    $
    45Earnings
    
    
    20
    
    
    
    14Our equity in their earnings
    
    
    10
    
    
    
    4
   Note 10  Assets Held For Sale
    Note 11  Other Operating Income (Expense)
 First Quarter2006
    
    
    2005(In millions)Equity in earnings of manufacturing joint ventures
    
    $
    2
    
    
    $
    8Equity in earnings of real estate ventures
    
    
    10
    
    
    
    4Closure of production and converting facilities and sale of non-strategic assets
    
    
    
    
    
    
    (11
    )Antitrust litigation
    
    
    
    
    
    
    (7
    )Proxy contest
    
    
    
    
    
    
    (4
    )Other
    
    
    (1
    )
    
    
    (2
    )$
    11
    
    
    $
    (12
    )
  21




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##### Table of Contents



Beginning
    
    
    
    
    
    
    Cash
    
    
    End ofof Period
    
    
    Additions
    
    
    Payments
    
    
    Period(In millions)Involuntary employee
terminations
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    1Contract termination penalties
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    Environmental remediation
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    Demolition
    
    
    7
    
    
    
    
    
    
    
    (1
    )
    
    
    6Total
    
    $
    12
    
    
    $
    
    
    
    $
    (5
    )
    
    $
    7
  Note 12  Acquisitions and Other Items
   Total(In millions)Current assets
    
    $
    35Property and equipment
    
    
    74Goodwill
    
    
    129Total assets
    
    
    238Current liabilities
    
    
    (13
    )Current portion of long-term debt
    
    
    (56
    )Total liabilities
    
    
    (69
    )Net assets at date of acquisition
    
    $
    169
  22




---



##### Table of Contents



2005FirstQuarter
    
    
    Year(In millions, except per share)Parent company revenues
    
    $
    1,045
    
    
    $
    4,175Income from continuing operations
    
    
    48
    
    
    
    190Income from continuing operations, per diluted share
    
    $
    0.41
    
    
    $
    1.66
   23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
 Forward-Looking Statements
  
    
    general economic, market or business conditions;
    
    the opportunities (or lack thereof) that may be presented to and pursued by us;
    
    the availability and price of raw materials we use;
    
    fluctuations in the cost of purchased energy;
    
    fluctuations in the cost we incur to transport the raw materials we use and the
products we manufacture;
    
    assumptions related to pension and postretirement costs, and share-based compensation;
    
    assumptions related to accounting for impaired assets;
    
    the collectibility of loans and accounts receivable and related provision for losses;
    
    competitive actions by other companies;
    
    changes in laws or regulations and actions or restrictions of regulatory agencies;
    
    the accuracy of certain judgments and estimates concerning our integration of acquired operations;
    
    our ability to execute certain strategic and business improvement initiatives; and
    
    other factors, many of which are beyond our control.
  Non-GAAP Financial Measure
    24




---



##### Table of Contents



Accounting Policies
 Critical Accounting Estimates
   New and Pending Accounting Pronouncements
 Share-Based Payment
 Results of Operations for First Quarter 2006 and 2005
 Summary
  25




---



##### Table of Contents



First Quarter2006
    
    
    2005(In millions, except per share)RevenuesCorrugated packaging
    
    $
    721
    
    
    $
    719Forest products
    
    
    333
    
    
    
    251Real estate
    
    
    47
    
    
    
    29Financial services
    
    
    283
    
    
    
    222Total revenues
    
    $
    1,384
    
    
    $
    1,221Segment operating incomeCorrugated packaging
    
    $
    40
    
    
    $
    50Forest products
    
    
    82
    
    
    
    51Real estate
    
    
    26
    
    
    
    9Financial services
    
    
    49
    
    
    
    42Total segment operating income
    
    
    197
    
    
    
    152Expenses not allocated to segmentsGeneral and administrative
    
    
    (23
    )
    
    
    (20
    )Share-based compensation
    
    
    (16
    )
    
    
    (6
    )Other operating income (expense)
    
    
    (3
    )
    
    
    (24
    )Other non-operating income (expense)
    
    
    
    
    
    
    1Parent company interest
    
    
    (33
    )
    
    
    (29
    )Income before income taxes
    
    
    122
    
    
    
    74Income tax expense
    
    
    (46
    )
    
    
    (29
    )Income from continuing operations
    
    
    76
    
    
    
    45Discontinued operations
    
    
    
    
    
    
    Net income
    
    $
    76
    
    
    $
    45Average diluted shares outstanding
    
    
    113.4
    
    
    
