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Temple-Inland posts improved fourth quarter profits

fEB. 5, 2007 - Temple-Inland Inc. today reported fourth quarter 2006 net income of $104 million, or $0.97 per diluted share, compared with fourth quarter 2005 net income of $24 million, or $0.21 per diluted share, and third quarter 2006 net income of $96 million, or $0.87 per diluted share.

Results for fourth quarter 2006 include a net after-tax gain of $26 million, or $0.24 per share, principally related to payments received pursuant to the Softwood Lumber Agreement between the U.S. and Canada. As reflected in the table below, net income per diluted share, excluding special items, for fourth quarter 2006 is $0.73 per share, compared with $0.30 per share in fourth quarter 2005, and $0.93 per share in third quarter 2006.

For the year, net income was $468 million, or $4.22 per diluted share, compared with 2005 net income of $176 million, or $1.54 per diluted share. Net income per diluted share excluding special items was $3.32 in 2006 compared with $1.90 in 2005, an increase of 75%. At year end 2006, fully diluted outstanding shares were 106.7 million.

Corrugated Packaging operating income increased to $255 million in 2006 compared with $120 million in 2005.

Corrugated Packaging operating income improved fourth quarter 2006 compared with fourth quarter 2005, principally due to higher corrugated container prices and lower energy costs. Operating income was flat fourth quarter 2006 compared with third quarter 2006 as higher corrugated container prices and lower recycled fiber costs were offset by lower box shipments and higher energy and freight costs.

Shipments fourth quarter 2006 were down 6%, on a volume per workday basis, compared with fourth quarter 2005 primarily due to the previously announced sale of Performance Sheets (a sheet feeder plant in City of Industry, California) August 2006. On a volume per workday basis, shipments of corrugated containers were essentially flat fourth quarter 2006 compared with third quarter 2006.

Average prices for corrugated containers fourth quarter 2006 were up 13% compared with fourth quarter 2005 and up 2% compared with third quarter 2006. The average cost of recycled fiber fourth quarter 2006 was up 10% compared with fourth quarter 2005, but down 16% compared with third quarter 2006. Freight costs were up $2 million compared with fourth quarter 2005 and third quarter 2006. Energy costs were down $16 million fourth quarter 2006 compared with fourth quarter 2005, but up $3 million compared with third quarter 2006.

Forest Products

Forest Products reported operating income of $312 million in 2006, a record level for the third consecutive year.

Operating income declined fourth quarter 2006 compared with fourth quarter 2005 primarily due to lower lumber pricing. Operating income declined fourth quarter 2006 compared with third quarter 2006 due to lower pricing and shipments. Fourth quarter and full year 2006 operating income reflect the benefit of the acquisition of our partner's interest in Standard Gypsum January 2006.

Average lumber prices fourth quarter 2006 were down 25% compared with fourth quarter 2005 and down 6% compared with third quarter 2006. Gypsum prices were up 13% compared with fourth quarter 2005, but down 9% compared with third quarter 2006. Particleboard prices were up 29% compared with fourth quarter 2005, but down 2% compared with third quarter 2006.

Shipments of lumber, gypsum (adjusted for the acquisition of our partner's interest in Standard Gypsum January 2006) and particleboard were down fourth quarter 2006 compared with fourth quarter 2005 and third quarter 2006.

Real Estate

Real estate reported operating income of $62 million in 2006.

Real Estate operating income fourth quarter 2006 was $12 million. Including joint-venture activity, 1,150 acres of high-value land were sold at an average sales price of approximately $9,500 per acre fourth quarter 2006, resulting in a gain of $10 million.

Residential development activity for all wholly and partially owned projects during fourth quarter 2006 included the sale of 715 lots at an average price of approximately $49,300 per lot.

Commercial activity for all wholly and partially owned projects during fourth quarter 2006 included the sale of 57 acres at an average price of $123,400 per acre, resulting in a gain of $3 million.

Financial Services

Financial Services reported operating income of $222 million in 2006, a record level for the third consecutive year.

Financial Services operating income increased fourth quarter 2006 compared with fourth quarter 2005 due to stronger credit conditions and lower costs. Operating income declined fourth quarter 2006 compared with third quarter 2006 principally due to lower noninterest income.

Comments

In announcing fourth quarter and full year results, Kenneth M. Jastrow, II, chairman and chief executive officer of Temple-Inland Inc. said, "For the year 2006, Temple-Inland achieved record earnings of $3.32 per share, excluding special items, and return on investment of 15.9%, reflecting the benefit of our strategic initiatives and market conditions.

In 2006 we returned approximately 10% of Temple-Inland's average market capitalization to shareholders through share repurchases and dividends. During fourth quarter 2006 we repurchased 2.2 million shares, bringing the total for the year to 7.9 million shares. In addition, on February 2, 2007 the Board of Directors approved an additional 5 million share repurchase authorization, representing approximately 5% of shares outstanding. Also, the Board increased the dividend 12% to $1.12 in 2007, the fifth consecutive year we have raised the dividend. We have paid a dividend every year since Temple-Inland became a public company.

"In 2006, our containerboard mill system achieved record production, greater efficiency, and lower cost per ton. Despite the closure of eleven box plants since third quarter 2003, Temple-Inland's box shipments were up 6% in 2006 compared with 2003, resulting in increased asset utilization and lower converting costs. Industry box shipments were up 5% during this same period. Since 2003, we have generated $225 million in business improvement, and we expect to generate an additional $75 million in business improvement in the future by focusing on manufacturing excellence within our box plant system and further operational efficiency in our containerboard mills.

"Forest Products achieved record operating income in 2006, a third consecutive record year, reflecting the benefits from our focus on fiber integration, improved market conditions for gypsum and particleboard, and the acquisition of our partner's interest in Standard Gypsum in January 2006.

"Real Estate generated $62 million in operating income in 2006. During fourth quarter 2006, zoning was approved on 2,001 acres of our high-value land around Atlanta, GA, including 1,840 acres of residential property, representing 3,257 lots, and 161 acres for commercial use. During 2006, 4,890 acres of high-value land were transferred from undeveloped into the 'in entitlement process' category.

"Financial Services had record operating income in 2006, a third consecutive record year. Generating asset growth and remaining low cost continue to be the focus in Financial Services. Our retail branch network is located in Texas and California, the largest and fastest-growing deposit markets in the country. In addition, multiple loan products and a nationwide lending platform provide the opportunity to grow earning assets.

"For the year 2006, Temple-Inland achieved all-time record earnings and strong return on investment, reflecting the benefit of our strategic initiatives, improved market conditions and the dedication of all Temple-Inland employees to be the best."

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