TEMPLE INLAND INC - 10-Q Quarterly Report

Back to GetFilings.com

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended June 29, 2002

OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Transition Period
From to
------------------------ -----------------------------------

Commission File Number 001-08634
--------------------------------------------------------

Temple-Inland Inc.
- -------------------------------------------------------------------------------
(Exact name or registrant as specified in its charter)

Delaware 75-1903917
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

1300 South MoPac Expressway, Austin, Texas 78746
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(512) 434-5800
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)

Indicate 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 the filing
requirements for the past 90 days. Yes X No
--- ---

Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

Number of common shares outstanding
Class as of June 29, 2002
----- -----------------------------------
Common Stock (par
value $1.00 per share) 53,627,101

Page 1 of 46 pages The Exhibit Index is page 44.

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

SUMMARIZED STATEMENTS OF INCOME
PARENT COMPANY (TEMPLE-INLAND INC.)
Unaudited

See notes to consolidated financial statements.

2

SUMMARIZED BALANCE SHEETS
PARENT COMPANY (TEMPLE-INLAND INC.)
Unaudited

See notes to consolidated financial statements.

3

SUMMARIZED STATEMENTS OF CASH FLOW
PARENT COMPANY (TEMPLE-INLAND INC.)
Unaudited

See notes to consolidated financial statements.

4

SUMMARIZED STATEMENTS OF INCOME
FINANCIAL SERVICES GROUP
Unaudited

See notes to consolidated financial statements.

5

SUMMARIZED BALANCE SHEETS
FINANCIAL SERVICES GROUP
Unaudited

See notes to consolidated financial statements.

6

SUMMARIZED STATEMENTS OF CASH FLOWS
FINANCIAL SERVICES GROUP
Unaudited

See notes to consolidated financial statements.

7

CONSOLIDATED STATEMENTS OF INCOME
TEMPLE-INLAND INC. AND SUBSIDIARIES
Unaudited

See notes to consolidated financial statements.

8

CONSOLIDATING BALANCE SHEETS
TEMPLE-INLAND INC. AND SUBSIDIARIES
Second Quarter 2002
Unaudited

See the notes to the consolidated financial statements.

9

CONSOLIDATING BALANCE SHEETS
TEMPLE-INLAND INC. AND SUBSIDIARIES
Year End 2001

See the notes to the consolidated financial statements.

10

CONSOLIDATED STATEMENT OF CASH FLOWS
TEMPLE-INLAND INC. AND SUBSIDIARIES
Unaudited

See the notes to the consolidated financial statements.

11

TEMPLE-INLAND INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Therefore, these statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, all adjustments
(consisting of normal accruals and the acquisition related accruals described in
Note F) considered necessary for a fair presentation have been included. Interim
operating results are not necessarily indicative of the results that may be
expected for the entire year. For further information, refer to the financial
statements and footnotes included in the Annual Report on Form 10-K of
Temple-Inland Inc. (the "company") for the fiscal year ended December 29, 2001.

The consolidated financial statements include the accounts of the company and
its manufacturing and financial services subsidiaries. The consolidated net
assets invested in financial services activities are subject, in varying
degrees, to regulatory rules and restrictions including restrictions on the
payment of dividends to the company. Accordingly, included as an integral part
of the consolidated financial statements are separate summarized financial
statements for the company's manufacturing and financial services groups.

The Parent Company (Temple-Inland Inc.) summarized financial statements include
the accounts of the company and its manufacturing subsidiaries (the parent
company). The net assets invested in the Financial Services Group are reflected
in the summarized financial statements on the equity basis. Related earnings,
however, are presented before tax to be consistent with the consolidated
financial statements. These financial statements should be read in conjunction
with the Temple-Inland Inc. consolidated financial statements and the
Temple-Inland Financial Services summarized financial statements.

All material intercompany amounts and transactions have been eliminated. Certain
amounts have been reclassified to conform to current year's classifications.

12

NOTE B - EARNINGS PER SHARE

Denominators used in computing earnings per share are as follows:

NOTE C - COMPREHENSIVE INCOME

Comprehensive income consists of:

13

NOTE D - SEGMENT INFORMATION

The company has three reportable segments: Paper, Building Products and
Financial Services.

a. INCLUDES CHARGE OF $6 MILLION RELATED TO THE REPURCHASE OF NOTES SOLD
WITH RECOURSE, ALL OF WHICH APPLIES TO THE PAPER GROUP.

b. INCLUDES OTHER EXPENSE OF $13 MILLION, OF WHICH $7 MILLION IS RELATED
TO SEVERANCE AND WRITE-OFF OF TECHNOLOGY INVESTMENTS, WHICH APPLIES TO
THE FINANCIAL SERVICES GROUP, AND $6 MILLION RELATED TO THE REPURCHASE
OF NOTES SOLD WITH RECOURSE, WHICH APPLIES TO THE PAPER GROUP.

NOTE E - CONTINGENCIES

As previously disclosed, Gaylord Container Corporation and Gaylord Chemical
Corporation entered into a settlement agreement with respect to all claims
arising out of an October 23, 1995 rail tank car explosion in Bogalusa,
Louisiana. The settlement agreement was extended during the second quarter 2002,
and a hearing for preliminary approval of the settlement is expected to be
scheduled by year-end 2002.