    115.7Income from continuing operations, per diluted share
    
    $
    0.67
    
    
    $
    0.39ROI, annualized
    
    
    13.8
    %
    
    
    9.6
    %
  
    
    In 2006, we experienced improved markets for our forest products, principally lumber
and gypsum, and we benefited from the acquisition of our partners 50 percent interest
in Standard Gypsum LP. While we continued to see the benefit in our manufacturing
operations from our initiatives to lower costs, improve asset utilization and increase
operating efficiencies, costs, principally energy and freight, offset much of the
benefit. In addition, we began classifying real estate as our fourth business segment.
As a result, we have reclassified prior period parent company and financial services
summarized financial statements and segment information to reflect the transfer and
reclassifications as if they occurred at the beginning of the earliest period
presented. Real estate operations benefited from an $8 million gain on sale of land
held for commercial use. Financial services operations benefited from improved net
interest income attributable to an increase in earning assets, principally
mortgage-backed securities. Actions taken to lower costs in our financial services
operation associated with the elimination of the wholesale mortgage operation resulted
in charges of $3 million. In addition, we accelerated the expensing of $7 million of
share-based compensation as a result of the adoption of the new share-based
compensation accounting pronouncement related to awards granted to retirement eligible
employees.
    
    In 2005, we continued to see the benefits in our manufacturing operations of our
initiatives to lower costs, improve asset utilization and increase operating
efficiencies. In addition, market demand strengthened, resulting in higher prices and
shipments for most of our manufactured products. Our financial services operations
were negatively impacted by lower net interest income resulting from a decrease in
average earning assets. Actions taken to lower costs and improve
asset utilization and operating efficiencies included the announced closure of our Antioch, California
converting facility and
 26




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##### Table of Contents



Corrugated Packaging
   First Quarter2006
    
    
    2005(Dollars in millions)Revenues
    
    $
    721
    
    
    $
    719Costs and expenses
    
    
    (681
    )
    
    
    (669
    )Segment operating income
    
    $
    40
    
    
    $
    50Segment ROI
    
    
    7.8
    %
    
    
    9.5
    %
  First Quarter 2006versusFirst Quarter 2005Increase/(Decrease)Corrugated packagingAverage prices
    
    
    (1
    )%Shipments, average week
    
    
    
    %Industry shipments, average week (a)
    
    
    
    %LinerboardAverage prices
    
    
    (10
    )%Shipments, tons
    
    
    (13
    )%
 
 (a)
    
    Source: Fibre Box Association     27




---



##### Table of Contents



First Quarter 2006versusFirst Quarter 2005Increase (Decrease)In millionsWood fiber
    
    $
    Recycled fiber
    
    
    (11
    )Freight
    
    
    11Energy, principally natural gas
    
    
    9Depreciation
    
    
    (2
    )Pension and postretirement
    
    
    (1
    )
   First Quarter2006
    
    2005Number of converting facilities (at quarter-end)
    
    
    65
    
    
    
    69Mill capacity, in thousand tons
    
    
    892
    
    
    
    892Mill production, in thousand tons
    
    
    890
    
    
    
    875Percent mill production used internally
    
    
    93
    %
    
    
    92
    %Percent of total fiber requirements sourced from recycled fiber
    
    
    34
    %
    
    
    36
    %Corrugating medium purchases from our Premier Boxboard Limited
LLC joint venture, in thousand tons
    
    
    14
    
    
    
    15
 Forest Products
   First Quarter2006
    
    
    2005Actual
    
    
    Actual
    
    
    Pro forma*(Dollars in millions)Revenues
    
    $
    333
    
    
    $
    251
    
    
    $
    297Costs and expenses
    
    
    (251
    )
    
    
    (200
    )
    
    
    (239
    )Segment operating income
    
    $
    82
    
    
    $
    51
    
    
    $
    58Segment ROI
    
    
    32.7
    %
    
    
    24.0
    %
    
    
    22.0
    %
 
 *
    
    Pro forma to reflect the consolidation of Standard Gypsum LP. 28




---



##### Table of Contents



First Quarter 2006versusFirst Quarter 2005Increase/(Decrease)Lumber:Average prices
    
    
    (2
    )%Shipments
    
    
    12
    %Gypsum:Average prices
    
    
    30
    %Shipments
    
    
    172
    %Particleboard:Average prices
    
    
    (3
    )%Shipments
    
    
    (5
    )%MDF:Average prices
    
    
    (7
    )%Shipments
    
    
    (43
    )%
    First Quarter2006
    
    
    2005(In millions)Our share of joint venture operating income
    
    $
    
    
    
    $
    6Hunting, mineral and recreational lease revenue
    
    
    14
    
    
    
    6$
    14
    
    
    $
    12
    29




---



##### Table of Contents



First Quarter 2006versusFirst Quarter 2005Increase (Decrease)In millionsWood fiber
    
    $
    (1
    )Energy, principally natural gas
    
    
    11Freight
    
    
    8Chemical
    
    
    (2
    )Depreciation
    
    
    1Pension and postretirement
    
    
    (1
    )
   First Quarter2006
    
    2005Timber harvest, in million tons:Sawtimber
    
    
    0.6
    
    
    
