##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  FORM 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 30, 2006oro

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.
 (Exact Name of Registrant as
    Specified in its Charter)
  Delaware

75-1903917(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)   1300 MoPac Expressway South
 Austin, Texas 78746
 (Address of principal executive
    offices, including Zip code)
  Registrants telephone number, including area code:
    (512) 434-5800
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange On Which RegisteredCommon Stock, $1.00 Par Value
    per Share,
    non-cumulative
    Preferred Share Purchase Rights

New York Stock Exchange
    New York Stock Exchange        Indicate by check mark if the registrant is a well-known
    seasoned issuer, as defined in Rule 405 of the Securities
    Act.  Yes þ     No o
  Indicate by check mark if the registrant is not required to
    file reports pursuant to Section 13 or Section 15(d)
    of the Securities Exchange Act of
    1934.  Yes o     No þ
  Indicate by check mark whether the registrant: (1) has
    filed all reports required to be filed by Section 13 or
    15(d) of the Securities Exchange Act of 1934 during the
    preceding 12 months (or for such shorter period that the
    registrant was required to file such reports), and (2) has
    been subject to such filing requirements for the past
    90 days.  Yes þ
         No o
  Indicate by check mark if disclosure of delinquent filers
    pursuant to Item 405 of
    Regulation S-K
    is not contained herein, and will not be contained, to the best
    of registrants knowledge, in definitive proxy or
    information statements incorporated by reference in
    Part III of this
    Form 10-K
    or any amendment to this
    Form 10-K.þ
  Indicate by check mark whether the registrant is a large
    accelerated filer, an accelerated filer, or a non-accelerated
    filer. See definition of accelerated filer and large
    accelerated filer in
    Rule 12b-2
    of the Exchange Act. (Check one):
 Large accelerated
    filer þ o o
  Indicate by check mark whether the registrant is a shell
    company (as defined in
    Rule 12b-2
    of the
    Act).  Yes o No þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 



TABLE OF
    CONTENTS
  
  PagePART I.Item 1.

Business


1Item 1A.

Risk Factors


10Item 1B.

Unresolved Staff
    Comments


13Item 2.

Properties


13Item 3.

Legal Proceedings


17Item 4.

Submission of
    Matters to a Vote of Security Holders


18PART II.Item 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


18Item 6.

Selected Financial
    Data


20Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


22Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


54Item 8.

Financial
    Statements and Supplementary Data


55Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


117Item 9A.

Controls and
    Procedures


117Item 9B.

Other Information


117PART III.Item 10.

Directors,
    Executive Officers and Corporate Governance


118Item 11.

Executive
    Compensation


118Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


119Item 13.

Certain
    Relationships and Related Transactions, and Director Independence


119Item 14.

Principal
    Accounting Fees and Services


119PART IV.Item 15.

Exhibits, Financial
    Statement Schedules


119SIGNATURES


123First Amendment to Supplemental Executive Retirement PlanSubsidiariesConsent of Ernst & Young LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906   i




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##### Table of Contents



PART I  Item 1.
    Business  Introduction
    
    Corrugated packaging,
    Forest products,
    Real estate, and
    Financial services.  Form 10-K.
  
  (512) 434-5800.
  http://www.templeinland.com
  
    our annual reports on
    Form 10-K,
    quarterly reports on
    Form 10-Q,
    current reports on
    Form 8-K,
    including amendments to these reports, and other documents as
    soon as reasonably practicable after we file them with the
    Securities and Exchange Commission (or SEC);
    beneficial ownership reports filed by officers, directors, and
    principal security holders under Section 16(a) of the
    Securities Exchange Act of 1934, as amended (or the Exchange
    Act); and 1




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##### Table of Contents




    corporate governance information that includes our  
    corporate governance principles,
    audit committee charter,
    management development and executive compensation committee
    charter,
    nominating and governance committee charter,
    standards of business conduct and ethics,
    code of ethics for senior financial officers, and
    information on how to communicate directly with our board of
    directors.  1-800-SEC-0330. (http://www.sec.gov)
  Financial
    Information
  Form 10-K. Form 10-K.
  Narrative
    Description of the Business
  Corrugated Packaging.
  
    five linerboard mills,
    one corrugating medium mill, and
    64 converting facilities.           2




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##### Table of Contents



Forest Products.
  
    lumber,
    gypsum wallboard,
    particleboard,
    fiberboard, and
    medium density fiberboard (or MDF).        Real Estate.
  
    single-family residential,
    commercial,
    mixed-use, and
    multi-family.     3




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##### Table of Contents



Financial Services.
  
    consumer and commercial banking and
    insurance.          Other
    Information.
    Raw
    Materials
    PercentageSuppliedVirgin Wood Fiber Requirements

InternallySawtimber


59
%Pine Pulpwood


42
%      4




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##### Table of Contents



and/or
      Energy
      Employees
   5




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##### Table of Contents



Location

Bargaining Unit(s)

Employees Covered

Expiration DatesLinerboard Mill, Orange, Texas

United Steel, Paper and Forestry,
    Rubber, Manufacturing, Energy, Allied Industrial and Service
    Workers International Union (or USW), Local 1398, and USW, Local
    391

Approximately 222 hourly
    production employees and 88 hourly maintenance employees

July 31, 2008Linerboard Mill, Bogalusa,
    Louisiana

USW, Local 189, and International
    Brotherhood of Electrical Workers (or IBEW), Local 1077

Approximately 355 hourly
    production employees and 27 electrical maintenance employees

July 31, 2009Linerboard Mill, Rome, Georgia

USW, Local 804, IBEW, Local 613,
    United Association of Journeymen & Apprentices of the
    Plumbing & Pipefitting Industry Local 72, and
    International Association of Machinists & Aerospace
    Workers, Local 414

Approximately 251 hourly
    production employees, 30 electrical maintenance employees, 27
    pipefitter maintenance employees, and 63 mechanical maintenance
    employees

August 31, 2007Evansville, Indiana and
    Middletown, Ohio, Box Plants (or Northern Multiple)

USW, Local 1046 and USW, Local
    114, respectively

Approximately 115 and
    106 hourly production and maintenance employees,
    respectively

April 30, 2008Rome, Georgia and Orlando,
    Florida, Box Plants (or Southern Multiple)

USW Local 838 and USW Local 834,
    respectively

Approximately 123 and
    97 hourly production and maintenance employees, respectively

December 1, 2008       Environmental
    Protection
     6




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7




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Competition
           8




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##### Table of Contents



Executive
    Officers of the Registrant
    Name

Age

OfficeKenneth M. Jastrow, II


59


Chairman of the Board and Chief
    Executive OfficerDoyle R. Simons


43


Executive Vice PresidentJ. Patrick Maley III


45


Executive Vice PresidentJames M. DeCosmo


48


Group Vice PresidentBart J. Doney


57


Group Vice PresidentKenneth R. Dubuque


58


Group Vice PresidentJack C. Sweeny


60


Group Vice PresidentDennis J. Vesci


59


Group Vice PresidentRandall D. Levy


55


Chief Financial OfficerTroy L. Hester


50


Principal Accounting Officer and
    Corporate ControllerScott Smith


52


Chief Information OfficerC. Morris Davis


64


General CounselJ. Bradley Johnston


51


Chief Administrative OfficerLeslie K. ONeal


51


Vice President, Assistant General
    Counsel and SecretaryDavid W. Turpin


56


Treasurer                  9




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##### Table of Contents



Item 1A.
    Risk
    Factors  The
    business segments in which we operate are highly
    competitive.
         10




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The
    profitability of our corrugated packaging and forest products
    segments is affected by changes in raw material and other
    costs.
      The
    corrugated packaging and forest products industries are cyclical
    in nature and experience periods of overcapacity.
  and/or
  Our
    manufacturing activities are subject to environmental
    regulations and liabilities that could have a negative effect on
    our operating results.
  Form 10-K,
 11




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Downward
    changes in demand for housing in the market regions where we
    operate could decrease our profitability, especially in our
    forest products and real estate segments.
    Our
    financial services segment operates in a highly regulated
    environment and may be adversely affected by changes in federal
    and local laws and regulations.
    Changes
    in interest rates affect our financial services segments
    profitability.
      If our
    allowance for loan losses is not sufficient to cover actual loan
    losses, the profitability of our financial services segment
    could decrease.
    We
    face risks related to the composition of our financial services
    segments loan portfolio.
   12




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##### Table of Contents



We may
    not succeed in our plan to acquire mortgage loans from some of
    our correspondent mortgage warehouse borrowers.
      Item 1B.
    Unresolved
    Staff Comments     Item 2.
    Properties    Containerboard
    Mills
  Number of


Annual


2006Location

Product

Machines


Capacity


Production(In tons)Ontario, California

Linerboard and corrugating medium


1



335,730


317,665Rome, Georgia

Linerboard


2



823,400


871,095Orange, Texas

Linerboard and corrugating medium


2



730,320


711,322Bogalusa, Louisiana

Linerboard


2



877,100


872,700Maysville, Kentucky

Linerboard and corrugating medium


1



427,785


446,140New Johnsonville, Tennessee

Corrugating medium


1



335,730


343,5723,530,065


3,562,494Newport, Indiana*

Corrugating medium and
    gypsum facing paper


1



305,100


285,854     *
    
    The table shows the full capacity of this facility that is owned
    by a joint venture in which we own a 50 percent interest.
    In 2006, we purchased 85,000 tons of corrugating medium and
    68,000 tons of gypsum facing paper from the venture. 13




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##### Table of Contents



Converting
    Facilities*
  CorrugatorLocation

SizePhoenix, Arizona

982Fort Smith, Arkansas

872Fort Smith,
    Arkansas(1)***

NoneBell, California

972Buena Park,
    California(1)

852El Centro,
    California(1)

872Gilroy,
    California(1)

872Gilroy,
    California(1)***

982Ontario, California

872Santa Fe Springs, California

972Santa Fe Springs,
    California(1)**

872
    and 782Santa Fe Springs,
    California***

NoneTracy, California**

872
    and 872Union City,
    California(1)***

NoneWheat Ridge, Colorado

872Orlando, Florida

982Tampa,
    Florida(1)

782Rome, Georgia

982Carol Stream, Illinois

872Chicago, Illinois

872Chicago, Illinois***

NoneElgin, Illinois

782Elgin, Illinois***

NoneCrawfordsville, Indiana

982Evansville, Indiana

982Indianapolis, Indiana

872Indianapolis, Indiana***

NoneSt. Anthony, Indiana***

NoneTipton, Indiana***

1102Garden City, Kansas

982Kansas City, Kansas

872Bogalusa, Louisiana

972Minden, Louisiana

982Minneapolis, Minnesota

872St. Louis, Missouri

872St. Louis, Missouri***

982Milltown, New
    Jersey(1)***

NoneSpotswood, New Jersey

982Binghamton, New York

872Buffalo, New York***

NoneScotia, New York***

NoneUtica, New York***

NoneWarren County, North Carolina

982Madison, Ohio***

NoneMarion, Ohio

872Middletown, Ohio

982 14




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##### Table of Contents



CorrugatorLocation

SizeStreetsboro, Ohio

982Biglerville, Pennsylvania

982Hazleton, Pennsylvania

982Littlestown, Pennsylvania***

NoneScranton, Pennsylvania

682Vega Alta, Puerto Rico

872Lexington, South Carolina

982Ashland City,
    Tennessee(1)***

NoneElizabethton,
    Tennessee(1)***

NoneDallas, Texas

982Edinburg, Texas

872San Antonio, Texas

982San Antonio, Texas***

982Petersburg, Virginia

872San Jose Iturbide, Mexico

982Monterrey, Mexico

872Los Mochis, Sinaloa, Mexico

802Guadalajara,
    Mexico(1)***

None     *
    
    The annual capacity of the converting facilities is a function
    of the product mix, customer requirements and the type of
    converting equipment installed and operating at each plant, each
    of which varies from time to time.**
    
    These plants each contain more than one corrugator.***
    
    Sheet or sheet feeder plants.  (1)
    
    Leased facilities.  2
  Forest
    Products
  Rated AnnualDescription

Location

Capacity(In millions ofboard feet)Lumber

Diboll, Texas


199
*Lumber

Pineland, Texas


310
**Lumber

Buna, Texas


198Lumber

Rome, Georgia


165Lumber

DeQuincy, Louisiana


198Total lumber




1,070     *
    
    Includes separate finger jointing capacity of 20 million
    board feet.**
    
    Includes separate stud mill capacity of 110 million board
    feet.  15




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##### Table of Contents



Rated AnnualDescription

Location

Capacity(In millions ofsquare feet)Fiberboard

Diboll, Texas


460Particleboard

Monroeville, Alabama


160Particleboard

Thomson, Georgia


160Particleboard

Diboll, Texas


160Particleboard

Hope, Arkansas


200Particleboard(1)(2)

Mt. Jewett, Pennsylvania


200Total particleboard




880Gypsum Wallboard

West Memphis, Arkansas


440Gypsum Wallboard

Fletcher, Oklahoma


460Gypsum Wallboard

McQueeney, Texas


400Gypsum Wallboard

Cumberland City, Tennessee


800Total gypsum wallboard




2,100MDF*

El Dorado, Arkansas


160MDF(1)

Mt. Jewett, Pennsylvania


140Total MDF




300     *
    
    The table shows the full capacity of this facility that is owned
    by a joint venture in which we own a 50 percent interest.  (1)
    
    Leased facilities.(2)
    
    Due to market conditions, we indefinitely curtailed production
    at this facility beginning in 2003.  Timber
    and Timberland*
    (In acres)
  Pine Plantations


1,150,607Natural Pine


78,869Hardwood


107,571Special Use/Non-Forested


450,622Total


1,787,669     *
    
    Includes approximately 220,000 acres of leased land.    Real
    Estate
    Other
   16




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##### Table of Contents



Item 3.
    Legal
    Proceedings  General
    Antitrust
    Litigation
      Bogalusa
    Litigation
      Asbestos
    Indiana
    Environmental Matter
   17




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##### Table of Contents



Other
     Item 4.
    Submission
    of Matters to a Vote of Security Holders    PART II   Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    Information
    2006


2005*Price Range





Price RangeHigh


Low


Dividends


High


Low


DividendsFirst Quarter

$
47.92


$
40.83


$
0.25


$
42.36


$
31.58


$
0.225Second Quarter

$
47.68


$
38.12


$
0.25


$
37.60


$
32.34


$
0.225Third Quarter

$
45.48


$
39.78


$
0.25


$
41.06


$
36.30


$
0.225Fourth Quarter

$
46.71


$
37.84


$
0.25


$
45.28


$
35.70


$
0.225For the Year

$
47.92


$
37.84


$
1.00


$
45.28


$
31.58


$
0.90     *
    
    Adjusted to reflect our
    two-for-one
    stock split effected on April 1, 2005.  Shareholders
    Dividend
    Policy
   18




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##### Table of Contents



Issuer
    Purchases of Equity
    Securities(1)
  MaximumTotal Number


Number ofof Shares


Shares ThatPurchased as


May Yet beTotal


Average


Part of Publicly


PurchasedNumber of


Price


Announced


Under theShares


Paid per


Plans or


PlansPeriod

Purchased


Share


Programs


or ProgramsMonth 1 (10/1/2006 
    10/31/2006)


250,000


$
39.57



250,000



3,600,000Month 2 (11/1/2006 
    11/30/2006)


775,000


$
38.96



775,000



2,825,000Month 3 (12/1/2006 
    12/31/2006)


1,175,000


$
45.43



1,175,000



1,650,000Total


2,200,000


$
42.48



2,200,000     (1)
    
    On August 4, 2006, 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. On
    February 2, 2007, we announced that our Board of Directors
    authorized the purchase of up to an additional
    5,000,000 shares of our common stock, increasing the
    maximum number of shares yet to be purchased under our
    repurchase plans to 6,650,000 shares. 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.  Performance
    Graph
    
  Assumes $100
    invested on the last trading day in fiscal year 2001
    *Total return assumes reinvestment of dividends
  Other
  See Item 12. Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters
 19




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##### Table of Contents



Item 6.
    Selected
    Financial Data  For the Year2006(a)


2005


2004


2003(b)


2002(a)(Dollars in millions, except per share)Revenues:Corrugated packaging

$
2,977


$
2,825


$
2,736


$
2,700


$
2,587Forest products


1,237



1,040



972



803



787Real estate


175



113



152



93



Manufacturing and real estate


4,389



3,978



3,860



3,596



3,374Financial services


1,169



983



988



1,099



1,144Total revenues

$
5,558


$
4,961


$
4,848


$
4,695


$
4,518Segment operating income:Corrugated packaging

$
255


$
120


$
96


$
18


$
85Forest products


312



219



196



55



49Real estate


62



44



36



22



Financial services


222



201



195



181



171Segment operating income


851



584



523



276



305Expenses not allocated to segments:General and administrative


(107
)


(91
)


(79
)


(73
)


(32
)Share-based compensation


(46
)


(26
)


(14
)


(7
)


(2
)Other operating income
    (expense)(c)


15



(90
)


(76
)


(138
)


(13
)Other non-operating income
    (expense)(c)


92











(8
)


(11
)Parent company interest


(128
)


(115
)


(130
)


(140
)


(133
)Income (loss) before taxes


677



262



224



(90
)


114Income tax (expense)
    benefit(d)


(208
)


(86
)


(67
)


192



(45
)Income from continuing operations


469



176



157



102



69Discontinued
    operations(e)


(1
)






3







(1
)Effect of accounting
    change(f)














(1
)


(11
)Net income

$
468


$
176


$
160


$
101


$
57Diluted earnings per share:Income from continuing operations

$
4.23


$
1.54


$
1.39


$
0.94


$
0.66Discontinued operations


(0.01
)






0.03







(0.01
)Effect of accounting change














(0.01
)


(0.11
)Net income

$
4.22


$
1.54


$
1.42


$
0.93


$
0.54Dividends per common
    share(g)

$
1.00


$
0.90


$
1.22


$
0.68


$
0.64Average diluted shares outstanding


110.8



114.5



112.4



108.4



104.8Common shares outstanding at
    year-end


104.9



111.0



112.2



109.2



107.6Depreciation and amortization:Parent company

$
229


$
223


$
225


$
241


$
224Financial services


22



26



29



29



36Capital expenditures:Parent company

$
208


$
222


$
221


$
136


$
112Financial services


43



41



41



28



16At Year-EndAssets:Parent company

$
5,217


$
5,001


$
5,006


$
5,014


$
5,188Financial services


16,251



17,691



16,122



17,304



18,016Debt:Parent company (long-term excluding
    current maturities)

$
1,628


$
1,599


$
1,580


$
1,713


$
1,883Financial services (original
    maturities greater than one year at the time of borrowing)


1,405



2,025



2,767



3,275



3,322Liability for pension and
    postretirement benefits

$
366


$
407


$
432


$
396


$
289Subordinated notes payable to trust

$
142


$



$



$



$
Preferred stock issued by
    subsidiaries

$
305


$
305


$
305


$
305


$
305Shareholders equity

$
2,189


$
2,080


$
2,107


$
1,988


$
1,964Ratio of total debt to total
    capitalization  parent company


43
%


43
%


43
%


46
%


49
%   Throughout Selected Financial Data
    and Managements Discussion and Analysis of Financial
    Condition and Results of Operations, we refer to parent company
    financial information, which includes Temple-Inland and our
    manufacturing and real estate subsidiaries with our financial
    services subsidiaries reported on the equity method. It was not
    practical to recast 2002 in connection with the real estate
    segmentation. 20




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##### Table of Contents



(a)
    
    In January 2006, we purchased our
    partners 50 percent interest in Standard Gypsum LP
    for $150 million plus assumed debt of $28 million.
    Unaudited pro forma information assuming this acquisition and
    related financing had occurred at the beginning of 2005 follows:
    revenues $5,158 million; income from continuing operations
    $190 million; and income from continuing operations, per
    diluted share $1.66.In 2002, we acquired Gaylord
    Container Corporation (March), a box plant in Puerto Rico
    (March), certain assets of Mack Packaging Group, Inc. (May), and
    Fibre Innovations LLC (November). Also in May 2002, we sold
    8.2 million shares of common stock, $345 million of
    Upper
    DECSsm,
    and $500 million of Senior Notes due 2012. Unaudited
    pro forma information for 2002 assuming these acquisitions
    and related financing transactions had occurred at the beginning
    of 2002 follows: revenues $4,661 million; income from
    continuing operations $54 million; and income from
    continuing operations, per diluted share $0.52.These pro forma results are not
    necessarily an indication of what actually would have occurred
    if the acquisitions and financing transactions had been
    completed at the beginning of the periods presented and are not
    intended to be indicative of future results.(b)
    
    The 2003 fiscal year, which ended
    on January 3, 2004, had 53 weeks. The extra week did
    not have a significant effect on earnings or financial position.
    As a result of the consolidation of our administrative functions
    and adoption of a shared services concept, beginning 2004, we
    changed the way we allocate costs to our business segments. The
    effect of this change was to increase segment operating income
    and to increase unallocated expenses by a like amount. The 2003
    amounts have been reclassified to reflect this change but it was
    not practical to reclassify 2002.(c)
    
    Other operating and non-operating
    income (expense) consists of:  For the Year2006


2005


2004


2003


2002(In millions)Other operating income (expense):Closure and sale of converting and
    production facilities and sale of non-strategic assets

$
(12
)

$
(53
)

$
(27
)

$
(83
)

$
Hurricane related costs and, in
    2006, related insurance proceeds


2



(16
)










Litigation


(6
)


(13
)










Softwood Lumber Agreement


42















Consolidation of administrative
    functions










(11
)


(48
)


Financial services repositioning
    activities


(11
)


(5
)


(34
)


(5
)


(7
)Other






(3
)


(4
)


(2
)


(6
)$
15


$
(90
)

$
(76
)

$
(138
)

$
(13
)Other non-operating income
    (expense):Charges related to early repayment
    of debt

$
(1
)

$
(6
)

$
(2
)

$
(8
)

$
(11
)Tax litigation and other settlements


89



2











Interest and other income


4



4



2







$
92


$



$



$
(8
)

$
(11
)   (d)
    
    Income taxes include one-time tax
    benefits of: $36 million in 2006, of which $6 million
    is related to the new State of Texas tax legislation and
    $30 million is related to the non-taxable tax litigation
    settlement; $16 million in 2005 related to the sale of our
    Pembroke, Canada MDF facility; and $20 million in 2004 and
    $165 million in 2003 related to the resolution and
    settlement of prior years tax examinations.(e)
    
    Discontinued operations include the
    non-strategic operations obtained in the Gaylord acquisition
    including the retail bag business, which was sold in May 2002;
    the multi-wall bag business and kraft paper mill, which were
    sold in January 2003; and the chemical business. The resolution
    and settlement of environmental and other indemnifications we
    provided in the 1999 sale of the bleached paperboard operation
    are also included in 2004.(f)
    
    Effect of accounting change
    includes the effects of adopting (i) in 2003, Statement of
    Financial Accounting Standards (SFAS) No. 143,
    Accounting for Asset Retirement Obligations; and
    (ii) in 2002, SFAS No. 142, Goodwill and Other
    Intangible Assets.  In 2006, (i) we adopted the
    modified prospective application of SFAS No. 123
    (revised December 2004), Share-Based Payment, which
    decreased income before taxes by $7 million; (ii) we
    began applying the guidance in Emerging Issues Task Force (EITF)
    Issue
    No. 04-13,
    Accounting for Purchases and Sales of Inventory with the Same
    Counterparty, 21




---



##### Table of Contents



which decreased income before taxes
    by $7 million; and (iii) we adopted
    SFAS No. 158, Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans,
    which increased our liability for pension and postretirement
    benefits by $76 million, decreased prepaid expenses and
    other assets by $16 million, decreased deferred income
    taxes by $35 million, and decreased shareholders
    equity by $57 million.In 2003, we voluntarily adopted the
    prospective transition method of SFAS No. 148,
    Accounting for Stock-Based Compensation 
    Transition and Disclosure, an amendment of FASB Statement
    No. 123, which decreased income before taxes by
    $2 million.  (g)
    
    Includes a $0.50 per share
    special dividend in 2004.  Item 7.
    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;
    demand for new housing;
    accuracy of accounting assumptions related to pension and
    postretirement costs, impaired assets, and allowance for credit
    losses;
    competitive actions by other companies;
    changes in laws or regulations and actions or restrictions of
    regulatory agencies;
    our ability to execute certain strategic and business
    improvement initiatives; and
    other factors, many of which are beyond our control.    Non-GAAP Financial
    Measure
     22




---



##### Table of Contents



Accounting
    Policies
  Critical
    Accounting Estimates
  Note 1 to the Consolidated Financial
    Statements Note A to the Parent Company and
    Financial Services Summarized Financial
    Statements.
  
    Measuring assets for impairment requires estimating intentions
    as to holding periods, future operating cash flows and residual
    values of the assets under review. Changes in our intentions,
    market conditions, or operating performance could require us to
    revise the impairment charges we previously provided.
    The expected long-term rate of return on pension plan assets is
    an important assumption in determining pension expense. In
    selecting that rate, currently 8.0 percent, consideration
    is given to both historical returns and our estimate of returns
    over the next quarter century. The actual rate of return on plan
    assets for the last ten years was 9.8 percent. Another
    important consideration is the discount rate used to determine
    the present value of our benefit obligations, currently
    6.0 percent. Differences between actual and expected rates
    of return and changes in the discount rate will affect future
    pension expense and funded status. For example, a 25 basis point
    change in the estimated expected rate of return would affect
    annual pension expense by $3 million, and a 25 basis
    point change in the discount rate would affect the funded status
    by $45 million and annual pension expense by
    $5 million.
    Allowances for loan losses are based on historical experiences
    and evaluations of future cash flows and collateral values and
    are subject to regulatory scrutiny. Changes in general economic
    conditions or loan specific circumstances will inevitably change
    those evaluations.    New
    Accounting Pronouncements and Change in Method of Accounting for
    Defined Benefit and Postretirement Plans
  Share-Based Payment Accounting for Defined
    Benefit and Postretirement Plans. Note 1 to the
    Consolidated Financial Statements
 23




---



##### Table of Contents



Results
    of Operations for the Years 2006, 2005, and 2004
  Summary
      
    focusing on corrugated packaging from an integrated platform,
    which eliminates mill downtime and lowers costs through improved
    asset utilization,
    maximizing the value of our timberland through accelerated fiber
    growth that is aligned with well-located converting operations,
    creating value from real estate, including high-value
    land, and
    realizing earnings and cash flow from financial services, which
    is a low-cost, low-risk provider of financial products.    
    We classified our real estate operations as a fourth business
    segment. Previously these operations were included within our
    forest products and financial services segments. This action
    increased the visibility and transparency of our real estate
    operations.
    We purchased our joint venture partners 50 percent
    interest in Standard Gypsum LP, which expands our low-cost
    gypsum wallboard operations located close to fast-growing
    markets.
    We sold our Performance Sheets corrugated packaging facility to
    reduce costs and improve asset utilization.
    We sold our financial services asset-based lending operations
    and further repositioned our mortgage origination operations to
    lower cost and reduce risk.    For the Year2006


2005


2004(Dollars in millions, exceptper share)Consolidated revenues

$
5,558


$
4,961


$
4,848Income from continuing operations


469



176



157Income from continuing operations,
    per diluted share


4.23



1.54



1.39ROI


15.9
%


8.8
%


8.3
%     
    We continued to see benefits in our manufacturing operations
    from our initiatives to lower costs, improve asset utilization,
    and increase operating efficiencies.
    We experienced improved markets for our corrugated packaging and
    forest products, principally gypsum wallboard and particleboard.
    We acquired our partners 50 percent interest in
    Standard Gypsum LP in January.
    Charges related to facility closures, and environmental
    remediation at a paper mill site totaled $12 million.
    Our newly established real estate segment recognized
    $14 million in gains on two sales of commercial real estate.
    Our financial services operations continued to benefit from
    improved credit conditions.
    Actions taken to lower cost in our financial services
    operations, associated with the elimination of our wholesale
    mortgage and asset-based lending operations, resulted in charges
    of $11 million.
    New accounting rules increased share-based compensation expense
    $7 million.
    We realized one-time cash gains of $89 million related to
    the settlement of tax litigation and $42 million related to
    the Softwood Lumber Agreement entered into between the U.S. and
    Canada. 24




---



##### Table of Contents




    We continued to see benefits in our manufacturing operations
    from our initiatives to lower costs, improve asset utilization,
    and increase operating efficiencies and benefits in our
    financial services operations from repositioning our mortgage
    origination and servicing activities.
    Charges related to facility closures were $58 million.
    In connection with the sale of our Canadian MDF facility, we
    recognized a one-time tax benefit of $16 million.
    Hurricanes Katrina and Rita adversely affected segment operating
    income by about $11 million due to production downtime and
    re-start expenses.
    Hurricane related losses and other unusual expenses related to
    litigation and the early repayment of debt totaled
    $32 million.    
    We began to see benefits in our manufacturing operations from
    our initiatives to lower costs and improve asset utilization and
    operating efficiencies.
    Market demand strengthened, resulting in higher prices for most
    of our forest products, and prices for corrugated packaging
    began to improve in the second quarter of the year.
    Charges related to facility closures were $76 million.
    Our financial services operations benefited from improved asset
    quality, which resulted in a recovery of previously recorded
    provisions for credit losses. This improvement was partially
    offset by declining mortgage origination activities.
    We recognized a one-time tax benefit of $20 million
    resulting from the settlement of prior years tax
    examinations.  Business
    Segments
    
    Corrugated packaging,
    Forest products,
    Real estate, and
    Financial services.    Corrugated
    Packaging
      For the Year2006


2005


2004(Dollars in millions)Revenues

$
2,977


$
2,825


$
2,736Costs and expenses


(2,722
)


(2,705
)


(2,640
)Segment operating income

$
255


$
120


$
96Segment ROI


12.4
%


5.6
%


4.7
%  25




---



##### Table of Contents



Year over YearIncrease (Decrease)2006


2005


2004Corrugated packagingAverage prices


6
%


2
%


Shipments, average week


(2
)%


2
%


6
%Industry shipments, average
    week(a)


1
%


1
%


3
%LinerboardAverage prices


22
%


(6
)%


11
%Shipments, in thousand tons


46



(56
)


(254
)     (a)
    
    Source: Fibre Box Association          Year over YearIncrease (Decrease)2006


2005


2004(In millions)Wood fiber

$
16


$
22


$
(7
)Recycled fiber


(9
)


(6
)


27Energy, principally natural gas


(8
)


30



7Freight


32



40



32Depreciation


(7
)


1



(8
)Health care


(3
)


(16
)


Pension and postretirement


(2
)


(3
)


5    26




---



##### Table of Contents



For the Year2006


2005


2004Number of converting facilities
    (at year end)


64



65



69Mill capacity, in million tons


3.5



3.5



3.4Mill production, in million tons


3.6



3.4



3.3Percent mill production used
    internally


91
%


92
%


90
%Percent of total fiber
    requirements sourced from recycled fiber


34
%


36
%


36
%Corrugating medium purchases from
    our Premier Boxboard Limited LLC joint venture, in thousand tons


85



68



100   Forest
    Products
        For the Year2006


2005


2004Actual


Actual


Pro
    forma(a)


Actual(Dollars in millions)Revenues

$
1,237


$
1,040


$
1,237


$
972Costs and expenses


(925
)


(821
)


(986
)


(776
)Segment operating income

$
312


$
219


$
251


$
196Segment ROI


31.6
%


25.8
%


24.0
%


21.9
%     (a)
    
    Pro forma to reflect the results of operations from Standard
    Gypsum LP as if the acquisition occurred at the beginning of
    2005.    Year over YearIncrease (Decrease)2006


2005


2004Lumber:Average prices


(16
)%


5
%


22
%Shipments


7
%


1
%


1
%Gypsum wallboard:Average prices


26
%


16
%


24
%Shipments


132
%


12
%


19
%Particleboard:Average prices


15
%


(1
)%


28
%Shipments


(5
)%


8
%


(1
)%MDF:Average prices


5
%


(1
)%


7
%Shipments


(30
)%


(20
)%


11
%  27




---



##### Table of Contents



For the Year2006


2005


2004(In millions)Our share of gypsum wallboard (in
    2005 and 2004) and MDF joint venture operating income

$
3


$
28


$
21Mineral and hunting lease income


45



31



21Gain on sale of about
    4,500 acres of conservation timberland






8



Gain on sale of about
    7,000 acres to an affiliated real estate joint venture






6



           Year over YearIncrease (Decrease)2006


2005


2004(In millions)Wood fiber

$
(12
)

$
19


$
22Energy, principally natural gas


16



13



4Freight


26



11



9Chemicals


(1
)


14



3Depreciation


11



(5
)


(9
)Health care


(1
)


(6
)


1Pension and postretirement


(3
)


2



(1
)    28




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##### Table of Contents



For the Year2006


2005


2004Timber harvest, in million tons:Sawtimber


2.6



2.4



2.5Pulpwood


3.4



3.3



3.4Total


6.0



5.7



5.9Number of converting and
    manufacturing facilities (at year end)


17



17



18Average operating rates for all
    product lines excluding sold or closed facilities:High


106
%


102
%


95
%Low


86
%


91
%


85
%Gypsum facing paper purchases from
    our Premier Boxboard Limited LLC joint venture, in thousand tons


68



71



22Percent of gypsum facing paper
    supplied by our Premier Boxboard Limited LLC joint venture


76
%


77
%


53
%     Real
    Estate
      For the Year2006


2005


2004(Dollars in millions)Revenues

$
175


$
113


$
152Costs and expenses


(132
)


(85
)


(125
)Our share of real estate
    ventures income


19



16



9Segment operating income

$
62


$
44


$
36Segment ROI


15.1
%


11.8
%


9.5
%    29




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##### Table of Contents



For the Year2006


2005


2004(Dollars in millions)Residential real estate

$
69


$
52


$
47Lots sold


1,455



1,127



1,026Commercial real estate

$
49


$
12


$
13Acres sold


215



156



32Land held for investment or future
    development

$
27


$
23


$
21Acres sold


3,441



3,067



2,919Income producing properties,
    timber, and other

$
30


$
26


$
71Total revenues

$
175


$
113


$
152           Year-End2006Owned and consolidated
    ventures:Entitled, developed, and under
    development landNumber of projects


40Residential lots remaining


15,380Commercial acres remaining


958Land held for investment or future
    developmentNumber of projects


21Acres in entitlement process


25,850Acres undeveloped


189,450Ventures accounted for using
    the equity method:Ventures lot sales (for the
    year)Lots sold


1,828
(a)Revenue per lot sold

$
53,213Ventures entitled,
    developed, and under development landNumber of projects


23Residential lots remaining


10,816Commercial acres remaining


675Ventures land held for
    investment or future development, in acres


6,384
(b)     (a)
    