    0.5Pulpwood
    
    
    0.8
    
    
    
    0.8Total
    
    
    1.4
    
    
    
    1.3Number of converting and manufacturing facilities (at quarter-end)
    
    
    17
    
    
    
    18Average operating rates for all product lines excluding sold or closed facilities:High
    
    
    110
    %
    
    
    100
    %Low
    
    
    93
    %
    
    
    91
    %Average
    
    
    100
    %
    
    
    96
    %
 Real Estate
   First Quarter2006
    
    
    2005(Dollars in millions)Revenues
    
    $
    47
    
    
    $
    29Costs and expenses
    
    
    (31
    )
    
    
    (24
    )Our share of real estate ventures income
    
    
    10
    
    
    
    4Segment operating income
    
    $
    26
    
    
    $
    9Segment ROI
    
    
    25.3
    %
    
    
    9.5
    %
  30




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##### Table of Contents



First Quarter2006
    
    2005(Dollars in millions)Residential real estate revenue
    
    $
    17
    
    
    $
    9Lots sold
    
    
    342
    
    
    
    193Commercial real estate revenue
    
    $
    16
    
    
    $
    10Acres sold
    
    
    7
    
    
    
    126Land held for investment or future development revenue
    
    $
    7
    
    
    $
    4Acres sold
    
    
    923
    
    
    
    448Income producing properties, timber and other revenues
    
    $
    7
    
    
    $
    6Total revenues
    
    $
    47
    
    
    $
    29
   First Quarter2006Owned and consolidated ventures:Developed land and land under development, (at quarter-end)Number of projects
    
    
    29Residential lots remaining
    
    
    11,415Commercial acres remaining
    
    
    564Land held for investment or future development, (at quarter-end)Number of projects
    
    
    20Acres in entitlement process
    
    
    21,950Acres undeveloped
    
    
    197,224Ventures accounted for using the equity method:Ventures lot salesLots sold
    
    
    719
    (a)Revenue per lot sold
    
    $
    49,357Ventures developed land and land under development, (at quarter-end)Number of projects
    
    
    24Residential lots remaining
    
    
    13,191Commercial acres remaining
    
    
    701Land held for investment or future development, in acres (at quarter-end)
    
    
    6,594
 
 (a)
    
    The elimination of the previously discussed one month reporting lag
resulted in a one-time increase in the number of lots sold of 122 lots. Financial Services
  31




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##### Table of Contents



First Quarter2006
    
    2005(Dollars in millions)Net interest income
    
    $
    104
    
    
    $
    95Segment operating income
    
    
    49
    
    
    
    42Segment ROI
    
    
    19.3
    %
    
    
    18.1
    %
 Net Interest Income and Earning Assets and Deposits
   First Quarter2006
    
    2005Average
    
    Yield/
    
    Average
    
    Yield/Balance
    
    Rate
    
    Balance
    
    Rate(Dollars in millions)Earning assets
    
    $
    16,585
    
    
    
    5.80
    %
    
    $
    14,962
    
    
    
    4.78
    %Interest-bearing liabilities
    
    
    15,410
    
    
    
    (3.55
    )%
    
    
    13,965
    
    
    
    (2.40
    )%Impact of noninterest bearing funds
    
    
    
    
    
    
    0.25
    %
    
    
    
    
    
    
    0.16
    %Net interest margin
    
    
    
    
    
    
    2.50
    %
    
    
    
    
    
    
    2.54
    %
 Quantitative and Qualitative Disclosures About Market Risk,
  First Quarter-End2006
    
    
    2005(Dollars in millions)Residential housing assetsLoans held for sale
    
    $
    49
    
    
    $
    391Loans
    
    
    7,012
    
    
    
    7,061Securities
    
    
    6,540
    
    
    
    4,650Total residential housing assets
    
    
    13,601
    
    
    
    12,102Other earning assets
    
    
    3,280
    
    
    
    2,890Total earning assets
    
    $
    16,881
    
    
    $
    14,992Residential housing assets as a percentage of total earning assets
    
    
    81
    %
    
    
    81
    %Noninterest bearing deposit accounts
    
    $
    782
    
    
    $
    667Interest bearing deposit accounts
    
    
    3,585
    
    
    
    4,084Certificates of deposit
    
    
    4,917
    
    
    
    4,378Total deposits
    
    $
    9,284
    
    
    $
    9,129
  32




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##### Table of Contents



Asset Quality and Allowance for Credit Losses
  First Quarter-End
    
    
    Year-End2006
    
    
    2005
    
    
    2005(Dollars in millions)Non-performing loans
    
    $
    41
    
    
    $
    63
    
    
    $
    35Restructured operating lease assets
    
    
    
    
    
    
    35
    
    
    