    The previously discussed elimination of the one month reporting
    lag resulted in a one-time increase in the number of lots sold
    of 122 lots.(b)
    
    Sales in 2006 totaled 211 acres. 30




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##### Table of Contents



Financial
    Services
            For the Year2006


2005


2004(Dollars in millions)Net interest income

$
412


$
396


$
406Segment operating
    income(a)


222



201



195Segment ROI


21.8
%


21.7
%


20.8
%     (a)
    
    Segment operating income excludes shared-based compensation and
    charges related to asset impairments and severance reported in
    financial services summarized financial statements.  Net
    Interest Income and Earning Assets and Deposits
      For the Year2006


2005


2004Average


Yield/


Average


Yield/


Average


Yield/Balance


Rate


Balance


Rate


Balance


Rate(Dollars in millions)Earning assets

$
15,986



6.24
%

$
15,339



5.22
%

$
15,886



4.52
%Interest-bearing liabilities


14,806



(3.95
)%


14,271



(2.83
)%


14,996



(2.08
)%Impact of noninterest-bearing funds






0.29
%






0.19
%






0.11
%Net interest margin






2.58
%






2.58
%






2.55
%    31




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##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosure
    About Market Risk
      At Year-End2006


2005(Dollars in millions)Residential housing assets:Loans held for sale

$
23


$
280Loans


6,170



7,003Securities


5,644



6,51211,837



13,795Other earning assets


3,699



3,186Total earning assets

$
15,536


$
16,981Residential housing assets as a
    percentage of earning assets


76
%


81
%Noninterest-bearing deposit
    accounts

$
845


$
803Interest-bearing deposit accounts


3,634



3,639Certificates of deposit


5,007



4,759Total deposits

$
9,486


$
9,201          32




---



##### Table of Contents



loan-to-value
      Asset
    Quality and Allowance for Credit Losses
    At Year-End2006


2005


2004(Dollars in millions)Non-performing loans

$
26


$
35


$
50Restructured operating lease assets










37Foreclosed real estate


5



2



4Non-performing assets

$
31


$
37


$
91Non-performing loans as a
    percentage of total loans


0.27
%


0.35
%


0.51
%Non-performing assets ratio


0.32
%


0.37
%


0.93
%Allowance for loan losses as a
    percentage of non-performing loans


253
%


213
%


170
%Allowance for loan losses as a
    percentage of total loans


0.68
%


0.75
%


0.88
%Net charge-offs as a percentage of
    average loans outstanding


0.10
%


0.21
%


0.07
%         
    economic market conditions affecting borrower liquidity and
    collateral values for impaired loans,
    risk characteristics for groups of loans that are not considered
    individually impaired but we believe have probable potential
    losses,
    risk characteristics for homogeneous pools of loans, and
    other risk factors that we believe are not apparent in
    historical information. 33




---



##### Table of Contents



For the Year2006


2005


2004(In millions)Balance at beginning of year

$
81


$
92


$
111Provision (credit) for credit
    losses


1



10



(12
)Net charge-offs


(10
)


(21
)


(7
)Balance at year-end

$
72


$
81


$
92Allowance for credit losses:Loan

$
65


$
74


$
85Commitment-related


7



7



7Combined allowance for credit
    losses

$
72


$
81


$
92                34




---



##### Table of Contents



At Year-End2006


2005(Dollars in millions)California

$
1,262


$
1,730Texas


239



303Florida


138



154All other states


684



925$
2,323


$
3,112Weighted average original LTV


72
%


73
%     Noninterest
    Income and Noninterest Expense
    Year over YearIncrease (Decrease)2006


2005


2004(In millions)Noninterest income:Loan origination and sale of loans

$
(20
)

$
(118
)

$
(128
)Amortization and impairment of
    servicing rights






(40
)


(19
)Noninterest expense:Compensation and benefits


(1
)


(86
)


(58
)           For the Year2006


2005


2004(In millions)Loans originated and retained

$
182


$
855


$
1,617Loans originated for sale to third
    parties


215



1,815



5,227    35




---



##### Table of Contents



Statistical and Other Data
  Expenses
    Not Allocated to Segments
      Notes 1 and 6 to the Consolidated Financial Statements
    Note G to the Parent
    Company Summarized Financial Statements Note L
    to the Financial Services Summarized Financial Statements Item 3. Legal Proceedings
        Income
    Taxes
   36




---



##### Table of Contents



Average
    Shares Outstanding
  SM
  Capital
    Resources and Liquidity for the Year 2006
    Sources
    and Uses of Cash
   37




---



##### Table of Contents



Parent
    Company Sources and Uses of Cash
  For the Year2006


2005


2004(In millions)We received cash from:Operations

$
462


$
407


$
438Dividends from financial
    services(a)


135



25



100Tax litigation settlement, net


89







Softwood Lumber Agreement payments


42







Real estate development
    expenditures, net of non-cash cost of sales


(58
)


(12
)


(17
)Working capital changes


14



(12
)


(111
)From operations


684



408



410Sale of assets and other


71



41



54Exercise of options and, in 2006,
    related tax benefits, and in 2005 the settlement of equity
    purchase contracts


57



393



62Borrowings, net






19



Total sources


812



861



526We used cash to:Reduce borrowings, net


(20
)






(194
)Return to shareholders throughDividends


(108
)


(102
)


(136
)Repurchase of common stock


(318
)


(527
)


Reinvest in the business throughCapital expenditures


(208
)


(222
)


(221
)Acquisition, joint ventures, and
    other


(133
)


(19
)


(13
)Total uses


(787
)


(870
)


(564
)Change in cash and cash equivalents

$
25


$
(9
)

$
(38
)     (a)
    
    Dividends we receive from financial services are eliminated in
    the consolidated statements of cash flows.      sm
     38




---



##### Table of Contents



Financial
    Services Sources and Uses of Cash
  For the Year2006


2005


2004(In millions)We received cash from:Operations

$
175


$
187


$
151Changes in loans held for sale and
    other


242



88



28From operations


417



275



179Net repayments on loans and
    securities


736







495Sale of asset-based operations


302







Redemption of Federal Home
    Loan Bank stock


52







Increase in deposits and borrowings






1,626



Collection of mortgage servicing
    rights sale receivables






46



14Total sources


1,507



1,947



688We used cash to:Pay dividends to the parent
    company(a)


(135
)


(25
)


(100
)Fund decreases in deposits and
    borrowings


(1,389
)






(704
)Fund loans and securities, net






(1,756
)


Reinvest in the business through
    capital expenditures, acquisitions, and other


(42
)


(85
)


127Total uses


(1,566
)


(1,866
)


(677
)Change in cash and cash equivalents

$
(59
)

$
81


$
11     (a)
    
    Dividends we pay to the parent company are eliminated in the
    consolidated statements of cash flows.     39




---



##### Table of Contents



Liquidity
    and Contractual Obligations
    Payments Due or Expiring by YearTotal


2007


2008-9


2010-11


Thereafter(In millions)Parent CompanyLong-term debt (including current
    maturities)(a)

$
1,647


$
74


$
531


$
23


$
1,019Principal portion of capital lease
    obligations(a)


188















188Less, related municipal bonds we
    own(a)


(188
)














(188
)Contractual interest payments on
    fixed rate long-term debt and capital lease obligations, net of
    interest on related municipal bonds we own


615



102



177



148



188Operating leases


262



38



61



43



120Purchase obligations


171



48



57



55



11Other long-term
    liabilities(a)


25



1



19







5Total parent company

$
2,720


$
263


$
845


$
269


$
1,343Financial ServicesTransaction and savings deposit
    accounts(a)

$
4,479


$
4,479


$



$



$
Certificates of
    deposit(a)


5,007



4,424



488



94



1Federal Home Loan Bank
    borrowings, repurchase agreements, and other
    borrowings(a)


5,177



4,727



349







101Subordinated notes payable to
    trust(a)


142















142Preferred stock issued by
    subsidiaries(a)


305



305











Contractual interest payments


528



141



86



51



250Operating leases


49



9



16



13



11Total financial services

$
15,687


$
14,085


$
939


$
158


$
505Total consolidated

$
18,407


$
14,348


$
1,784


$
427


$
1,848     (a)
    
    Denotes items included in our balance sheet. 40




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##### Table of Contents



Parent
    Company Liquidity and Contractual Obligations
    AccountsCommitted


ReceivableCredit


SecuritizationAgreements


Facility


Total(In millions)Committed

$
850


$
235


$
1,085Less: borrowings and commitments


(18
)


(164
)


(182
)Unused borrowing capacity at
    year-end 2006

$
832


$
71


$
903                    41




---



##### Table of Contents



Pension, Postretirement Medical
    and Health Care Matters
      Financial
    Services Liquidity and Contractual Obligations
          30-year Note I to the Financial Services Summarized Financial
    Statements
  Off-Balance
    Sheet Arrangements
  Parent
    Company
    Expiring by YearTotal


2007


2008-9


2010-11


Thereafter(In millions)Joint venture guarantees

$
73


$
15


$
8


$
50


$
0Performance bonds and recourse
    obligations


84



72



6



2



4$
157


$
87


$
14


$
52


$
4    42




---



##### Table of Contents



Financial
    Services
    Expiring by YearTotal


2007


2008-9


2010-11


Thereafter(In millions)Single-family mortgage loans

$
91


$
91


$



$



$
Unused lines of credit


2,109



224



841



954



90Unfunded portion of credit
    commitments


4,421



2,113



2,052



242



14Commitments to originate
    commercial loans


655



63



495



96



1Letters of credit


386



96



112



178



$
7,662


$
2,587


$
3,500


$
1,470


$
105   Capital
    Adequacy and Other Regulatory Matters
  Note M to the
    Financial Services Summarized Financial Statements
     43




---



##### Table of Contents



Pension,
    Postretirement Medical and Health Care Matters
            Energy
    and the Effects of Inflation
      Environmental
    Protection
   44




---



##### Table of Contents



Business  Environmental Regulation
  Litigation
    Matters
  Legal
    Proceedings
 45




---



##### Table of Contents



Calculation
    of Non-GAAP Financial Measures
  Parent


Corrugated


Forest


Real


FinancialCompany


Packaging


Products


Estate


Services(Dollars in millions)Year 2006Return:Operating income or segment
    operating income determined in accordance with GAAP

$
713
(a)

$
255


$
312


$
62


$
222Adjustments for significant unusual
    items






N/A



N/A



N/A



N/A$
713


$
255


$
312


$
62


$
222Investment:Beginning of year total assets,
    segment assets or investment in financial services determined in
    accordance with GAAP

$
5,001


$
2,318


$
866


$
422


$
1,017Adjustments:Current liabilities (excluding
    current portion of
    long-term
    debt)


(492
)


(269
)


(76
)


(11
)


N/AAssets held for sale


(34
)


N/A



N/A



N/A



N/AMunicipal bonds related to capital
    leases included in other assets


(188
)


N/A



N/A



N/A



N/AAcquisition of Standard Gypsum LP
    in January 2006


196



N/A



196



N/A



N/A$
4,483


$
2,049


$
986


$
411


$
1,017ROI


15.9
%


12.4
%


31.6
%


15.1
%


21.8
%Year 2005Return:Operating income or segment
    operating income determined in accordance with GAAP

$
377
(a)

$
120


$
219


$
44


$
201Adjustments for significant unusual
    items






N/A



N/A



N/A



N/A$
377


$
120


$
219


$
44


$
201Investment:Beginning of year total assets,
    segment assets or investment in financial services determined in
    accordance with GAAP

$
5,006


$
2,459


$
919


$
381


$
927Adjustments:Current liabilities (excluding
    current portion of
    long-term
    debt)


(519
)


(323
)


(71
)


(9
)


N/AAssets held for sale


(34
)


N/A



N/A



N/A



N/AMunicipal bonds related to capital
    leases included in other assets


(188
)


N/A



N/A



N/A



N/A$
4,265


$
2,136


$
848


$
372


$
927ROI


8.8
%


5.6
%


25.8
%


11.8
%


21.7
%Year 2004Return:Operating income or segment
    operating income determined in accordance with GAAP

$
354
(a)

$
96


$
196


$
36


$
195Adjustments for significant unusual
    items






N/A



N/A



N/A



N/A$
354


$
96


$
196


$
36


$
195Investment:Beginning of year total assets,
    segment assets or investment in financial services determined in
    accordance with GAAP

$
5,014


$
2,374


$
950


$
390


$
938Adjustments:Current liabilities (excluding
    current portion of
    long-term
    debt)


(516
)


(319
)


(57
)


(13
)


N/AAssets held for sale


(50
)


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/A$
4,260


$
2,055


$
893


$
377


$
938ROI


8.3
%


4.7
%


21.9
%


9.5
%


20.8
%     (a)
    
    Net of expenses not allocated to segments of $138 million
    in 2006, $207 million in 2005, and $169 million in
    2004. Please read Note 10 to the Consolidated Financial
    Statements. 46




---



##### Table of Contents



Statistical
    and Other Data
  Parent
    Company
  Manufacturing
    For the Year2006


2005


2004(Dollars in millions)RevenuesCorrugated PackagingCorrugated packaging

$
2,841


$
2,728


$
2,614Linerboard


136



97



122$
2,977


$
2,825


$
2,736Forest ProductsPine lumber

$
278


$
312


$
295Particleboard


214



195



182Gypsum
    wallboard(a)


420



143



110Medium density
    fiberboard(a)


65



87



111Fiberboard


72



83



77Mineral and hunting leases


45



31



21Fiber and other


143



189



176$
1,237


$
1,040


$
972Unit salesCorrugated PackagingCorrugated packaging, thousands of
    tons


3,371



3,437



3,366Linerboard, thousands of tons


310



264



3203,681



3,701



3,686Forest ProductsPine lumber, million board feet


829



777



769Particleboard, million square feet


609



640



595Gypsum wallboard, million square
    feet(a)


1,990



859



766Medium density fiberboard, million
    square
    feet(a)


142



202



254Fiberboard, million square feet


362



431



407     (a)
    
    Comparisons of revenue and unit sales of gypsum wallboard are
    affected by the January 2006 acquisition of our partners
    interest in Standard Gypsum LP. Comparisons for MDF are affected
    by the sale of the Pembroke facility in second quarter 2005. 47




---



##### Table of Contents



Real
    Estate
  (a)
  Project

County

Project
    Acres(b)CaliforniaHidden Creek Estates

Los Angeles


700Terrace at Hidden Hills

Los Angeles


30GeorgiaBay Springs

Carroll


440Birch House Farms

Bartow


140Dry Pond

Cherokee


950Four Seasons

Coweta


750Friendship Road

Cherokee


110Garland Mountain

Cherokee


350Gold Creek

Dawson


1,090Grove Park

Coweta


160Happy Valley Farm

Coweta


750Jackson Park

Jackson


690Lithia Springs

Haralson


260Mill Creek

Coweta


770Overlook

Cherokee


510Pickens School

Pickens


420Wolf Creek

Carroll


12,180Yellow Creek

Cherokee


1,060TexasLake Houston

Harris/Liberty


3,630Entrada(c)

Travis


240Woodlake
    Village(c)

Montgomery


620Total




25,850     (a)
    
    A project is deemed to be in the entitlement process when
    customary steps necessary for the preparation and submittal of
    an application, like conducting pre-application meetings or
    similar discussions with governmental officials, have commenced,
    or an application has been filed. Projects listed may have
    significant steps remaining, and there is no assurance that
    entitlements ultimately will be received.(b)
    
    Project acres are approximate. The actual number of acres
    entitled may vary.(c)
    
    We own a 50 percent interest in these projects. 48




---



##### Table of Contents



(a)
  Residential Lots


Commercial
    Acres(c)Lots Sold


Lots


Acres Sold


AcresProject

County

Interest
    Owned(b)


Since Inception


Remaining


Since Inception


RemainingProjects we ownColoradoBuffalo Highlands

Weld


100%







645







Johnstown Farms

Weld


100%



115



699







Pinery West

Douglas


100%















134Stonebraker

Weld


100%







600







TexasCaruth Lakes

Rockwall


100%



245



629







Cibolo Canyons

Bexar


100%



335



1,414



64



81Harbor Lakes

Hood


100%



177



401







13Hunters Crossing

Bastrop


100%



229



348



19



95Katy Freeway

Harris


100%















40La Conterra

Williamson


100%







509







60Maxwell Creek

Collin


100%



539



484







Oakcreek Estates

Comal


100%







630







The Colony

Bastrop


100%



335



1,090



22



50The Gables at North Hill

Collin


100%



182



100







The Preserve at Pecan Creek

Denton


100%



41



778







9The Ridge at Ribelin Ranch

Travis


100%











126



77Other Texas
    projects(8)

Various


100%



2,539



132



121



46GeorgiaOther
    projects(5)

Various


100%







3,428







161Missouri, Tennessee, and
    UtahOther
    projects(4)

Various


100%



910



294







5,647



12,181



352



766Projects in entities we
    consolidateTexasCity Park

Harris


75%



605



696



36



129Lantana

Denton


55%
(d)


167



2,183







Other Texas
    projects(6)

Various


Various



261



320



2



631,033



3,199



38



192Total owned and
    consolidated








6,680



15,380



390



958Projects in ventures that we
    account for using the equity methodGeorgiaSeven Hills

Paulding


50%



561



516



26



The Georgian

Paulding


38%



282



1,104







Other Georgia
    projects(5)

Various


Various



1,840



252







TexasBar C Ranch

Tarrant


50%



143



1,038







Fannin Farms West

Tarrant


50%



224



219







Lantana

Denton


Various
(d)


1,639



209



1



79Long Meadow Farms

Fort Bend


19%



457



2,255







134Southern Trails

Brazoria


40%



181



878







Stonewall Estates

Bexar


25%



30



360







Summer Creek Ranch

Tarrant


50%



780



1,708







374Summer Lakes

Fort Bend


50%



294



850



42



9Village Park

Collin


50%



311



258







5Waterford Park

Fort Bend


50%







493







37Other Texas
    projects(6)

Various


Various



807



304







37FloridaOther
    projects(3)

Various


Various



473



372







Total in ventures








8,022



10,816



69



675Combined Total








14,702



26,196



459



1,633     (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 using the equity method. 49




---



##### Table of Contents



(c)
    
    Commercial acres are net developable acres, and may be fewer
    than the gross acres available in the project.(d)
    
    The Lantana project consists of a series of 19 partnerships in
    which our voting interests range from 25 percent to
    55 percent. We account for eight of these partnerships in
    which our interests range from 25 percent to
    50 percent using the equity method and we consolidate the
    remaining partnerships.  Financial
    Services
    For the Year2006


2005


2004Ratio
    informationReturn on
    assets(a)


0.77
%


0.77
%


0.60
%Return on
    equity(b)


12.51
%


12.85
%


10.66
%Dividend payout
    ratio(c)


104
%


20
%


99
%Equity to assets
    ratio(d)


6.16
%


5.95
%


5.62
%     (a)
    
    Net income divided by average total assets.(b)
    
    Net income divided by average equity.(c)
    
    Dividends paid to the parent company divided by net income.(d)
    
    Average equity divided by average assets. 50




---



##### Table of Contents



For the Year2006


2005


2004Average





Yield/


Average





Yield/


Average





Yield/Balance


Interest


Rate


Balance


Interest


Rate


Balance


Interest


Rate(Dollars in millions)ASSETSCash equivalents

$
128


$
6



4.83
%

$
133


$
1



0.66
%

$
138


$
3



1.68
%Loans held for sale


61



4



6.95
%


350



16



4.49
%


618



33



5.33
%Loans(a)(b)


9,782



691



7.06
%


9,924



574



5.79
%


9,503



460



4.84
%Securities


5,727



281



4.91
%


4,649



199



4.28
%


5,362



217



4.05
%Investment in Federal Home
    Loan Bank stock


288



15



5.02
%


283



10



3.58
%


265



5



1.85
%Total earning assets


15,986


$
997



6.24
%


15,339


$
800



5.22
%


15,886


$
718



4.52
%Other assets


848











941











982Total assets

$
16,834










$
16,280










$
16,868LIABILITIES AND EQUITYInterest-bearing deposits:Interest-bearing demand

$
3,376


$
74



2.19
%

$
3,697


$
51



1.38
%

$
4,466


$
51



1.13
%Savings deposits


207



1



0.73
%


235



2



0.70
%


247



2



0.72
%Certificates of deposit


4,921



208



4.22
%


4,407



136



3.10
%


3,579



89



2.51
%Total interest-bearing deposits


8,504



283



3.33
%


8,339



189



2.27
%


8,292



142



1.71
%Short-term Federal Home Loan Bank
    borrowings


4,212



209



4.96
%


3,084



103



3.36
%


2,161



31



1.41
%Long-term Federal Home Loan Bank
    borrowings


1,649



61



3.69
%


2,291



84



3.66
%


2,967



107



3.62
%Securities sold under repurchase
    agreements














144



4



2.63
%


1,155



15



1.31
%Other borrowings


107



9



8.14
%


106



7



6.68
%


114



5



4.71
%Subordinated notes payable to trust


26



2



7.37
%






















Preferred stock issued by
    subsidiaries


308



21



6.96
%


307



17



5.44
%


307



12



3.87
%Total borrowings


6,302



302



4.79
%


5,932



215



3.63
%


6,704



170



2.54
%Total interest-bearing liabilities


14,806


$
585



3.95
%


14,271


$
404



2.83
%


14,996


$
312



2.08
%Noninterest-bearing demand deposits


757











699











507Other liabilities


234











341











415Shareholders equity


1,037











969











950Total liabilities and equity

$
16,834










$
16,280










$
16,868Net interest income/margin





$
412



2.58
%





$
396



2.58
%





$
406



2.55
%     (a)
    
    Includes nonaccruing loans.(b)
    
    Interest includes recognized loan fees of $28 million in
    2006, $27 million in 2005, and $27 million in 2004. 51




---



##### Table of Contents



2006 Compared with 2005


2005 Compared with 2004Increase (Decrease) Due To


Increase (Decrease) Due ToVolume


Rate


Total


Volume


Rate


Total(In millions)Interest income:Cash equivalents

$



$
5


$
5


$
(1
)

$
(1
)

$
(2
)Loans held for sale


(17
)


5



(12
)


(12
)


(5
)


(17
)Loans


(8
)


125



117



21



93



114Securities


50



32



82



(29
)


11



(18
)Investment in Federal Home
    Loan Bank stock






5



5







5



5Total interest income


25



172



197



(21
)


103



82Interest expense:Deposits:Interest-bearing demand


(5
)


28



23



(10
)


10



Savings deposits


(1
)






(1
)










Certificates of deposit


18



54



72



23



24



47Total interest on deposits


12



82



94



13



34



47Short-term Federal Home
    Loan Bank borrowings


46



60



106



17



55



72Long-term Federal Home
    Loan Bank borrowings


(24
)


1



(23
)


(24
)


1



(23
)Securities sold under repurchase
    agreements


(8
)


4



(4
)


(19
)


8



(11
)Other borrowings






2



2







2



2Subordinated notes payable to trust


2







2











Preferred stock issued by
    subsidiaries






4



4







5



5Total interest expense


28



153



181



(13
)


105



92Net interest income

$
(3
)

$
19


$
16


$
(8
)

$
(2
)

$
(10
)     At Year-End2006


2005


2004


2003


2002(In millions)Single-family mortgage

$
2,323


$
3,112


$
3,560


$
3,255


$
2,470Single-family mortgage warehouse


795



757



580



387



522Single-family construction


1,782



1,665



1,303



888



1,003Multifamily and senior housing


1,270



1,469



1,454



1,769



1,858Total residential housing


6,170



7,003



6,897



6,299



5,853Commercial real estate


1,227



758



709



1,015



1,891Commercial and business


1,012



843



746



585



740Energy lending


1,117



756



717



562



420Asset-based lending and leasing






395



428



499



696Consumer and other


156



164



206



176



199Total loans


9,682



9,919



9,703



9,136



9,799Less allowance for loan losses


(65
)


(74
)


(85
)


(111
)


(132
)Loans, net

$
9,617


$
9,845


$
9,618


$
9,025


$
9,667  52




---



##### Table of Contents



Single-Family


Multifamily and


Commercial


Commercial and BusinessConstruction


Senior Housing


Real Estate


and EnergyVariable


Fixed


Variable


Fixed


Variable


Fixed


Variable


FixedRate


Rate


Rate


Rate


Rate


Rate


Rate


Rate


Total(In millions)Due within one year

$
1,277


$
121


$
812


$



$
1,002


$
6


$
1,612


$
20


$
4,850After one but within five years


251



133



293



31



178



39



401



6



1,332After five years










131



3



2







90







226$
1,528


$
254


$
1,236


$
34


$
1,182


$
45


$
2,103


$
26$1,782

$1,270

$1,227

$2,129


$6,408     For the Year2006


2005


2004


2003


2002(Dollars in millions)Balance at beginning of year

$
74


$
85


$
111


$
132


$
139Charge-offs:Single-family mortgage


(2
)


(2
)






(1
)


Multifamily and senior housing






(1
)


(3
)






(11
)Total residential housing


(2
)


(3
)


(3
)


(1
)


(11
)Commercial real estate










(6
)


(11
)


Commercial and business


(2
)


(11
)


(2
)


(2
)


(31
)Asset-based lending and leasing


(14
)


(9
)


(1
)


(57
)


(10
)Consumer and other










(3
)


(2
)


(2
)Total charge-offs


(18
)


(23
)


(15
)


(73
)


(54
)Recoveries:Single-family mortgage


1















Single-family mortgage warehouse










1



4



1Multifamily and senior housing


2



2











3Total residential housing


3



2



1



4



4Commercial real estate






1



1







Commercial and business






1











Asset-based lending and leasing


5



1



5



5



2Consumer and other










1







1Total recoveries


8



5



8



9



7Net charge-offs


(10
)


(18
)


(7
)


(64
)


(47
)Provision (credit) for loan losses


1



7



(12
)


43



40Transfer to reserve for unfunded
    credit commitments










(7
)






Balance at year-end

$
65


$
74


$
85


$
111


$
132Nonaccrual loans

$
26


$
35


$
50


$
65


$
126Accruing loans past-due
    90 days or more


5



8



1



3



7Net charge-offs as a percentage of
    average loans outstanding


0.10
%


0.21
%


0.07
%


0.66
%


0.48
%  53




---



##### Table of Contents



2006


2005


2004


2003


2002Category





Category





Category





Category





Categoryas a %





as a %





as a %





as a %





as a %of





of





of





of





ofTotal





Total





Total





Total





TotalAllowance


Loans


Allowance


Loans


Allowance


Loans


Allowance


Loans


Allowance


Loans(Dollars in millions)Single-family mortgage

$
7



24
%

$
9



31
%

$
8



37
%

$
7



36
%

$
7



26
%Single-family mortgage warehouse


2



8
%


1



8
%


1



6
%


1



4
%


1



5
%Single-family construction


12



18
%


9



17
%


10



13
%


6



10
%


7



10
%Multifamily and senior housing


4



13
%


11



15
%


15



15
%


28



19
%


38



19
%Total residential housing


25



63
%


30



71
%


34



71
%


42



69
%


53



60
%Commercial real estate


5



13
%


5



8
%


8



7
%


18



11
%


18



19
%Commercial and business


8



10
%


7



8
%


7



8
%


10



13
%


12



12
%Energy lending


4



12
%


3



7
%


3



7
%














Asset-based lending and leasing










8



4
%


9



5
%


9



5
%


23



7
%Consumer and other






2
%






2
%


1



2
%


1



2
%


2



2
%Not allocated


23







21







23







31







24



$
65



100
%

$
74



100
%

$
85



100
%

$
111



100
%

$
132



100
%   Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Interest
    Rate Risk
  short-term, variable-rate
  Increase (Decrease) in Income Before TaxesAt Year-End 2006


At Year-End 2005Change in

Parent


Financial


Parent


FinancialInterest Rates

Company


Services


Company


Services(In millions)+2%

$
(3
)

$
(45
)

$



$
(31
)+1%


(2
)


(17
)






(12
)−1%


2



(18
)






(20
)−2%


3



(38
)






(49
)   variable-rate, variable-rate, long-term year-end variable-rate
  interest-earning interest-bearing year-end
 54




---



##### Table of Contents



Foreign
    Currency Risk
    Commodity
    Price Risk
  year-end
  Item 8.
    Financial
    Statements and Supplementary Data  PageManagements
    Annual Report on Internal Control over Financial
    Reporting


56Report of
    Independent Registered Public Accounting Firm


57Report of
    Independent Registered Public Accounting Firm


58Temple-Inland Inc.
    and Subsidiaries:Consolidated
    Balance Sheets


59Consolidated
    Statements of Income


61Consolidated
    Statements of Cash Flows


62Consolidated
    Statements of Shareholders Equity


63Notes to the
    Consolidated Financial Statements


64Parent Company
    (Temple-Inland Inc. and our manufacturing and real estate
    subsidiaries):Summarized Balance
    Sheets


85Summarized
    Statements of Income


86Summarized
    Statements of Cash Flows


87Notes to Summarized
    Financial Statements


88Financial
    Services:Summarized Balance
    Sheets


99Summarized
    Statements of Income


100Summarized
    Statements of Cash Flows


101Notes to Summarized
    Financial Statements


102  55




---



##### Table of Contents



MANAGEMENTS
    ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
    REPORTING    Rule 13a-15 Internal Control  Integrated
    Framework
    10-K,
 56




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board
    of Directors and Shareholders of Temple-Inland Inc.:
  Internal
    Control  Integrated Framework
                  57




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board
    of Directors and Shareholders of Temple-Inland Inc.:
          Internal Control 
    Integrated Framework
        58




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES CONSOLIDATED
    BALANCE SHEET  At Year-End 2006Parent


FinancialCompany


Services


Consolidated(In millions)ASSETSCash and cash equivalents

$
38


$
372


$
405Trade receivables, net of
    allowance for doubtful accounts of $14


452







452Inventories


435







435Timber and timberland


358







358Real estate


512







512Loans held for sale






23



23Loans, net of allowance for losses
    of $65






9,617



9,617Securities
    available-for-sale






529



529Securities
    held-to-maturity






4,853



4,853Investment in Federal Home
    Loan Bank stock






262



262Property and equipment


1,639



214



1,853Goodwill


365



141



506Other intangible assets






26



26Prepaid expenses and other assets


403



214



582Investment in financial services


1,015







TOTAL ASSETS

$
5,217


$
16,251


$
20,413LIABILITIES AND
    SHAREHOLDERS EQUITYAccounts payable, accrued
    expenses, and other liabilities

$
836


$
126


$
953Long-term debt and other borrowings


1,628



101



1,729Deposits






9,486



9,479Federal Home Loan Bank
    borrowings






5,076



5,076Deferred income taxes


198







174Liability for pension benefits


231







231Liability for postretirement
    benefits


135







135Subordinated notes payable to trust






142



142Preferred stock issued by
    subsidiaries






305



305TOTAL LIABILITIES


3,028



15,236



18,224SHAREHOLDERS
    EQUITY:Preferred 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










468Accumulated other comprehensive
    loss










(191
)Retained earnings










2,5012,902Cost of shares held in the
    treasury: 18,754,907 shares










(713
)TOTAL SHAREHOLDERS
    EQUITY










2,189TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY









$
20,413    59




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
   CONSOLIDATED BALANCE SHEET
  At Year-End 2005Parent


FinancialCompany


Services


Consolidated(In millions)ASSETSCash and cash equivalents

$
13


$
431


$
441Trade receivables, net of
    allowance for doubtful accounts of $14


411







411Inventories


425







425Timber and timberland


394







394Real estate


403







403Loans held for sale






280



280Loans, net of allowance for losses
    of $74






9,845



9,845Securities
    available-for-sale






654



654Securities
    held-to-maturity






5,558



5,558Investment in Federal Home
    Loan Bank stock






300



300Property and equipment


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


$
21,630LIABILITIES AND
    SHAREHOLDERS EQUITYAccounts 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







143Liability for pension benefits


270







270Liability for postretirement
    benefits


137







137Preferred stock issued by
    subsidiaries






305



305TOTAL LIABILITIES


2,921



16,674



19,550SHAREHOLDERS
    EQUITY:Preferred 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    60




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF INCOME  For the Year2006


2005


2004(In millions, except per share)REVENUESManufacturing and real estate

$
4,389


$
3,978


$
3,860Financial services


1,169



983



9885,558



4,961



4,848COSTS AND EXPENSESManufacturing and real estate


(3,880
)


(3,797
)


(3,667
)Financial services


(965
)


(787
)


(827
)(4,845
)


(4,584
)


(4,494
)OPERATING INCOME


713



377



354Parent company interest


(128
)


(115
)


(130
)Other non-operating income
    (expense)


92







INCOME FROM CONTINUING
    OPERATIONS BEFORE TAXES


677



262



224Income tax expense


(208
)


(86
)


(67
)INCOME FROM CONTINUING
    OPERATIONS


469



176



157Discontinued operations


(1
)






3NET INCOME

$
468


$
176


$
160WEIGHTED AVERAGE COMMON
    SHARES OUTSTANDINGBasic


108.8



112.6



111.4Diluted


110.8



114.5



112.4EARNINGS PER SHAREBasic:Income from continuing operations

$
4.31


$
1.56


$
1.40Discontinued operations


(0.01
)






0.03Net income

$
4.30


$
1.56


$
1.43Diluted:Income from continuing operations

$
4.23


$
1.54


$
1.39Discontinued operations


(0.01
)






0.03Net income

$
4.22


$
1.54


$
1.42    61




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Year2006


2005


2004(In millions)CASH PROVIDED BY (USED FOR)
    OPERATIONSNet income

$
468


$
176


$
160Adjustments:Depreciation and amortization


251



249



254Amortization and accretion of
    financial instrument discounts and premiums and deferred loan
    fees and origination costs, net


24



18



58Provision (credit) for credit losses


1



10



(12
)Deferred taxes


27



51



38Non-cash real estate cost of sales


65



35



26Real estate development expenditures


(123
)


(47
)


(43
)Tax benefit of stock options
    exercised






7



5Other


(21
)


81



118Changes in:Receivables


(28
)


(16
)


(45
)Inventories


(10
)






(52
)Accounts payable and accrued
    expenses


32



5



(5
)Prepaid expenses and other


20



(1
)


(3
)Loans held for sale:Originations


(157
)


(2,379
)


(6,898
)Sales


414



2,595



6,920Collections on loans serviced for
    others, net






(122
)


(32
)963



662



489CASH PROVIDED BY (USED FOR)
    INVESTINGCapital expenditures


(233
)


(233
)


(243
)Reforestation and net acquisition
    of timber and timberland


(18
)


(30
)


(19
)Sale of non-strategic assets and
    operations


65



50



77Securities
    available-for-sale,
    net


124



180



285Securities
    held-to-maturity,
    net


677



(1,627
)