    Foreclosed real estate
    
    
    2
    
    
    
    4
    
    
    
    2Non-performing assets
    
    $
    43
    
    
    $
    102
    
    
    $
    37Non-performing loans as a percentage of total loans
    
    
    0.40
    %
    
    
    0.64
    %
    
    
    0.35
    %Non-performing assets ratio
    
    
    0.43
    %
    
    
    1.03
    %
    
    
    0.37
    %Allowance for loan losses as a percentage of non-performing loans
    
    
    170
    %
    
    
    130
    %
    
    
    213
    %Allowance for loan losses as a percentage of total loans
    
    
    0.69
    %
    
    
    0.83
    %
    
    
    0.75
    %
 33




---



##### Table of Contents



First Quarter2006
    
    
    2005(Dollars in millions)Loans:Balance at beginning of period
    
    $
    74
    
    
    $
    85Provision for loan losses
    
    
    2
    
    
    
    2Net charge-offs
    
    
    (7
    )
    
    
    (5
    )Balance at end of period
    
    
    69
    
    
    
    82Unfunded credit commitments:Balance at beginning of period
    
    
    7
    
    
    
    7Provision for commitment-related credit losses
    
    
    
    
    
    
    Net charge-offs
    
    
    
    
    
    
    (1
    )Balance at end of period
    
    
    7
    
    
    
    6Combined allowances for credit losses at period end
    
    $
    76
    
    
    $
    88Provision for:Loan losses
    
    $
    2
    
    
    $
    2Commitment-related credit losses
    
    
    
    
    
    
    Combined provision for credit losses
    
    $
    2
    
    
    $
    2Net charge-offs as a percentage of average loans outstanding
    
    
    0.28
    %
    
    
    0.28
    %
  Noninterest Income and Noninterest Expense
  Expenses Not Allocated to Segments
   34




---



##### Table of Contents



First Quarter2006
    
    
    2005(In millions)Closure of converting and production facilities and sale of non-strategic assets
    
    $
    
    
    
    $
    (11
    )Elimination of wholesale mortgage origination network
    
    
    (3
    )
    
    
    Antitrust litigation
    
    
    
    
    
    
    (7
    )Proxy contest
    
    
    
    
    
    
    (4
    )Other
    
    
    
    
    
    
    (2
    )Total
    
    $
    (3
    )
    
    $
    (24
    )
   Income Taxes
  Average Shares Outstanding
  Capital Resources and Liquidity for First Quarter 2006
  Sources and Uses of Cash
  35




---



##### Table of Contents



Parent Company Sources and Uses of Cash
 First Quarter2006
    
    
    2005(In millions)We received cash from:Operations
    
    $
    107
    
    
    $
    88Working capital changes
    
    
    (64
    )
    
    
    (12
    )From operations
    
    
    43
    
    
    
    76Sale of non-strategic and other assets
    
    
    3
    
    
    
    1Exercise of options and related tax benefits, and in 2005 the settlement of
equity purchase contracts
    
    
    33
    
    
    
    56Borrowing, net
    
    
    175
    
    
    
    102Total sources
    
    
    254
    
    
    
    235We used cash to:Return to shareholders through:Dividends
    
    
    (27
    )
    
    
    (25
    )Repurchase of common stock
    
    
    (51
    )
    
    
    (104
    )Reinvest in the business through:Capital expenditures
    
    
    (32
    )
    
    
    (56
    )Acquisition, joint ventures, and other
    
    
    (146
    )
    
    
    (51
    )Total uses
    
    
    (256
    )
    
    
    (236
    )Change in cash and cash equivalents
    
    $
    (2
    )
    
    $
    (1
    )
        36




---



##### Table of Contents



Financial Services Sources and Uses of Cash
 First Quarter2006
    
    
    2005(In millions)We received cash from:Operations
    
    $
    47
    
    
    $
    40Changes in loans held for sale, and other
    
    
    239
    
    
    
    15Net repayments on loans and securities
    
    
    132
    
    
    
    184From operations
    
    
    418
    
    
    
    239Collection of mortgage servicing rights sale receivables
    
    
    
    
    
    
    42Total sources
    
    
    418
    
    
    
    281We used cash to:Change in deposits and borrowings
    
    
    (500
    )
    
    
    (349
    )Reinvest in the business through
capital expenditures, acquisitions and other uses
    
    
    (11
    )
    
    
    (43
    )Total uses
    
    
    (511
    )
    
    
    (392
    )Change in cash and cash equivalents
    
    $
    (93
    )
    
    $
    (111
    )
    Liquidity
  37




---



##### Table of Contents



Parent Company Liquidity
   AccountsReceivableCredit
    
    
    SecuritizationAgreements
    
    
    Facility
    
    
    Total(In millions)Committed
    
    $
    850
    
    
    $
    250
    
    
    $
    1,100Less: borrowings
    
    
    (175
    )
    