817Redemption of Federal Home
    Loan Bank stock


52







Loans originated or acquired, net
    of principal collected


(65
)


(310
)


(644
)Proceeds from sale of loans and
    mortgage servicing rights


302



47



51Branch acquisitions










148Acquisitions, net of cash acquired,
    and joint ventures


(133
)


(40
)


(28
)Other


(2
)






34769



(1,963
)


478CASH PROVIDED BY (USED FOR)
    FINANCINGAdditions to debt


27



530



375Payments of debt


(667
)


(1,250
)


(999
)Borrowings under accounts
    receivable securitization facility, net


133



15



(15
)Borrowings under revolving credit
    facility, net


(133
)


(14
)


Change in book overdrafts


3



(13
)


1Payment of other long-term
    liabilities










(64
)Deposits, net


285



231



113Repurchase agreements and
    short-term borrowings, net


(1,196
)


2,126



(308
)Issuance of subordinated notes
    payable to trust


142







Cash dividends paid to shareholders


(108
)


(102
)


(136
)Repurchase of common stock


(318
)


(527
)


Exercise of stock options


47



48



62Tax benefit of stock options
    exercised


10







Settlement of equity purchase
    contracts






345



Other






(21
)


1(1,775
)


1,368



(970
)Effect of exchange rate change on
    cash and cash equivalents










Discontinued operations,
    principally operating activities


7



2



(24
)Net increase (decrease) in cash and
    cash equivalents


(36
)


69



(27
)Cash and cash equivalents at
    beginning of year


441



372



399Cash and cash equivalents at
    year-end

$
405


$
441


$
372    62




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
  AccumulatedOtherCommon


Paid-In


Comprehensive


Retained


TreasuryStock


Capital


Income / (Loss)


Earnings


Stock


Total(In millions)Balance at year-end
    2003

$
123


$
315


$
(185
)

$
2,043


$
(308
)

$
1,988Comprehensive income, net of tax:Net income














160







160Unrealized gains on securities










(5
)










(5
)Defined benefits










(5
)










(5
)Foreign currency translation
    adjustment






















Derivative financial instruments










3











3Comprehensive income for the
    year 2004






















153Dividends paid on common
    stock  $1.22 per share














(136
)






(136
)Share-based
    compensation  632,338 shares






21











14



35Exercise of stock
    options  2,359,568 net shares






9











53



62Tax benefit from exercise of stock
    options






5















5Balance at year-end
    2004

$
123


$
350


$
(192
)

$
2,067


$
(241
)

$
2,107Comprehensive income, net of tax:Net income














176







176Unrealized gains on securities










(3
)










(3
)Defined benefits










3











3Foreign currency translation
    adjustment










4











4Derivative financial instruments










(1
)










(1
)Comprehensive income for the
    year 2005






















179Dividends paid on common
    stock  $0.90 per share














(102
)






(102
)Share-based
    compensation  578,774 shares






13











19



32Exercise of stock
    options  1,833,688 net shares


















48



48Tax benefit from exercise of stock
    options






7















7Settlement of equity purchase
    contracts  10,875,739 shares


1



75











269



345Repurchase of common
    stock  14,500,000 shares


















(536
)


(536
)Balance at year-end
    2005

$
124


$
445


$
(189
)

$
2,141


$
(441
)

$
2,080Comprehensive income, net of tax:Net income














468







468Unrealized gains on securities










(1
)










(1
)Defined benefits










57











57Foreign currency translation
    adjustment










(2
)










(2
)Derivative financial instruments










1











1Comprehensive income for the
    year 2006






















523Dividends paid on common
    stock  $1.00 per share














(108
)






(108
)Share-based
    compensation  10,289 shares






28











(1
)


27Exercise of stock
    options  1,736,335 net shares






(15
)










62



47Tax benefit from exercise of stock
    options






10















10Repurchase of common
    stock  7,850,000 shares


















(333
)


(333
)Adoption of SFAS No. 158,
    net of tax










(57
)










(57
)Balance at year-end
    2006

$
124


$
468


$
(191
)

$
2,501


$
(713
)

$
2,189    63




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS
  Note 1 
    Summary of Significant Accounting Policies
  Basis
    of Presentation
            Cash
    and Cash Equivalents
    Capitalized
    Software
    Derivatives
   64




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair
    Value of Financial Instruments
    Goodwill
    and Other Intangible Assets
    Impairment
    of Long-Lived Assets
    Income
    Taxes
    Share-Based
    Compensation
  Share-Based Payment , Accounting for Stock-Based
 65




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  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. This change accelerated about $7 million of
    expense into first quarter 2006 related to awards granted in
    2006. We anticipate similar effects going forward when we issue
    options to retirement eligible employees. We will continue to
    expense the fair value of awards granted prior to 2006 over the
    expected service period.
    Forfeitures over the expected term of the award are estimated at
    the date of grant and the estimates adjusted to reflect actual
    subsequent forfeitures. Previously, we had reflected forfeitures
    as they occurred. The effect of this change was not significant.
    Tax benefits recognized as a result of the exercise of employee
    stock options are classified as a financing cash flow.
    Previously, we had classified these tax benefits as an operating
    cash flow.
    The fair value of unvested outstanding options at the beginning
    of first quarter 2006 will be expensed over the remaining
    service period. The effect of this change was not significant
    because we began accounting for options at fair value determined
    at the date of grant in 2003. As a result, this applied only to
    our unvested outstanding options granted prior to 2003.
    Share-based compensation expense related to employees of our
    financial services segment is now included as an expense in the
    financial services summarized financial statements. Previously,
    this expense was included in the parent company summarized
    financial statements.      For the Year2005


2004(In millions, except per share)Net income, as reported

$
176


$
160Add: Share-based compensation
    expense, net of related tax effects, included in the
    determination of reported net
    income(a)


19



20Deduct: Total share-based
    compensation expense, net of related tax effects, determined
    under the fair value based method for all
    awards(a)


(23
)


(27
)Pro forma net income

$
172


$
153Earnings per shareBasic, as reported

$
1.56


$
1.43Basic, pro forma

$
1.53


$
1.37Diluted, as reported

$
1.54


$
1.42Diluted, pro forma

$
1.50


$
1.36     (a)
    
    Includes treasury stock contributions to fulfill our obligation
    for matching contributions to our 401(k) plans of
    $3 million in 2005 and $12 million in 2004, net of
    related tax effects. 66




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Asset
    Retirement Obligations and Environmental
    Obligations
  Accounting for Conditional Asset Retirement Obligations an
    interpretation of FASB Statement No. 143.
        Variable
    Interest Entities
  Consolidation of Variable Interest Entities an Interpretation
    of ARB No. 51.
  Pension
    and Postretirement Plans
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans.
 67




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Before Application


Adjustments


After Applicationof SFAS No. 158


Increase (Decrease)


of SFAS No. 158(In millions)Prepaid expenses and other assets

$
598


$
(16
)

$
582Deferred income taxes


209



(35
)


174Liability for pension benefits


158



73



231Liability for postretirement
    benefits


132



3



135Total liabilities


18,183



41



18,224Accumulated other comprehensive loss


134



57



191Total shareholders equity


2,246



(57
)


2,189   Pending
    Accounting Pronouncements
  Employers Accounting for
    Defined Benefit Pension and Other Postretirement
    Plans
  Fair Value Measures
  Accounting for Uncertainty
    in Income Taxes
  Accounting for
    Planned Major Maintenance Activities Interim Financial
    Reporting.
  Accounting for Certain Financial
    Instruments with Characteristics of both Liabilities and
    Equity
 68




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 2 
    Capital Stock
    SM
      Note 3 
    Fair Value of Financial Instruments
    At Year-End2006


2005Carrying


Fair


Carrying


FairValue


Value


Value


Value(In millions)Financial assetsLoans receivable

$
9,617


$
9,635


$
9,845


$
9,804Securities
    held-to-maturity


4,853



4,852



5,558



5,512Financial liabilitiesDeposits

$
9,479


$
9,465


$
9,194


$
9,165Federal Home Loan Bank
    borrowings


5,076



5,054



6,892



6,856Fixed-rate, long-term debt


1,438



1,509



1,484



1,534Other off-balance sheet
    instrumentsCommitments to extend credit

$
(7
)

$
(7
)

$
(7
)

$
(7
)   held-to-maturity
 69




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note 4 
    Income
    Taxes    For the Year2006


2005


2004(In millions)Current tax provision:U.S. Federal

$
(160
)

$
(18
)

$
(6
)State and other


(17
)


(9
)


(9
)(177
)


(27
)


(15
)Deferred tax provision:U.S. Federal


(37
)


(58
)


(51
)State and other


6



(1
)


(1
)(31
)


(59
)


(52
)Income tax expense

$
(208
)

$
(86
)

$
(67
)Income taxes (paid) refunded, net

$
(164
)

$
(44
)

$
(1
)          70




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the Year2006


2005


2004(In millions)U.S.

$
668


$
255


$
215Non-U.S.


9



7



9$
677


$
262


$
224     For the Year2006


2005


2004Federal statutory rate


35
%


35
%


35
%State, net of federal benefit


1



2



3Foreign










1Other






2



36
%


39
%


39
%Settlement of tax litigation


(4
)






State of Texas tax legislation


(1
)






Sale of foreign subsidiary






(6
)


Resolution and settlement of prior
    year tax examinations










(8
)Effective tax rate


31
%


33
%


31
%     At Year-End2006


2005(In millions)Deferred Tax
    Liabilities:Property, equipment, and intangible
    assets

$
(330
)

$
(331
)Timber and timberland


(83
)


(54
)Asset leasing


(12
)


(16
)U.S. taxes on unremitted
    foreign earnings


(14
)


(11
)Other


(38
)


(42
)(477
)


(454
)Deferred Tax Assets:Alternative minimum tax credits






18Foreign and state net operating
    loss carryforwards


26



28Pension and postretirement benefits


140



158Employee benefits


59



36Allowance for credit losses and bad
    debts


29



33Accruals not deductible until paid


39



40Other


38



29Gross deferred tax assets


331



342Less valuation allowance


(28
)


(31
)303



311Net Deferred Tax
    Liability

$
(174
)

$
(143
)  71




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  pre-1988
  Note 5 
    Pension and Postretirement Plans
    For the Year2006


2005


2004(In millions)Defined contribution

$
24


$
22


$
26Defined benefit


47



50



50Postretirement medical


9



8



10$
80


$
80


$
86           Obligations
    and Funded Status
   72




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     For the YearDefined Benefits


PostretirementQualified


Supplemental


Total


Benefits2006


2005


2006


2005


2006


2005


2006


2005(In millions)Benefit obligation at October 1

$
(1,300
)

$
(1,193
)

$
(51
)

$
(44
)

$
(1,351
)

$
(1,237
)

$
(155
)

$
(146
)Service cost


(27
)


(24
)


(1
)


(1
)


(28
)


(25
)


(2
)


(2
)Interest cost


(71
)


(70
)


(2
)


(2
)


(73
)


(72
)


(8
)


(8
)Plan amendments


(1
)


(1
)










(1
)


(1
)






Prior service costs






























Actuarial gain (loss)


51



(73
)


(4
)


(6
)


47



(79
)


11



(11
)Benefits paid by the plan


64



61



2



2



66



63



18



14Participant contributions


























(3
)


(2
)Benefit obligation at
    September 30


(1,284
)


(1,300
)


(56
)


(51
)


(1,340
)


(1,351
)


(139
)


(155
)Fair value of plan assets at
    October 1


1,004



882











1,004



882







Actual return


94



123











94



123







Benefits paid by the plan


(64
)


(61
)


(2
)


(2
)


(66
)


(63
)


(19
)


(14
)Contributions we made


60



60



2



2



62



62



16



12Participant contributions


























3



2Fair value of plan assets at
    September 30


1,094



1,004











1,094



1,004







Funded status at September 30


(190
)


(296
)


(56
)


(51
)


(246
)


(347
)


(139
)


(155
)Contributions we made after the
    annual measurement date


15



15











15



15



4



5Funded status at year-end

$
(175
)

$
(281
)

$
(56
)

$
(51
)

$
(231
)

$
(332
)

$
(135
)

$
(150
)     At Year-EndDefined


PostretirementBenefits


Benefits2006


2005


2006


2005(In millions)Funded status

$
(231
)

$
(332
)

$
(135
)

$
(150
)Unrecognized net loss






337







31Unrecognized prior service cost






18







(18
)Additional minimum liability






(293
)






Net liabilities recognized in the
    balance sheet

$
(231
)

$
(270
)

$
(135
)

$
(137
)Amounts recognized in the balance
    sheet consist of:Liability

$
(231
)

$
(270
)

$
(135
)

$
(137
)Intangible asset






18







Accumulated other comprehensive
    loss:Unrecognized net loss

$
253


$



$
19


$
Unamortized prior service cost


16



(18
)


(16
)


Additional minimum liability






293







Total accumulated other
    comprehensive loss

$
269


$
275


$
3


$
  73




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Additional
    Information
    At Year-End2006


2005(In millions)Projected benefit obligation

$
(1,340
)

$
(1,351
)Accumulated benefit obligation

$
(1,267
)

$
(1,290
)Fair value of plan assets


1,094



1,004Contributions we made after the
    annual measurement date


15



15Excess of accumulated benefit
    obligation over fair value of plan assets

$
(158
)

$
(271
)Excess of accumulated benefit
    obligation over fair value of plan assets consists of:Qualified plans

$
(108
)

$
(221
)Supplemental plan


(50
)


(50
)$
(158
)

$
(271
)   Components
    of Net Periodic Benefit Expense and Other Amounts Recognized in
    Other Comprehensive Income
  For the YearDefined Benefits


Postretirement Benefits2006


2005


2004


2006


2005


2004(In millions)Net periodic benefit expenseService costs  benefits
    earned during the period

$
28


$
25


$
24


$
2


$
2


$
2Interest cost on benefit obligation


73



72



71



8



8



9Expected return on plan assets


(78
)


(72
)


(69
)










Amortization of prior service costs


2



2



2



(2
)


(2
)


(3
)Amortization of actuarial net loss


22



23



22



1







2Total net periodic benefit expense


47



50



50



9



8



10Amounts recognized in other
    comprehensive income, pre-taxIncrease (decrease) in minimum
    pension liability


(95
)


(6
)


9











Total recognized in net periodic
    benefit expense and other comprehensive income, pre-tax

$
(48
)

$
44


$
59


$
9


$
8


$
10    74




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Assumptions
    Defined Benefits


Postretirement Benefits2006


2005


2006


2005Discount rate


6.00
%


5.50
%


6.00
%


5.50
%Rate of compensation increase


3.80
%


3.70
%






     Defined Benefits


Postretirement Benefits2006


2005


2004


2006


2005


2004Discount rate


5.50
%


6.00
%


6.375
%


5.50
%


6.00
%


6.375
%Expected return on plan assets


8.00
%


8.50
%


8.50
%










Rate of compensation increase


3.70
%


3.70
%


3.40
%










           For the Year2006


2005Health care trend rate assumed for
    the next year


8.0
%


10.0
%Rate to which the cost trend rate
    is assumed to decline (ultimate trend rate)


4.5
%


4.5
%Year that the rate reaches the
    ultimate trend rate


2013



2012     1 Percentage


1 PercentagePoint Increase


Point Decrease(In millions)Increase (decrease) in:Total service and interest cost
    components

$
1


$
(1
)Accumulated postretirement benefit
    obligation


11



(10
)  75




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Plan
    Assets
    Percentage ofRange of


Plan Assets atTarget


Year-EndAllocations


2006


2005Asset category:Equity securities


50-61
%


58
%


56
%Debt securities


30-34
%


33



36Real estate


0-5
%


2



2Other


0-5
%


7



6100
%


100
%         Cash
    Flows
      Defined


PostretirementBenefits


Benefits(In millions)2007

$
70


$
132008


74



122009


78



122010


82



122011


85



122012-2016


478



53   Note 6 
    Share-Based
    Compensation   76




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Restricted
    or performance units
    WeightedAverage Grant


AggregateDate Fair Value


CurrentShares


Per Share


Value(In thousands)





(In millions)Not vested beginning of 2006


744


$
32Granted


690



46Vested


(1
)


30Forfeited


(25
)


38Not vested year-end 2006


1,408



39


$
65Not vested year-end 2006 subject to:Time vesting requirements


649






$
30Performance requirements


759







351,408






$
65Not vested year-end 2006 to be
    settled in:Cash


878






$
40Stock


530







251,408






$
65     Restricted
    stock
    Stock
    options
   77




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted


AggregateWeighted


Average


Intrinsic ValueAverage


Remaining


(Current valueExercise Price


Contractual


less exerciseShares


Per Share


Term


price)(In thousands)





(In years)


(In millions)Outstanding beginning of 2006


6,832


$
28Granted


1,123



46Exercised


(1,789
)


27Forfeited


(154
)


33Outstanding year-end 2006


6,012



32



6


$
192Exercisable year-end 2006


3,314



28



5


$
91       For the Year2006


2005


2004Expected dividend yield


2.4
%


2.3
%


2.9
%Expected stock price volatility


25.1
%


28.2
%


28.8
%Risk-free interest rate


4.4
%


4.2
%


4.4
%Expected life of options in years


6



8



8Weighted average estimated fair
    value of options granted

$
11.50


$
11.15


$
8.34     Share-based
    compensation expense
    For the Year2006


2005


2004(In millions)Restricted or performance units-cash

$
18


$
3


$
Restricted or performance
    units-stock


14



16



10Stock options


14



7



4401(k) match






5



21Pre-tax share-based compensation
    expense

$
46


$
31


$
35  78




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    For the Year2006


2005


2004(In millions)Parent companyCost of sales

$
6


$
5


$
3Selling expense


1



1



1General and administrative


32



25



3139



31



35Financial servicesNoninterest expense, compensation
    and benefits


7







$
46


$
31


$
35         Note 7 
    Earnings Per Share
    For the Year2006


2005


2004(In millions)Earnings for basic and diluted
    earnings per share:Income from continuing operations

$
469


$
176


$
157Discontinued operations


(1
)






3Net income

$
468


$
176


$
160Weighted average shares outstanding:Weighted average shares
    outstanding  basic


108.8



112.6



111.4Dilutive effect of equity purchase
    contracts (Note 2)






0.4



Dilutive effect of stock options
    (Note 6)


2.0



1.5



1.0Weighted average shares
    outstanding  diluted


110.8



114.5



112.4    79




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 8 
    Accumulated Other Comprehensive Income (Loss)
    UnrealizedGains (Losses)





Foreignon Available-


Defined


CurrencyFor-Sale


Benefit


Translation


DerivativeSecurities


Plans


Adjustment


Instruments


Total(In millions)Balance at beginning of year 2004

$
10


$
(166
)

$
(26
)

$
(3
)

$
(185
)Changes during the year


(8
)


(9
)






6



(11
)Deferred taxes on changes


3



4







(3
)


4Net change for 2004


(5
)


(5
)






3



(7
)Balance at year-end 2004

$
5


$
(171
)

$
(26
)

$



$
(192
)Changes during the year


(4
)


6



4



(1
)


5Deferred taxes on changes


1



(3
)










(2
)Net change for 2005


(3
)


3



4



(1
)


3Balance at year-end 2005

$
2


$
(168
)

$
(22
)

$
(1
)

$
(189
)Changes during the year


(1
)


95



(2
)


1



93Deferred taxes on changes






(38
)










(38
)Net change for 2006


(1
)


57



(2
)


1



55Adoption of SFAS No. 158,
    net of deferred taxes of $35






(57
)










(57
)Balance at year-end 2006

$
1


$
(168
)

$
(24
)

$



$
(191
)   Note 9 
    Litigation, Environmental, and Other Contingencies
          Note 10 
    Segment Information
     80




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Expenses NotAllocated toCorrugated


Forest


Real


Financial


Segments andPackaging


Products


Estate


Services


Eliminations


Total(In millions)For the year or at year-end
    2006:Revenues from external customers

$
2,977


$
1,237


$
175


$
1,169


$



$
5,558Depreciation and amortization


153



60



2



22



14



251Equity income from joint ventures


8



3



19











30Income (loss) before taxes


255



312



62



222



(174
)(a)


677Financial services, net interest
    income














412







412Total assets


2,284



1,011



544



16,251



323



20,413Investment in equity method
    investees and joint ventures


11



22



90











123Capital expenditures and
    reforestation


117



66



3



43



22



251Goodwill


236



129







141







506For the year or at year-end
    2005:Revenues from external customers

$
2,825


$
1,040


$
113


$
983


$



$
4,961Depreciation and amortization


160



49



3



26



11



249Equity income from joint ventures


11



28



16











55Income (loss) before taxes


120



219



44



201



(322
)(a)


262Financial services, net interest
    income














396







396Total assets


2,318



866



422



17,691



333



21,630Investment in equity method
    investees and joint ventures


11



36



76











123Capital expenditures and
    reforestation


126



75







41



21



263Goodwill


236











159







395For the year or at year-end
    2004:Revenues from external customers

$
2,736


$
972


$
152


$
988


$



$
4,848Depreciation and amortization


159



54



3



29



9



254Equity income from joint ventures


7



21



9











37Income (loss) before taxes


96



196



36



195



(299
)(a)


224Financial services, net interest
    income














406







406Total assets


2,459



919



381



16,122



263



20,144Investment in equity method
    investees and joint ventures


13



33



54











100Capital expenditures and
    reforestation


146



45







41



30



262Goodwill


236











146







382  81




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (a)
    
    Expenses not allocated to segments consists of:  For the Year2006


2005


2004(In millions)General and administrative

$
(107
)

$
(91
)

$
(79
)Share-based compensation


(46
)


(26
)


(14
)Other operating income (expense)


15



(90
)


(76
)Other non-operating income (expense)


92







Parent company interest


(128
)


(115
)


(130
)$
(174
)

$
(322
)

$
(299
)Other operating income (expense)
    applies to:Corrugated packaging

$
(21
)

$
(38
)

$
(19
)Forest products


42



(27
)


(12
)Real estate










Financial services


(11
)


(5
)


(34
)Unallocated


5



(20
)


(11
)$
15


$
(90
)

$
(76
)   Please read Note G to the parent company summarized
    financial statements and Note L to the financial services
    summarized financial statements for further information about
    other operating income (expense).    For the YearGeographic Information

2006


2005


2004(In millions)Revenues from external customers:United States

$
5,382


$
4,778


$
4,664Mexico


176



156



132Canada(a)






27



52$
5,558


$
4,961


$
4,848   At Year-End2006


2005


2004(In millions)Property and equipment:United States

$
1,816


$
1,787


$
1,810Mexico


37



38



39Canada(a)






1



56$
1,853


$
1,826


$
1,905     (a)
    
    In 2005, we sold our MDF facility located in Pembroke, Canada,
    as a result, we have no significant assets or ongoing operations
    in Canada. 82




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note 11 
    Summary of Quarterly Results of Operations (Unaudited)
    First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions, except per share)2006Total revenues

$
1,384


$
1,433


$
1,409


$
1,332Manufacturing and real estate net
    revenues


1,101



1,134



1,115



1,039Manufacturing and real estate gross
    profit


187



228



220



186Financial services income before
    taxes


46



55



56



47Income from continuing
    operations(a)

$
76


$
192


$
96


$
105Discontinued operations














(1
)Net income

$
76


$
192


$
96


$
104Earnings per shareBasic:Income from continuing operations

$
0.68


$
1.75


$
0.88


$
1.00Discontinued operations














(0.01
)Net income

$
0.68


$
1.75


$
0.88


$
0.99Diluted:Income from continuing operations

$
0.67


$
1.71


$
0.87


$
0.98Discontinued operations














(0.01
)Net income

$
0.67


$
1.71


$
0.87


$
0.97     (a)
    
    Income from continuing operations includes the following items:  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions)Other operating income (expense):Closures and sales of converting
    and production facilities and sales of non-strategic assets

$



$
(1
)

$
(4
)

$
(7
)Hurricane related insurance
    recoveries














2Litigation










(4
)


(2
)Softwood Lumber Agreement














42Financial services repositioning
    activities


(3
)


(7
)


(2
)


1$
(3
)

$
(8
)

$
(10
)

$
36Other non-operating income
    (expense):Tax litigation settlement

$



$
89


$



$
Interest and other income






2



1



$



$
91


$
1


$
   83




---



##### Table of Contents



TEMPLE-INLAND
    INC. AND SUBSIDIARIES
  NOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions, except per share)2005Total revenues

$
1,221


$
1,274


$
1,238


$
1,228Manufacturing and real estate net
    revenues


999



1,035



981



963Manufacturing and real estate gross
    profit


148



163



126



103Financial services income before
    taxes


42



47



61



46Income from continuing
    operations(a)

$
45


$
68


$
37


$
26Discontinued operations






1



1



(2
)Net income

$
45


$
69


$
38


$
24Earnings per
    share(b):Basic:Income from continuing operations

$
0.40


$
0.60


$
0.33


$
0.23Discontinued operations






0.01



0.01



(0.02
)Net income

$
0.40


$
0.61


$
0.34


$
0.21Diluted:Income from continuing operations

$
0.39


$
0.59


$
0.32


$
0.23Discontinued operations






0.01



0.01



(0.02
)Net income

$
0.39


$
0.60


$
0.33


$
0.21     (a)
    
    Income from continuing operations includes the following items:  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In millions)Other operating income (expense):Closures and sales of converting
    and production facilities and sales of non-strategic assets

$
(11
)

$
(28
)

$
(5
)

$
(9
)Hurricane related costs










(16
)


Litigation


(7
)


(1
)


(5
)


Contract termination














4Financial services repositioning
    activities














(5
)Other charges


(6
)






(1
)


$
(24
)

$
(29
)

$
(27
)

$
(10
)Other non-operating income
    (expense):Charges related to early repayment
    of debt

$



$



$



$
(6
)Interest and other income


1



1



1



3$
1


$
1


$
1


$
(3
)   (b)
    
    The sum of earnings per share for the quarters does not equal
    earnings per share for the year due to the use of average shares
    outstanding for each period.  Note 12 
    Subsequent Events
   84




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES) SUMMARIZED
    BALANCE SHEETS  At Year-End2006


2005(In millions)ASSETSCurrent AssetsCash and cash equivalents

$
38


$
13Trade receivables, net of allowance
    for doubtful accounts of $14 in 2006 and $14 in 2005


452



411Inventories:Work in process and finished goods


109



95Raw materials


211



224Supplies and other


115



106Total inventories


435



425Prepaid expenses and other


72



94Total current assets


997



943Investment in Financial
    Services


1,015



1,017Timber and Timberland


358



394Real Estate


512



403Property and EquipmentLand and buildings


648



619Machinery and equipment


3,402



3,337Construction in progress


82



62Less allowances for depreciation


(2,493
)


(2,385
)Total property and equipment


1,639



1,633Goodwill


365



236Assets Held for Sale


20



34Other Assets


311



341TOTAL ASSETS

$
5,217


$
5,001LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable

$
230


$
200Accrued employee compensation and
    benefits


128



101Accrued interest


32



19Accrued property taxes


23



27Other accrued expenses


134



136Liabilities of discontinued
    operations


7



9Current portion of long-term debt


19



12Current portion of pension and
    postretirement benefits


15



Total current liabilities


588



504Long-Term Debt


1,628



1,599Deferred Income Taxes


198



165Liability for Pension
    Benefits


229



270Liability for Postretirement
    Benefits


122



137Other Long-Term
    Liabilities


263



246Total liabilities


3,028



2,921Shareholders
    Equity


2,189



2,080TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
5,217


$
5,001     85




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
 AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
  SUMMARIZED STATEMENTS OF INCOME
  For the Year2006


2005


2004(In millions)NET REVENUES

$
4,389


$
3,978


$
3,860COSTS AND EXPENSESCost of sales


(3,568
)


(3,438
)


(3,358
)Selling


(139
)


(122
)


(134
)General and administrative


(224
)


(207
)


(170
)Other operating income (expense)


51



(30
)


(5
)(3,880
)


(3,797
)


(3,667
)509



181



193FINANCIAL SERVICES
    EARNINGS


204



196



161OPERATING INCOME


713



377



354Interest expense


(128
)


(115
)


(130
)Other non-operating income
    (expense)


92







INCOME FROM CONTINUING
    OPERATIONS BEFORE TAXES


677



262



224Income tax expense


(208
)


(86
)


(67
)INCOME FROM CONTINUING
    OPERATIONS


469



176



157Discontinued operations


(1
)






3NET INCOME

$
468


$
176


$
160     86




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
  SUMMARIZED STATEMENTS OF CASH FLOWS
  For the Year2006


2005


2004(In millions)CASH PROVIDED BY (USED FOR)
    OPERATIONSNet income

$
468


$
176


$
160Adjustments:Depreciation and amortization


229



223



225Non-cash share-based compensation


39



31



35Non-cash pension and postretirement
    expense


56



58



60Cash contribution to pension and
    postretirement plans


(76
)


(76
)


(30
)Deferred income taxes


29



42



63Net earnings of financial services


(130
)


(124
)


(101
)Dividends from financial services


135



25



100Earnings of joint ventures


(30
)


(55
)


(37
)Dividends from joint ventures


13



49



24Non-cash real estate cost of sales


65



35



26Real estate development expenditures


(123
)


(47
)


(43
)Tax benefit of stock options
    exercised






7



5Other


(5
)


76



34Changes in:Receivables


(28
)


(16
)


(45
)Inventories


(10
)






(52
)Accounts payable and accrued
    expenses


32



5



(5
)Prepaid expenses and other


20



(1
)


(9
)684



408



410CASH PROVIDED BY (USED FOR)
    INVESTINGCapital expenditures


(190
)


(192
)


(202
)Reforestation and net acquisition
    of timber and timberland


(18
)


(30
)


(19
)Sales of non-strategic assets and
    operations and proceeds from sale of property and equipment


65



50



77Acquisitions, net of cash acquired,
    and joint ventures


(133
)


(19
)


(13
)Other


1



2



(275
)


(189
)


(157
)CASH PROVIDED BY (USED FOR)
    FINANCINGPayments of debt


(47
)


(524
)


(137
)Borrowings under accounts
    receivable securitization facility, net


133



15



(15
)Borrowings under revolving credit
    facility, net


(133
)






Change in book overdrafts


2



(13
)


1Payments of other long-term
    liabilities










(64
)Other additions to debt


27



528



22Cash dividends paid to shareholders


(108
)


(102
)


(136
)Repurchase of common stock


(318
)


(527
)


Exercise of options


47



48



62Tax benefit of stock options
    exercised


10







Settlement of equity purchase
    contracts






345



Other


(4
)






(391
)


(230
)


(267
)Effect of exchange rate changes on
    cash and cash equivalents










Discontinued operations,
    principally operating activities


7



2



(24
)Net increase (decrease) in cash and
    cash equivalents


25



(9
)


(38
)Cash and cash equivalents at
    beginning of year


13



22



60Cash and cash equivalents at
    year-end

$
38


$
13


$
22    87




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC. AND
    OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL STATEMENTS  Note A 
    Summary of Significant Accounting Policies
  Basis
    of Presentation
    Inventories
  first-in,
  No. 04-13, Accounting for Purchases and Sales of Inventory with the Same
    Counterparty.
  Property
    and Equipment
    CarryingValueEstimated


At Year-EndClassification

Useful Lives


2006(In millions)Land and land improvements


N/A


$
52Buildings and building improvements


10 to 40 years



299Machinery and equipment:Paper machines


22 years



655Mill equipment


5 to 25 years



78Converting equipment


5 to 15 years



363Other production equipment


5 to 25 years



51Transportation equipment


3 to 20 years



42Office and other equipment


2 to 10 years



17Construction in progress


N/A



82$
1,639    88




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
  Timber
    and Timberland
        Revenue
        Real
    Estate
     89




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
   Note B 
    Long-Term Debt
    At Year-End2006


2005(In millions)Borrowings under bank credit
    agreements  average interest rate of 5.89% in 2006
    and 4.88% in 2005

$
12


$
3Accounts receivable securitization
    facility  average interest rate of 5.05% in 2006 and
    3.28% in 2005


164



316.75% Notes, payable in 2009


300



3007.875% Senior notes, payable
    in 2012, net of discounts


498



4986.375% Senior notes, payable
    in 2016, net of discounts


249



2496.625% Senior notes, payable
    in 2018, net of discounts


248



248Revenue bonds, payable 2007 through
    2024  average interest rate of 5.75% in 2006 and
    5.92% in 2005


65



96Other indebtedness due through
    2011  average interest rate of 7.53% in 2006 and
    6.30% in 2005


111



1861,647



1,611Less current portion of long-term
    debt


(19
)


(12
)$
1,628


$
1,599         
  sm
 90




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
     Note C 
    Manufacturing Joint Ventures
      At Year-End2006


2005(In millions)Current assets

$
26


$
64Total assets


241



350Current
    liabilities(a)


24



93Long-term debt


90



102Equity


127



155Our investment in joint ventures:50 percent share in joint
    ventures equity

$
63


$
77Unamortized basis difference


(32
)


(35
)Other






3Investment in joint ventures

$
31


$
45     (a)
    
    Includes current maturities of debt of $6 million in 2006
    and $56 million in 2005.  For the Year2006


2005


2004(In millions)Net revenues

$
192


$
378


$
328Operating income


24



85



61Earnings


17



74



51Our equity in earnings:50 percent share of earnings

$
8


$
37


$
26Amortization of basis difference


3



2



2Equity in earnings of joint ventures

$
11


$
39


$
28      91




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
        Note D 
    Real Estate
    At Year-End2006


2005(In millions)Entitled, developed, and under
    development land

$
255


$
198Land held for investment or future
    development


142



104Investment in real estate ventures


90



76Income producing properties, net of
    accumulated depreciation


25



25$
512


$
403    92




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
     At Year-End2006


2005(In millions)Real estate

$
186


$
184Total assets


281



240Borrowings, principally non-recourse


66



76Total liabilities


84



77Equity


197



163Our investment in real estate
    ventures:Our share of their equity

$
97


$
84Unrecognized deferred
    gain(a)


(7
)


(8
)Investment in real estate ventures

$
90


$
76     (a)
    
    In 2003, we contributed real estate with a $15 million
    carrying value to a newly-formed partnership in exchange for
    $15 million cash and a 50 percent interest in the
    partnership. We deferred the $15 million gain on the sale
    and are recognizing it as the partnership sells the real estate
    to third parties. We recognized $1 million in 2006,
    $2 million in 2005, and $2 million in 2004.  For the Year2006


2005


2004(In millions)Revenues

$
129


$
175


$
106Earnings


36



92



29Our equity in their earnings


19



16



9     Note E 
    Acquisitions
     93




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
     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       Note F 
    Assets Held for Sale
      At Year-End2006


2005(In millions)Working capital

$
6


$
5Property and equipment


2



8      94




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
   Note G 
    Other Operating Income (Expense)
  For the Year2006