    
    (170
    )
    
    
    (345
    )Unused borrowing
capacity at first
quarter-end 2006
    
    $
    675
    
    
    $
    80
    
    
    $
    755
   Financial Services Liquidity
  Off-Balance Sheet Arrangements
 Parent Company
  
    
    $28 million as a result of the Standard Gypsum LP acquisition and
    
    $20 million as a result of the refinancing by the parent company of borrowings by a
financial services subsidiary related to real estate.
 38




---



##### Table of Contents



Financial Services
  FirstQuarter-End
    
    
    Year-End2006
    
    
    2005(In millions)Single-family mortgage loans
    
    $
    101
    
    
    $
    204Unused lines of credit
    
    
    1,993
    
    
    
    2,209Unfunded portion of loan commitments
    
    
    4,270
    
    
    
    4,141Commitments to originate commercial loans
    
    
    686
    
    
    
    571Letters of credit
    
    
    386
    
    
    
    373Total
    
    $
    7,436
    
    
    $
    7,498
 Capital Adequacy and Other Regulatory Matters
   FirstQuarter-End
    
    Year-End2006
    
    2005(In millions)Balance sheet data:Total assets
    
    $
    17,531
    
    
    $
    17,652Total deposits
    
    
    9,285
    
    
    
    9,201Shareholders equity
    
    
    1,128
    
    
    
    1,099
 Regulatory
    
    For Categorization asActual
    
    Minimum
    
    Well CapitalizedRegulatory capital ratios:Tangible capital
    
    
    7.15
    %
    
    
    2.00
    %
    
    
    N/ALeverage capital
    
    
    7.15
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-based capital
    
    
    10.75
    %
    
    
    8.00
    %
    
    
    10.00
    %
  Pension and Postretirement Matters
  39




---



##### Table of Contents



Energy
  Litigation and Related Matters
   40




---



##### Table of Contents



Calculation of Non-GAAP Financial Measure
 Parent
    
    
    Corrugated
    
    
    Forest
    
    
    Real
    
    
    FinancialCompany
    
    
    Packaging
    
    
    Products
    
    
    Estate
    
    
    Services(Dollars in millions)First Quarter 2006ReturnOperating income or segment operating income determined in
accordance with GAAP
    
    $
    155
    (a)
    
    $
    40
    
    
    $
    82
    
    
    $
    26
    
    
    $
    49Adjustments for significant unusual items
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    155
    
    
    $
    40
    
    
    $
    82
    
    
    $
    26
    
    
    $
    49InvestmentBeginning of year total assets, segment assets or
investment in financial services determined in accordance
with GAAP
    
    $
    5,001
    
    
    $
    2,318
    
    
    $
    866
    
    
    $
    422
    
    
    $
    1,017Adjustments:Current liabilities
(excluding current
portion of
long-term debt)
    
    
    (492
    )
    
    
    (269
    )
    
    
    (76
    )
    
    
    (11
    )
    
    
    N/AAssets held for sale
    
    
    (34
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMunicipal bonds
related to capital
leases included in
other assets
    
    
    (188
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAcquisition of
Standard Gypsum, LP
in January 2006
    
    
    213
    
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    As defined
    
    $
    4,500
    
    
    $
    2,049
    
    
    $
    1,003
    
    
    $
    411
    
    
    $
    1,017ROI, annualized
    
    
    13.8
    %
    
    
    7.8
    %
    
    
    32.7
    %
    
    
    25.3
    %
    
    
    19.3
    %First Quarter 2005(b)ReturnOperating income or segment operating income determined in
accordance with GAAP
    
    $
    102
    (a)
    
    $
    50
    
    
    $
    51
    
    
    $
    9
    
    
    $
    42Adjustments for significant unusual items
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    102
    
    
    $
    50
    
    
    $
    51
    
    
    $
    9
    
    
    $
    42InvestmentBeginning of year total assets, segment assets or
investment in financial services determined in accordance
with GAAP
    
    $
    5,006
    
    
    $
    2,431
    
    
    $
    920
    
    
    $
    388
    
    
    $
    928Adjustments:Current liabilities
(excluding current
portion of
long-term debt)
    
    
    (519
    )
    
    
    (326
    )
    
    
    (71
    )
    
    
    (10
    )
    
    
    N/AAssets held for sale
    
    
    (34
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AMunicipal bonds
related to capital
leases included in
other assets
    
    
    (188
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AAs defined
    
    $
    4,265
    
    
    $
    2,105
    
    
    $
    849
    
    
    $
    378
    
    
    $
    928ROI, annualized
    
    
    9.6
    %
    
    
    9.5
    %
    
    
    24.0
    %
    
    
    9.5
    %
    
    
    18.1
    %
 
 (a)
    
    Net of expenses not allocated to segments of $42 million in 2006 and $50
million in 2005.(b)
    
    2005 information has been reclassified to reflect the new real estate
business segment.  41




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##### Table of Contents



STATISTICAL AND OTHER DATA
 Parent Company
   First Quarter2006
    
    
    2005(Dollars in millions)RevenuesCorrugated PackagingCorrugated packaging
    
    $
    698
    
    
    $
    691Linerboard
    
    
    23
    
    
    
    28Total
    
    $
    721
    
    
    $
    719Forest Products(a)Pine lumber
    
    $
    84
    
    
    $
    75Gypsum wallboard(b)
    
    
    112
    
    
    
    31Particleboard
    
    
    49
    
    
    
    54Medium density fiberboard(b)
    
    
    16
    
    
    
    31Fiberboard
    
    
    21
    
    
    
    20Hunting, mineral and recreational leases
    
    
    14
    
    
    
    6Fiber and other
    
    
    37
    
    
    
    34Total
    
    $
    333
    
    
    $
    251Unit salesCorrugated PackagingCorrugated packaging, thousands of tons
    
    
    869
    
    
    
    857Linerboard, thousands of tons
    
    
    60
    
    
    
    69Total, thousands of tons
    
    
    929
    
    
    
    926Forest ProductsPine lumber, million board feet
    
    
    218
    
    
    
    193Gypsum wallboard, million square feet(b)
    
    
    563
    
    
    
    207Particleboard, million square feet
    
    
    165
    
    
    
    173Medium density fiberboard, million square feet(b)
    
    
    39
    
    
    
    69Fiberboard, million square feet
    
    
    102
    
    
    
    107
 
 (a)
    
    We have reclassified 2005 revenue to reflect the new real estate business segment
and the reclassification of certain revenues previously reflected as a reduction of cost of
sales.(b)
    
    Comparisons of revenue and unit sales of gypsum wallboard are affected by the
January 2006 acquisition of Standard Gypsum LP and of MDF are affected by the June 2005
sale of the Pembroke facility. 42




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##### Table of Contents



(a)
 Project
    
    County
    
    Project Acres(b)Projects we ownCaliforniaHidden Creek Estates
    
    Chatsworth
    
    
    700Terrace at Hidden Hills
    
    Calabasas
    
    
    30GeorgiaBay Springs
    
    Carroll
    
    
    440Dry Pond
    
    Cherokee
    
    
    950Fox Hall
    
    Coweta
    
    
    350Friendship Road
    
    Cherokee
    
    
    110Garland Mountain
    
    Cherokee
    
    
    350Gold Creek
    
    Dawson
    
    
    1,090Grove Park
    
    Coweta
    
    
    160Happy Valley Farm
    
    Coweta
    
    
    750Jackson Park
    
    Jackson
    
    
    690Legion Lake
    
    Carroll
    
    
    210Lithia Springs
    
    Haralson
    
    
    260Mill Creek
    
    Coweta
    
    
    770Pickens School
    
    Pickens
    
    
    420The Overlook at Waleska
    
    Cherokee
    
    
    510Town West
    
    Bartow
    
    
    1,110Triple C Road
    
    Bartow
    
    
    180Wolf Creek
    
    Carroll
    
    
    11,810Yellow Creek
    
    Cherokee
    
    
    1,060Total
    
    
    
    
    21,950
 
 (a)
    
    A project is deemed to be in the entitlement process when customary steps
necessary for the preparation and submittal of an application, like conducting
pre-application meetings or similar discussions with governmental officials, have
commenced, or an application has been filed. Projects listed may have significant steps
remaining, and there is no assurance that entitlements ultimately will be received.(b)
    
    Project acres are approximate. The actual number of acres entitled may vary. 43




---



##### Table of Contents



(a)
 Residential Lots
    
    Commercial AcresAcresLots Sold
    
    
    
    
    
    SoldInterest
    
    Since
    
    Lots
    
    Since
    
    AcresProject
    
    County
    
    Owned(b)
    
    Inception
    
    Remaining
    
    Inception
    
    RemainingProjects we ownColoradoBuffalo Highlands
    
    Weld
    
    
    100
    %
    
    
    
    
    
    
    645
    
    
    
    
    
    
    
    Johnstown Farms
    
    Weld
    
    
    100
    %
    
    
    115
    
    
    
    699
    
    
    
    
    
    
    
    Stonebraker
    
    Weld
    
    
    100
    %
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    TexasCaruth Lakes
    
    Rockwall
    
    
    100
    %
    
    
    245
    
    
    
    629
    
    
    
    
    
    
    
    Cibolo Canyons
    
    Bexar
    
    
    100
    %
    
    
    200
    
    
    
    1,549
    
    
    
    
    
    
    
    145Harbor Lakes
    
    Hood
    
    
    100
    %
    
    
    170
    
    
    