2005


2004(In millions)Equity in earnings of manufacturing
    joint ventures

$
11


$
39


$
28Equity in earnings of real estate
    ventures


19



16



9Closures and sales of converting
    and production facilities and sales of non-strategic assets


(12
)


(53
)


(27
)Softwood Lumber Agreement


42







Hurricane related costs, and in
    2006, related insurance recoveries


2



(16
)


Litigation


(6
)


(13
)


Contract termination






4



Consolidation of administrative
    functions










(11
)Other charges


(5
)


(7
)


(4
)$
51


$
(30
)

$
(5
)          95




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
     Beginning


Additions/


Cash


Year-of Year


Revisions


Payments


End(In millions)For the Year 2006Involuntary employee terminations

$
1


$
1


$
(1
)

$
1Contract termination penalties


2







(2
)


Demolition and environmental
    remediation


9



8



(9
)


8$
12


$
9


$
(12
)

$
9For the Year 2005Involuntary employee terminations

$
2


$
7


$
(8
)

$
1Contract termination penalties


6



(4
)






2Demolition and environmental
    remediation


16



1



(8
)


9$
24


$
4


$
(16
)

$
12For the Year 2004Involuntary employee terminations

$
9


$
9


$
(16
)

$
2Contract termination penalties


6











6Demolition and environmental
    remediation


22







(6
)


16$
37


$
9


$
(22
)

$
24     Note H 
    Commitments and Contingencies
       96




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
       Note I 
    Derivative Instruments and Variable Interest Entities
       97




---



##### Table of Contents



PARENT
    COMPANY (TEMPLE-INLAND INC.
    AND OUR MANUFACTURING AND REAL ESTATE SUBSIDIARIES)
    NOTES TO SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
   Note J 
    Other Information
     98




---



##### Table of Contents



FINANCIAL
    SERVICESSUMMARIZED BALANCE SHEETS  At Year-End2006


2005(In millions)ASSETSCash and cash equivalents

$
372


$
431Loans held for sale


23



280Loans, net of allowance for losses
    of $65 in 2006 and $74 in 2005


9,617



9,845Securities
    available-for-sale


529



654Securities
    held-to-maturity


4,853



5,558Investment in Federal Home
    Loan Bank stock


262



300Property and equipment, net


214



193Accounts, notes, and accrued
    interest receivable


104



120Goodwill


141



159Other intangible assets


26



31Other assets


110



120TOTAL ASSETS

$
16,251


$
17,691LIABILITIES AND
    SHAREHOLDERS EQUITYDeposits

$
9,486


$
9,201Federal Home Loan Bank
    borrowings


5,076



6,892Other liabilities


126



175Other borrowings


101



101Subordinated notes payable to trust


142



Preferred stock issued by
    subsidiaries


305



305Total liabilities


15,236



16,674Shareholders equity


1,015



1,017TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
16,251


$
17,691    99




---



##### Table of Contents



FINANCIAL
    SERVICES
  SUMMARIZED
    STATEMENTS OF INCOME
  For the Year2006


2005


2004(In millions)INTEREST INCOMELoans and loans held for sale

$
695


$
589


$
493Securities
    available-for-sale


32



41



52Securities
    held-to-maturity


249



155



165Other earning assets


21



15



8Total interest income


997



800



718INTEREST EXPENSEDeposits


(283
)


(189
)


(142
)Borrowed funds


(302
)


(215
)


(170
)Total interest expense


(585
)


(404
)


(312
)NET INTEREST INCOME


412



396



406(Provision) credit for credit
    losses


(1
)


(10
)


12NET INTEREST INCOME AFTER
    (PROVISION) CREDIT FOR CREDIT LOSSES


411



386



418NONINTEREST INCOMELoan origination and sale of loans


2



22



140Insurance commissions and fees


65



61



47Service charges on deposits


50



44



42Operating lease income


7



6



10Loan servicing fees










31Amortization and impairment of
    servicing rights










(40
)Other


48



50



40Total noninterest income


172



183



270NONINTEREST EXPENSECompensation and benefits


(184
)


(178
)


(264
)Insurance operations, other than
    compensation


(20
)


(15
)


(11
)Occupancy


(26
)


(24
)


(29
)Information systems and technology


(13
)


(15
)


(18
)Charges related to asset
    impairments and severance


(11
)


(5
)


(34
)Loan servicing and origination,
    other than compensation










(13
)Other


(125
)


(136
)


(158
)Total noninterest expense


(379
)


(373
)


(527
)INCOME BEFORE TAXES


204



196



161Income tax expense


(74
)


(72
)


(60
)NET INCOME

$
130


$
124


$
101    100




---



##### Table of Contents



FINANCIAL
    SERVICES
  SUMMARIZED
    STATEMENTS OF CASH FLOWS
  For the Year2006


2005


2004(In millions)CASH PROVIDED BY (USED FOR)
    OPERATIONSNet income

$
130


$
124


$
101Adjustments:Depreciation and amortization


16



20



21Depreciation of assets leased to
    others


6



6



8Amortization and impairment of
    servicing rights










40Provision (credit) for credit losses


1



10



(12
)Amortization and accretion of
    financial instrument discounts and premiums and deferred loan
    fees and origination costs, net


24



18



18Deferred income taxes


(2
)


9



(25
)Changes in:Loans held for sale:Originations


(157
)


(2,379
)


(6,898
)Sales


414



2,595



6,920Collections on loans serviced for
    others, net






(122
)


(32
)Other


(15
)


(6
)


38417



275



179CASH PROVIDED BY (USED FOR)
    INVESTINGSecurities
    available-for-sale:Purchases


(2
)


(3
)


Principal payments and maturities


126



183



285Securities
    held-to-maturity:Purchases


(833
)


(2,966
)


(910
)Principal payments and maturities


1,510



1,339



1,727Redemption of Federal Home
    Loan Bank stock


52







Loans originated or acquired, net
    of collections


(65
)


(310
)


(644
)Collection of mortgage servicing
    rights sale receivables






46



14Sales of loans


302



1



37Acquisitions, net of cash acquired






(21
)


(15
)Branch acquisitions










148Capital expenditures


(43
)


(41
)


(41
)Other


(3
)


(2
)


341,044



(1,774
)


635CASH PROVIDED BY (USED FOR)
    FINANCINGDeposits, net


285



238



113Repurchase agreements and
    short-term borrowings, net


(1,196
)


2,126



(308
)Long-term Federal Home
    Loan Bank and other borrowings:Additions






2



353Payments


(620
)


(740
)


(862
)Issuance of subordinated notes
    payable to trust


142







Dividends paid to parent company


(135
)


(25
)


(100
)Other


4



(21
)


1(1,520
)


1,580



(803
)Net increase (decrease) in cash and
    cash equivalents


(59
)


81



11Cash and cash equivalents at
    beginning of year


431



350



339Cash and cash equivalents at
    year-end

$
372


$
431


$
350Interest paid

$
584


$
389


$
300    101




---



##### Table of Contents



FINANCIAL
    SERVICES



NOTES TO
    SUMMARIZED FINANCIAL STATEMENTS  Note A 
    Summary of Significant Accounting Policies
  Basis
    of Presentation
    Cash
    and Cash Equivalents
    Loans
    Held for Sale
    Loans
    Allowance
    for Loan Losses
     102




---



##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
            Foreclosed
    Assets
    Securities
  held-to-maturity available-for-sale
 103




---



##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
  other-than-temporary.
    Transfers
    and Servicing of Financial Assets
    Property
    and Equipment
    Other
    Intangible Assets
    Securities
    Sold Under Repurchase Agreements
    Other
    Revenue Recognition
   104




---



##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
   Share-Based
    Compensation
  Share-Based Payment,
  Income
    Taxes
    Note B 
    Acquisitions and Intangible Assets
          Note C 
    Cash and Cash Equivalents
    At Year-End2006


2005(In millions)Cash and due from banks

$
188


$
169Interest-bearing deposits with banks


14



111Federal funds sold


170



151$
372


$
431  105




---



##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
  Note D 
    Loans
    At Year-End2006


2005(In millions)Single-family mortgage

$
2,323


$
3,112Single-family mortgage warehouse


795



757Single-family construction


1,782



1,665Multifamily and senior housing


1,270



1,469Total residential housing


6,170



7,003Commercial real estate


1,227



758Commercial and business


1,012



843Energy lending


1,117



756Asset-based lending and leasing






395Consumer and other


156



164Total loans


9,682



9,919Less allowance for loan losses


(65
)


(74
)Loans, net

$
9,617


$
9,845   loan-to-value
    At Year-End2006


2005(In millions)California

$
1,262


$
1,730Texas


239



303Florida


138



154All other states


684



925$
2,323


$
3,112      106




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
         107




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
     For the Year2006


2005


2004(In millions)Loans:Balance at beginning of year

$
74


$
85


$
111Provision (credit) for loan losses


1



7



(12
)Charge-offs


(18
)


(23
)


(15
)Recoveries


8



5



8Transfer to reserve for unfunded
    credit commitments










(7
)Balance at year-end


65



74



85Unfunded credit commitments:Balance at beginning of year


7



7



Provision for commitment-related
    credit losses






3



Charge-offs






(3
)


Transfer from allowance for loan
    losses










7Balance at year-end


7



7



7Combined allowances for credit
    losses at year-end

$
72


$
81


$
92Provision (credit) for:Loan losses

$
1


$
7


$
(12
)Commitment-related credit losses






3



Combined provision (credit) for
    credit losses

$
1


$
10


$
(12
)     At Year-End2006


2005(In millions)Past due 90 days or more and
    accruing interest

$
5


$
8Recorded investment in nonaccrual
    loans


26



35Restructured loans included in
    nonaccrual loans


1



1Impaired loans included in
    nonaccrual loans


1



1Average recorded investment in
    impaired loans


2



4    108




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
   Note E 
    Securities
    Gross


GrossAmortized


Unrealized


Unrealized


Fair


Year-EndCost


Gains


(Losses)


Value


Yield(Dollars in millions)At year-end 2006Available-for-saleMortgage-backed securities:U.S. Government

$
17


$



$



$
17U.S. Government Sponsored
    Enterprises (FNMA, FHLMC)


496



6



(4
)


498Private issuer


6











6519



6



(4
)


521



5.76
%U.S. Government debt securities


4











4



5.06
%Equity securities


4











4$
527


$
6


$
(4
)

$
529Held-to-maturityMortgage-backed securities:U.S. Government

$
79


$



$
(1
)

$
78U.S. Government Sponsored
    Enterprises (FNMA, FHLMC)


1,725



3



(21
)


1,707Private issuer


3,049



21



(3
)


3,067$
4,853


$
24


$
(25
)

$
4,852



5.14
%At year-end 2005Available-for-saleMortgage-backed securities:U.S. Government

$
21


$



$



$
21U.S. Government Sponsored
    Enterprises (FNMA, FHLMC)


615



8



(4
)


619Private issuer


7











7643



8



(4
)


647



4.59
%U.S. Government debt securities


3











3



4.85
%Equity securities


4











4$
650


$
8


$
(4
)

$
654Held-to-maturityMortgage-backed securities:U.S. Government

$
115


$



$
(1
)

$
114U.S. Government Sponsored
    Enterprises (FNMA, FHLMC)


2,276



3



(35
)


2,244Private issuer


3,167



1



(14
)


3,154$
5,558


$
4


$
(50
)

$
5,512



4.40
%      109




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
      available-for-sale held-to-maturity
    Less Than12 Months


12 Months or MoreGross





GrossFair


Unrealized


Fair


UnrealizedValue


(Losses)


Value


(Losses)(In millions)Available-for-saleMortgage-backed securities:U.S. Government Sponsored
    Enterprises

$
3


$



$
167


$
(4
)Held-to-maturityMortgage-backed securities:U.S. Government

$
2


$



$
54


$
(1
)U.S. Government Sponsored
    Enterprises


41







1,380



(21
)Private issuer


216







257



(3
)$
259


$



$
1,691


$
(25
)$
262


$



$
1,858


$
(29
)     
    The unrealized losses are, in general, a result of changes in
    market interest rates and not changes in credit quality. The
    securities are guaranteed directly or indirectly by the
    U.S. Government or
    U.S. Government
    Sponsored Enterprises, or are senior-tranche mortgage-backed
    securities considered investment grade quality by third-party
    rating agencies. We do not believe any of these unrealized
    losses are related to credit or other concerns about the
    collectibility of contractual amounts due.
    The mortgage-backed securities cannot be settled at maturity or
    through prepayment in a way that would preclude recovery of
    substantially all of our recorded investment. We do not have
    significant purchase premiums on the securities. Additionally,
    we have no specific plans to sell these mortgage-backed
    securities and we have the ability to hold them to maturity. 110




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
   Note F 
    Property and Equipment
    Estimated


At Year-EndClassification

Useful Lives


2006


2005(In millions)Land


N/A


$
50


$
43Buildings


10-40 years



157



147Leasehold improvements


5-20 years



19



24Furniture, fixtures, and equipment


3-10 years



73



90299



304Less accumulated depreciation and
    amortization






(85
)


(111
)$
214


$
193     Note G 
    Deposits
    At Year-End2006


2005Average





AverageStated





StatedRate


Amount


Rate


Amount(Dollars in millions)Noninterest-bearing demand


N/A


$
845



N/A


$
803Interest-bearing demand


2.00
%


3,442



1.35
%


3,416Savings deposits


0.67
%


192



0.80
%


223Certificates of deposit


4.74
%


5,007



3.54
%


4,759$
9,486






$
9,201     $100,000 Or


Less ThanMore


$100,000


Total(In millions)3 months or less

$
633


$
1,213


$
1,846Over 3 through 6 months


513



1,095



1,608Over 6 through 12 months


298



672



970Over 12 months


155



428



583$
1,599


$
3,408


$
5,007    111




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
  Note H 
    Borrowings
      2006


2005


2004(Dollars in millions)Short-term FHLB
    Borrowings:At year-end:Balance

$
3,772


$
4,968


$
2,055Weighted average interest rate


5.2
%


4.0
%


2.1
%For the year:Average daily balance

$
4,212


$
3,084


$
2,161Maximum month-end balance

$
4,877


$
4,968


$
2,908Weighted average interest rate


5.0
%


3.4
%


1.4
%Long-term FHLB
    Borrowings:At year-end:Balance

$
1,304


$
1,924


$
2,662Weighted average interest rate


3.7
%


3.7
%


3.7
%Repurchase Agreements:At year-end:Balance

$



$



$
787Weighted average interest rate










2.3
%For the year:Average daily balance

$



$
144


$
1,155Maximum month-end balance

$



$
711


$
1,696Weighted average interest rate






2.5
%


1.3
%Other borrowings:At year-end:Balance

$
101


$
101


$
105Weighted average interest rate


8.3
%


6.5
%


4.6
%     Payment Due or Expiring by YearTotal


2007


2008


2009


2010


2011


Thereafter(In millions)FHLB borrowings

$
5,076


$
4,727


$
250


$
99


$



$



$
Other borrowings


101























101$
5,177


$
4,727


$
250


$
99


$



$



$
101  112




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
    For the Year2006


2005


2004(In millions)Short-term FHLB borrowings

$
209


$
103


$
31Long-term FHLB borrowings


61



84



107Repurchase agreements






4



15Other borrowings


9



7



5Subordinated notes payable to trust
    (Note I)


2







Preferred stock issued by
    subsidiaries (Note I)


21



17



12$
302


$
215


$
170   Note I 
    Preferred Stock Issued by Subsidiaries and Subordinated
    Notes Payable to Trust
  Preferred
    Stock Issued by Subsidiaries
      Subordinated
    Notes Payable to Trust
   113




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
    Note J 
    Mortgage Loan Servicing
    Note K 
    Derivative Instruments
    Note L 
    Noninterest Expense
        For the Year2006


2005


2004(In millions)Severance

$
5


$
2


$
9Loss on closure of origination
    facilities










11Loss on sale of mortgage servicing
    rights










11Goodwill impairment


6







Other






3



3$
11


$
5


$
34  114




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
    Beginning





Cash


Year-of Year


Additions


Payments


End(In millions)For the year 2006Involuntary employee terminations

$
2


$
5


$
(7
)

$
Contract termination penalties


1











1Other


3











3$
6


$
5


$
(7
)

$
4For the year 2005Involuntary employee terminations

$
3


$
2


$
(3
)

$
2Contract termination penalties


2







(1
)


1Other


6







(3
)


3$
11


$
2


$
(7
)

$
6For the year 2004Involuntary employee terminations

$



$
9


$
(6
)

$
3Contract termination penalties






2







2Other






8



(2
)


6$



$
19


$
(8
)

$
11     For the Year2006


2005


2004(In millions)Shared services allocation from
    parent company, principally information technology support

$
19


$
16


$
17Furniture, fixtures, and equipment


16



20



22Advertising and promotional


15



20



22Professional services


12



16



21Travel and other employee costs


11



11



11Postage, printing, and supplies


7



9



13Depreciation of assets leased to
    others


6



6



8Other


39



38



44$
125


$
136


$
158   Note M 
    Capital Adequacy and Other Regulatory Matters
     115




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##### Table of Contents



FINANCIAL
    SERVICES
  NOTES TO
    SUMMARIZED FINANCIAL
    STATEMENTS  (Continued)
    For CategorizationActual


For Capital Adequacy Requirements


As Well CapitalizedAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in millions)At year-end 2006:Total Risk-Based Ratio (Risk-based
    capital/Total risk-weighted assets)

$
1,297



10.52
%

3 $
987



3 8.00
%

3 $
1,234



3 10.00
%Tier 1 (Core) Risk-Based Ratio
    (Core capital/Total risk-weighted assets)

$
1,225



9.93
%

3 $
493



3 4.00
%

3 $
740



3 6.00
%Tier 1 (Core) Leverage Ratio
    (Core capital/Adjusted tangible assets)

$
1,225



7.62
%

3 $
643



3 4.00
%

3 $
804



3 5.00
%Tangible Ratio (Tangible
    equity/Tangible assets)

$
1,225



7.62
%

3 $
321



3 2.00
%


N/A



N/AAt year-end 2005:Total Risk-Based Ratio (Risk-based
    capital/Total risk-weighted assets)

$
1,293



10.54
%

3 $
981



3 8.00
%

3 $
1,227



3 10.00
%Tier 1 (Core) Risk-Based Ratio
    (Core capital/Total risk-weighted assets)

$
1,213



9.89
%

3 $
491



3 4.00
%

3 $
736



3 6.00
%Tier 1 (Core) Leverage Ratio
    (Core capital/Adjusted tangible assets)

$
1,213



6.94
%

3 $
699



3 4.00
%

3 $
874



3 5.00
%Tangible Ratio (Tangible
    equity/Tangible assets)

$
1,213



6.94
%

3 $
350



3 2.00
%


N/A



N/A        116




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures    Rules 13a-15(e) 15d-15(e)
    Item 8. Financial Statements
    and Supplementary Data.
  Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information   117




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Year FirstElected toName

Age

the Board

Principal OccupationKenneth M. Jastrow, II


59



1998


Chairman and Chief Executive
    Officer of Temple-Inland Inc.Afsaneh M. Beschloss


51



2002


President and Chief Executive
    Officer of The Rock Creek GroupDr. Donald M. Carlton


69



2003


Former President and Chief
    Executive Officer of Radian International LLCCassandra C. Carr


62



2004


Senior Advisor, Public Strategies,
    Inc.E. Linn Draper, Jr.