    402
    
    
    
    
    
    
    
    13Hunters Crossing
    
    Bastrop
    
    
    100
    %
    
    
    168
    
    
    
    441
    
    
    
    19
    
    
    
    95Maxwell Creek
    
    Collin
    
    
    100
    %
    
    
    468
    
    
    
    555
    
    
    
    
    
    
    
    Oakcreek Estates
    
    Comal
    
    
    100
    %
    
    
    
    
    
    
    630
    
    
    
    
    
    
    
    The Colony
    
    Bastrop
    
    
    100
    %
    
    
    305
    
    
    
    1,187
    
    
    
    22
    
    
    
    50The Gables at North Hill
    
    Collin
    
    
    100
    %
    
    
    109
    
    
    
    173
    
    
    
    
    
    
    
    The Preserve at Pecan Creek
    
    Nueces
    
    
    100
    %
    
    
    
    
    
    
    819
    
    
    
    
    
    
    
    9Other Texas Projects (8)
    
    Various
    
    
    100
    %
    
    
    2,419
    
    
    
    250
    
    
    
    104
    
    
    
    64Missouri, Tennessee, and UtahOther Projects (4)
    
    Various
    
    
    100
    %
    
    
    788
    
    
    
    416
    
    
    
    
    
    
    
    4,987
    
    
    
    8,995
    
    
    
    145
    
    
    
    376Projects in entities we consolidateTexasCity Park
    
    Harris
    
    
    75
    %
    
    
    315
    
    
    
    949
    
    
    
    35
    
    
    
    125Lantana
    
    Denton
    
    
    55
    % (c)
    
    
    53
    
    
    
    1,215
    
    
    
    
    
    
    
    Other Texas Projects (4)
    
    Various
    
    Various
    
    
    
    210
    
    
    
    256
    
    
    
    2
    
    
    
    63578
    
    
    
    2,420
    
    
    
    37
    
    
    
    188Total owned and consolidated
    
    
    
    
    
    
    
    
    5,565
    
    
    
    11,415
    
    
    
    182
    
    
    
    564Projects in ventures that we
account for using the equity methodGeorgiaSeven Hills
    
    Paulding
    
    
    50
    %
    
    
    420
    
    
    
    597
    
    
    
    5
    
    
    
    46The Georgian
    
    Paulding
    
    
    38
    %
    
    
    268
    
    
    
    1,118
    
    
    
    
    
    
    
    Other Georgia Projects (6)
    
    Various
    
    Various
    
    
    
    2,006
    
    
    
    711
    
    
    
    
    
    
    
    TexasBar C Ranch
    
    Tarrant
    
    
    50
    %
    
    
    65
    
    
    
    1,116
    
    
    
    
    
    
    
    Fannin Farms West
    
    Tarrant
    
    
    50
    %
    
    
    224
    
    
    
    220
    
    
    
    
    
    
    
    Lantana
    
    Denton
    
    Various
    (c)
    
    
    1,505
    
    
    
    1,427
    
    
    
    1
    
    
    
    79Long Meadow Farms
    
    Fort Bend
    
    
    19
    %
    
    
    292
    
    
    
    2,420
    
    
    
    
    
    
    
    134Southern Trails
    
    Brazoria
    
    
    40
    %
    
    
    121
    
    
    
    938
    
    
    
    
    
    
    
    Stonewall Estates
    
    Bexar
    
    
    25
    %
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    Summer Creek
    
    Fort Bend
    
    
    50
    %
    
    
    
    
    
    
    525
    
    
    
    
    
    
    
    37Summer Creek Ranch
    
    Tarrant
    
    
    50
    %
    
    
    712
    
    
    
    1,733
    
    
    
    
    
    
    
    374Summer Lakes
    
    Fort Bend
    
    
    50
    %
    
    
    294
    
    
    
    850
    
    
    
    42
    
    
    
    9Village Park
    
    Collin
    
    
    30
    %
    
    
    221
    
    
    
    348
    
    
    
    
    
    
    
    8Other Texas Projects (5)
    
    Various
    
    Various
    
    
    
    719
    
    
    
    388
    
    
    
    
    
    
    
    14FloridaOther Projects (3)
    
    Various
    
    Various
    
    
    
    431
    
    
    
    414
    
    
    
    
    
    
    
    Total in ventures
    
    
    
    
    
    
    
    
    7,278
    
    
    
    13,191
    
    
    
    48
    
    
    
    701Combined Total
    
    
    
    
    
    
    
    
    12,843
    
    
    
    24,606
    
    
    
    230
    
    
    
    1,265
 
 (a)
    
    A project is deemed entitled when all major discretionary land-use
approvals have been received. Some projects may require additional permits for
development.(b)
    
    Interest owned reflects our net equity interest in the project, whether owned
directly or indirectly. There are some projects that have multiple ownership structures
within them. Accordingly, portions of these projects may appear as owned,
consolidated, and/or accounted for on the equity method.(c)
    
    The Lantana project consists of a series of 16 partnerships in which our
interests range from 25% to 55%. We account for eight of these partnerships in which
our interests range from 25% to 50% using the equity method and we consolidate the
remaining partnerships. 44




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##### Table of Contents



Financial Services
  First Quarter-End
    
    
    Year-End2006
    
    
    2005
    
    
    2005(In millions)Single-family mortgage
    
    $
    2,987
    
    
    $
    3,598
    
    
    $
    3,112Single-family mortgage warehouse
    
    
    670
    
    
    
    573
    
    
    
    757Single-family construction
    
    
    1,924
    
    
    
    1,515
    
    
    
    1,665Multifamily and senior housing
    
    
    1,431
    
    
    
    1,375
    
    
    
    1,469Total residential housing
    
    
    7,012
    
    
    
    7,061
    
    
    
    7,003Commercial real estate
    
    
    865
    
    
    
    665
    
    
    
    758Commercial and business
    
    
    857
    
    
    
    762
    
    
    
    843Energy lending
    
    
    815
    
    
    
    729
    
    
    
    756Asset-based lending and leasing
    
    
    386
    
    
    
    410
    
    
    
    395Consumer and other
    
    
    171
    
    
    
    213
    
    
    
    164Total loans
    
    
    10,106
    
    
    
    9,840
    
    
    
    9,919Less allowance for loan losses
    
    
    (69
    )
    
    
    (82
    )
    
    
    (74
    )Loans receivable, net
    
    $
    10,037
    
    
    $
    9,758
    
    
    $
    9,845
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Increase (Decrease) in Income Before Income TaxesFirst Quarter-End 2006
    
    Year-End 2005Parent
    
    Financial
    
    Parent
    
    FinancialCompany
    
    Services
    
    Company
    
    Services(In millions)Change in
Interest Rates+2%
    
    $
    (6
    )
    
    $
    (26
    )
    
    $    
    
    $
    (31
    )+1%
    
    
    (3
    )
    
    
    (9
    )
    
    
    
    
    (12
    )1%
    
    
    3
    
    
    
    (22
    )
    
    
    
    
    (20
    )2%
    
    
    6
    
    
    
    (57
    )
    
    
    
    
    (49
    )
   45




---



##### Table of Contents



Foreign Currency Risk
  Commodity Price Risk
  
 Item 4. Controls and Procedures
     
 PART II. OTHER INFORMATION
 
 Item 1 . Legal Proceedings
  Tax-Exempt Bonds
  Indiana Environmental Matter
   46




---



##### Table of Contents



Item 1A. Risk Factors
  
 Item 2 . Unregistered Sales of Equity Securities and Use of Proceeds
 (1)
 MaximumTotal Number
    
    Number ofof Shares
    
    Shares ThatPurchased as
    
    May Yet bePart of Publicly
    
    PurchasedTotal Number
    
    
    
    
    
    Announced
    
    Under theof Shares
    
    Average
    
    Plans or
    
    PlansPeriod
    
    Purchased
    
    Price Paid per Share
    
    Programs
    
    or ProgramsMonth 1 (1/1/2006 1/31/2006)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    3,500,000Month 2 (2/1/2006  2/28/200)
    
    
    649,000
    
    
    
    43.64
    
    
    
    649,000
    
    
    
    2,851,000Month 3 (3/1/2006  3/31/2006)
    
    
    851,000
    
    
    
    43.68
    
    
    
    851,000
    
    
    
    2,000,000Total
    
    
    1,500,000
    
    
    
    43.66
    
    
    
    1,500,000
 
 (1)
    
    On August 5, 2005, we announced that our Board of Directors authorized the
repurchase of up to 6,000,000 shares of our common stock. The plan has no expiration date.
Through first quarter 2006, we had repurchased 4,000,000 shares at an average price per share of
$41.37 under this authorization. We have no other repurchase plans or programs. We have no plans
or programs that expired during the period covered by the table above and no plans or programs that
we intend to terminate prior to expiration or under which we no longer intend to make further
purchases. 
 Item 3 . Defaults Upon Senior Securities
  
 Item 4 . Submission of Matters to a Vote of Security Holders
  
 Item 5 . Other Information
  
 Item 6 . Exhibits
 Exhibits
     47




---



##### Table of Contents



SIGNATURES
  TEMPLE-INLAND INC.
   (Registrant)Dated: May 9, 2006
    By

/s/
Louis R. BrillLouis R. BrillVice President and Chief Accounting Officer 48




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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
    
    
    5031.2
    
    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
    
    
    5232.1
    
    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
    
    
    5432.2
    
    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
    
    
    55
 49