65



2004


Former Chairman, President and
    Chief Executive Officer of American Electric Power Company, Inc.Larry R. Faulkner


61



2005


President of Houston Endowment Inc.James T. Hackett


53



2000


Chairman, President and Chief
    Executive Officer of Anadarko Petroleum CorporationJeffrey M. Heller


67



2004


Vice Chairman of Electronic Data
    Systems, Inc.James A. Johnson


63



2000


Vice Chairman of Perseus LLCW. Allen Reed


59



2000


Former Chairman of the Board of
    General Motors Asset Management CorporationRichard M. Smith


60



2006


Chairman and
    Editor-in-Chief
    of NewsweekArthur Temple III


65



1983


Chairman of the Board of First
    Bank & Trust, East Texas and the T.L.L. Temple
    FoundationLarry E. Temple


71



1991


Attorney-at-law   Form 10-K
  Item 11.
    Executive
    Compensation   118




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Securities
    Authorized for Issuance Under Equity Compensation
    Plans
    (c)Number of Securities(a)


(b)


Remaining AvailableNumber of Securities


Weighted-Average


for Future Issuanceto be Issued Upon


Exercise Price of


Under EquityExercise of Outstanding


Outstanding Options,


Compensation PlansOptions, Warrants and


Warrants and


(Excluding SecuritiesPlan Category

Rights*


Rights


Reflected in Column(a))Equity compensation plans approved
    by security holders


7,092,676


$
31.94



1,884,277Equity compensation plans not
    approved by security holders


None



None



NoneTotal


7,092,676


$
31.94



1,884,277     *
    
    Includes 1,081,004 phantom shares payable in stock.    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules    Financial Statements
  Form 10-K.
  Financial Statement Schedules
    Exhibits
  ExhibitNumber



Exhibit3
.01



Certificate of Incorporation of the
    Company (incorporated by reference to Exhibit 3.01 to
    registration statement on
    Form S-1
    (Reg.
    No. 2-87570)
    filed by the Company with the Commission on November 2,
    1983)3
.02



Certificate of Amendment to the
    Certificate of Incorporation of the Company, effective
    May 4, 1987 (incorporated by reference to Exhibit 4.01
    to post-effective amendment No. 2 to registration statement
    on
    Form S-8
    (Reg. No. 2-88202)
    filed by the Company with the Commission on November 16,
    1987) 119




---



##### Table of Contents



ExhibitNumber



Exhibit3
.03



Certificate of Amendment to the
    Certificate of Incorporation of the Company, effective
    May 5, 1990 (incorporated by reference to Exhibit 4.01
    to post-effective amendment No. 2 to registration statement
    on
    Form S-8
    (Reg. No. 33-25650)
    filed by the Company with the Commission on June 14, 1990)3
.04



By-laws of the Company as amended
    and restated May 2, 2002 (incorporated by reference to
    Exhibit 3.1 to the Companys
    Form 10-Q
    for the quarter ended September 28, 2002, and filed with
    the Commission on November 12, 2002)4
.01



Form of Specimen Common Stock
    Certificate of the Company (incorporated by reference to
    Exhibit 4.03 to registration statement on
    Form S-8
    (Reg.
    No. 33-27286)
    filed by the Company with the Commission on March 2, 1989)4
.02



Indenture dated as of
    September 1, 1986, between the Registrant and Chemical
    Bank, as Trustee (or Senior Notes Indenture) (incorporated
    by reference to Exhibit 4.01 to registration statement on
    Form S-1
    (Reg.
    No. 33-8362)
    filed by the Company with the Commission on August 29, 1986)4
.03



First Supplemental Indenture to the
    Senior Notes Indenture, dated as of April 15, 1988,
    between the Company and JPMorgan Chase Bank, N.A. (formerly
    known as The Chase Manhattan Bank and Chemical Bank), as Trustee
    (incorporated by reference to Exhibit 4.02 to registration
    statement on
    Form S-3,
    Registration
    No. 33-20431,
    filed with the Commission on March 2, 1988)4
.04



Second Supplemental Indenture to
    the Senior Notes Indenture, dated as of December 27,
    1990, between the Company and JPMorgan Chase Bank, N.A.
    (formerly known as The Chase Manhattan Bank and Chemical Bank),
    as Trustee (incorporated by reference to Exhibit 4.03 to
    Form 8-K,
    filed with the Commission on December 27, 1990)4
.05



Third Supplemental Indenture to the
    Senior Notes Indenture, dated as of May 9, 1991,
    between the Company and JPMorgan Chase Bank, N.A. (formerly
    known as The Chase Manhattan Bank and Chemical Bank), as Trustee
    (incorporated by reference to Exhibit 4 to
    Form 10-Q
    for the quarter ended June 29, 1991, filed with the
    Commission on August 7, 1991)4
.06



Form of Fixed-rate Medium Term
    Note, Series D, of the Company (incorporated by reference
    to Exhibit 4.05 to registration statement on
    Form S-3
    (Reg.
    No. 33-43978)
    filed by the Company with the Commission on November 14,
    1991)4
.07



Certificate of Designation,
    Preferences and Rights of Series A Junior Participating
    Preferred Stock, dated February 16, 1989 (incorporated by
    reference to Exhibit 4.04 to the Companys
    Form 10-K
    for the year ended December 31, 1988, and filed with the
    Commission on March 21, 1989)4
.08



Rights Agreement, dated
    February 20, 1999, between the Company and Equiserve Trust
    Company, N.A. (f/k/a First Chicago Trust Company of New York),
    as Rights Agent (incorporated by reference to Exhibit 1 to
    the Companys registration statement on Form 8A filed
    with the Commission on February 19, 1999)4
.09



Form of Fixed-rate Medium Term
    Note, Series F, of the Company (incorporated by reference
    to Exhibit 4.05 to the Companys
    Form 8-K
    filed with the Commission on June 3, 1998)4
.10



Form of 5.003% Senior Note due
    2007 of the Company (incorporated by reference to
    Exhibit 4.2 to the Companys
    Form 8-K
    filed with the Commission on May 3, 2002)4
.11



Form of 7.875% Senior Notes
    due 2012 of the Company (incorporated by reference to
    Exhibit 4.1 to the Companys
    Form 8-K
    filed with the Commission on May 3, 2002)4
.12



Form of 6.375% Senior Notes
    due 2016 of the Company (incorporated by reference to
    Exhibit 4.1 to the Companys
    Form 8-K
    filed with the Commission on December 6, 2005)4
.13



Form of 6.625% Senior Notes
    due 2018 of the Company (incorporated by reference to
    Exhibit 4.2 to the Companys
    Form 8-K
    filed with the Commission on December 6, 2005)10
.01



Credit Agreement dated
    July 28, 2005, with Bank of America, N.A., as
    administrative agent and L/C Issuer; Citibank, N.A. and The
    Toronto Dominion Bank, as co-syndication agents; BNP Paribas and
    The Bank Of Nova Scotia, as co-documentation agents; Banc of
    America Securities LLC and Citigroup Global Markets Inc., as
    joint lead arrangers and joint book managers; and the lenders
    party thereto (incorporated by reference to the Companys
    Current Report on
    Form 8-K
    filed with the Commission on August 1, 2005)10
.02*



Temple-Inland Inc. 1993 Stock
    Option Plan (incorporated by reference to the Companys
    definitive proxy statement in connection with the Annual Meeting
    of Shareholders held May 6, 1994, and filed with the
    Commission on March 21, 1994)10
.03*



First amendment to Temple-Inland
    Inc. 1993 Stock Option Plan (incorporated by reference to
    Exhibit 10.1 to the Companys
    Form 10-Q
    for the quarter ended September 30, 2006, and filed with
    the Commission on November 7, 2006) 120




---



##### Table of Contents



ExhibitNumber



Exhibit10
.04*



Temple-Inland Inc. 1997 Stock
    Option Plan (incorporated by reference to the Companys
    Definitive Proxy Statement in connection with the Annual Meeting
    of Shareholders held May 2, 1997, and filed with the
    Commission on March 17, 1997), as amended May 7, 1999
    (incorporated by reference to the Companys definitive
    proxy statement in connection with the Annual Meeting of
    Shareholders held May 7, 1999, and filed with the
    Commission on March 26, 1999)10
.05*



First amendment to Temple-Inland
    Inc. 1997 Stock Option Plan (incorporated by reference to
    Exhibit 10.2 to the Companys
    Form 10-Q
    for the quarter ended September 30, 2006, and filed with
    the Commission on November 7, 2006)10
.06*



Temple-Inland Inc. 1997 Restricted
    Stock Plan (incorporated by reference to the Companys
    Definitive Proxy Statement in connection with the Annual Meeting
    of Shareholders held May 2, 1997, and filed with the
    Commission on March 17, 1997)10
.07*



Temple-Inland Inc. 2001 Stock
    Incentive Plan (incorporated by reference to the Companys
    definitive proxy statement in connection with the Annual Meeting
    of Shareholders held May 4, 2001, and filed with the
    Commission on March 23, 2001)10
.08*



First amendment to Temple-Inland
    Inc. 2001 Stock Incentive Plan (incorporated by reference to
    Exhibit 10.3 to the Companys
    Form 10-Q
    for the quarter ended September 30, 2006, and filed with
    the Commission on November 7, 2006)10
.09*



Temple-Inland Inc. 2003 Stock
    Incentive Plan (incorporated by reference to Appendix A of
    the Companys definitive proxy statement dated
    March 31, 2003, and prepared in connection with the annual
    meeting of stockholders held May 2, 2003)10
.10*



First amendment to Temple-Inland
    Inc. 2003 Stock Incentive Plan (incorporated by reference to
    Exhibit 10.4 to the Companys
    Form 10-Q
    for the quarter ended September 30, 2006, and filed with
    the Commission on November 7, 2006)10
.11*



Form of Nonqualified Stock Option
    Agreement issued pursuant to the Temple-Inland Inc. 2003 Stock
    Incentive Plan (incorporated by reference to Exhibit 10.23
    to the Companys
    Form 10-K
    for the year ended January 3, 2004, and filed with the
    Commission on February 23, 2004)10
.12*



Revised Form of Performance Stock
    Units Agreement issued pursuant to the Temple-Inland Inc. 2003
    Stock Incentive Plan (incorporated by reference to
    Exhibit 10.08 to the Companys
    Form 10-K
    for the year ended December 31, 2005, and filed with the
    commission on March 8, 2006)10
.13*



Revised Form of Restricted Stock
    Unit Agreement issued pursuant to the Temple-Inland Inc. 2003
    Stock Incentive Plan (incorporated by reference to
    Exhibit 10.09 to the Companys
    Form 10-K
    for the year ended December 31, 2005, and filed with the
    commission on March 8, 2006)10
.14*



Revised Form of Nonqualified Stock
    Option Agreement for Non-Employee Directors issued pursuant to
    the Temple-Inland Inc. 2003 Stock Incentive
    Plan (incorporated by reference to Exhibit 10.10 to
    the Companys
    Form 10-K
    for the year ended December 31, 2005, and filed with the
    commission on March 8, 2006)10
.15*



Temple-Inland Inc. Stock Deferral
    and Payment Plan (as amended and restated effective
    February 2, 2001) (incorporated by reference to the
    Companys definitive proxy statement in connection with the
    Annual Meeting of Shareholders held May 4, 2001, and filed
    with the Commission on March 23, 2001)10
.16*



Temple-Inland Inc. Directors
    Fee Deferral Plan (incorporated by reference to the
    Companys definitive proxy statement in connection with the
    Annual Meeting of Shareholders held May 4, 2001, and filed
    with the Commission on March 23, 2001)10
.17*



Temple-Inland Inc. Supplemental
    Executive Retirement Plan (incorporated by reference to
    Exhibit 10.1 to the Companys
    Form 10-Q
    for the quarter ended June 30, 2001 filed with the
    Commission on August 14, 2001)10
.18*



First amendment to Temple-Inland
    Inc. Supplemental Executive Retirement Plan (1)10
.19*



Employment Agreement between the
    company and Kenneth M. Jastrow, II, dated February 11,
    2005 (incorporated by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed with the Commission on February 11, 2005)10
.20*



Employment Agreement and Change in
    Control Agreement dated June 1, 2003, between the Company
    and J. Patrick Maley III (incorporated by reference to
    Exhibit 10.1 to the Companys
    Form 10-Q
    for the quarter ended September 28, 2003, and filed with
    the Commission on November 12, 2003) 121




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##### Table of Contents



ExhibitNumber



Exhibit10
.21*



Change in Control Agreement dated
    October 2, 2000, between the Company and Kenneth M.
    Jastrow, II (incorporated by reference to
    Exhibit 10.22 to the Companys
    Form 10-K
    for the year ended December 30, 2000, and filed with the
    Commission on March 5, 2001), as amended on
    February 11, 2005 (incorporated by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed with the Commission on February 11, 2005)10
.22*



Change in Control Agreement dated
    October 2, 2000, between the Company and Jack C. Sweeny
    (incorporated by reference to Exhibit 10.29 to the
    Companys
    Form 10-K
    for the year ended December 30, 2000, and filed with the
    Commission on March 5, 2001)10
.23*



Change in Control Agreement dated
    October 2, 2000, between the Company and Randall D. Levy
    (incorporated by reference to Exhibit 10.31 to the
    Companys
    Form 10-K
    for the year ended December 30, 2000, and filed with the
    Commission on March 5, 2001)10
.24*



Change in Control Agreement dated
    October 2, 2000, between the Company and Doyle R. Simons
    (incorporated by reference to Exhibit 10.34 to the
    Companys
    Form 10-K
    for the year ended December 30, 2000, and filed with the
    Commission on March 5, 2001)21




Subsidiaries of the Company (1)23




Consent of Ernst & Young
    LLP (1)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 (1)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 (1)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 (1)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 (1)    *
    
    Management contract or compensatory plan or arrangement.(1)
    
    Filed herewith 122




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##### Table of Contents



SIGNATURES    Temple-Inland Inc.
  By:
    /s/  Kenneth
    M. Jastrow, II   Chairman of the Board and
 Chief Executive Officer
     Signature

Capacity

Date/s/  Kenneth
    M.
    Jastrow, IIKenneth
    M. Jastrow, II

Director, Chairman of the
    Board,
    and Chief Executive Officer

February 23, 2007/s/  Randall
    D. LevyRandall
    D. Levy

Chief Financial Officer

February 23, 2007/s/  Troy
    L. HesterTroy
    L. Hester

Principal Accounting Officer

February 23, 2007/s/  Afsaneh
    M.
    BeschlossAfsaneh
    M. Beschloss

Director

February 23, 2007/s/  Donald
    M. CarltonDonald
    M. Carlton

Director

February 23, 2007/s/  Cassandra
    C. CarrCassandra
    C. Carr

Director

February 23, 2007/s/  E.
    Linn
    Draper, Jr.E.
    Linn Draper, Jr.

Director

February 23, 2007/s/  Larry
    R. FaulknerLarry
    R. Faulkner

Director

February 23, 2007/s/  James
    T. HackettJames
    T. Hackett

Director

February 23, 2007/s/  Jeffrey
    M. HellerJeffrey
    M. Heller

Director

February 23, 2007/s/  James
    A. JohnsonJames
    A. Johnson

Director

February 23, 2007 123




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##### Table of Contents



Signature

Capacity

Date/s/  W.
    Allen ReedW.
    Allen Reed

Director

February 23, 2007/s/  Richard
    M. SmithRichard
    M. Smith

Director

February 23, 2007/s/  Arthur
    Temple IIIArthur
    Temple III

Director

February 23, 2007/s/  Larry
    E. TempleLarry
    E. Temple

Director

February 23, 2007  124