14

The paper group has collected all amounts due to it under its power purchase
contract with Southern California Edison. The parties, however, remain in
litigation concerning, among other things, termination of their contract and the
rights of the paper group to sell its excess generating capacity to third
parties.

There are also pending against the company and its subsidiaries lawsuits, claims
and environmental matters arising in the regular course of business. In
addition, the Internal Revenue Service is currently examining the company's
consolidated income tax returns for the years 1993 through 1996.

All litigation has an element of uncertainty and the final outcome of any legal
proceeding cannot be predicted with any degree of certainty. With these
limitations in mind, management believes recoveries and claims, if any, by
plaintiffs or claimants resulting from the foregoing litigation will not have a
material adverse effect on the company's operations or financial position.

NOTE F - ACQUISITIONS

On February 28, 2002, the company completed tender offers for Gaylord Container
Corporation's common stock and senior and senior subordinated notes. On April 5,
2002, the company acquired the remainder of Gaylord's outstanding common stock.
The results of Gaylord's operations have been included in the company's income
statement since the beginning of March 2002. The cash purchase price to acquire
Gaylord was $597 million including $44 million in termination and change in
control payments and $16 million in advisory and professional fees. Proceeds
from a $900 million Credit Agreement (the bridge financing facility) were used
to fund the cash purchase and to pay off the assumed bank debt of $285 million.
The company paid $12 million in fees to the lending institutions for this
facility, which was funded from the bridge financing facility. The bridge
financing facility was repaid during May 2002 using proceeds from sales of the
company's securities described in Note H.

The purchase price will be allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition. The
allocation of the purchase price will be based upon independent appraisals and
other valuations and will reflect finalized management intentions. It is
expected that the final allocations will be completed by year-end 2002. The
final allocations will probably differ from those currently assumed. Changes, if
any, to the fair value of property and equipment will impact the amount of
depreciation to be reported. Goodwill from this acquisition is allocated to the
paper group. It is anticipated that all of the goodwill will be deductible for
income tax purposes.

The company has announced its intentions to close, by the end of the third
quarter 2002, the Antioch, California recycle

15

linerboard mill obtained in the acquisition of Gaylord. During second quarter
2002, the company established accruals for the estimated costs to be incurred in
connection with this closure. The allocation of the purchase price includes
these accruals, aggregating $30 million, which consists of $3 million for
involuntary employee terminations, $7 million for contract termination
penalties, $8 million for environmental compliance and $12 million for
demolition. It is expected that any differences between these estimates and the
ultimate amount incurred will be reflected as an adjustment of goodwill. As a
result, these costs will not affect current operating income.

The preliminary allocation of the purchase price was updated during second
quarter 2002 to reflect current appraisal information and the Antioch mill
closure accruals. As a result, adjustments were made to reduce goodwill $153
million and increase the acquired assets and liabilities, including property and
equipment, $179 million, accrued current liabilities, $58 million, and long-term
assets, $19 million. The increase in property and equipment resulted in a $2
million increase in depreciation expense for second quarter 2002.

During March 2002, the company acquired a box plant in Puerto Rico for $10
million cash. During May 2002, the company acquired the two converting
operations of Mack Packaging Group, Inc. for $24 million including $20 million
cash and $4 million related to the present value of a minimum earn out
arrangement. The purchase prices were allocated to the acquired assets and
liabilities based on their fair values with $2 million assigned to goodwill, all
of which is allocated to the paper group.

The following unaudited pro forma information assumes these three acquisitions
and related financing occurred at the beginning of 2002 and 2001 (in millions
except per share):

Adjustments made to derive this pro forma information include those related to
the effects of the purchase price allocations described above, the
reclassification of the discontinued operations described in Note G, and the
effects of financing transactions described in Note H. The pro forma information
does not reflect the effects of planned capacity rationalization, cost

16

savings or other synergies that may be realized. These pro forma results are not
necessarily indicative of what actually would have occurred if the acquisitions
had been completed on those dates and are not intended to be indicative of
future results.

During February 2002, the financial services group acquired an insurance agency
for $6 million cash and a potential earn-out payment of $2 million based on
revenue growth. The purchase price was allocated to acquired assets and
liabilities based on their fair values with $4 million allocated to goodwill.
Pro forma results of operations assuming this acquisition took place at the
beginning of 2002 would not be materially different from those reported.

NOTE G - DISCONTINUED OPERATIONS

The company intends to sell over the next year several non-strategic assets and
operations obtained in the Gaylord acquisition including the multi-wall bag
business, the kraft paper mill and the chemical business. The retail bag
business was sold during May 2002. These assets and liabilities, primarily
working capital and property and equipment, have been adjusted to their
estimated realizable values and are identified in the balance sheet as
discontinued operations. Through first quarter 2003, differences between
estimated net realizable value and their actual value will be reflected as an
adjustment to goodwill. The operating results and cash flows of these operations
are classified as discontinued operations and are excluded from income from
continuing operations and business segment information for the paper group.

At second quarter-end 2002, the carrying value of discontinued operations
includes $63 million of property and equipment and a small amount of working
capital. Revenues from discontinued operations for second quarter 2002 and first
six months 2002 were $48 million and $69 million. Operating losses from
discontinued operations for second quarter 2002 and for first six months 2002
were $1 million each.

NOTE H - FINANCING TRANSACTIONS

During May 2002, the company issued 4.1 million shares of common stock at $52
per share, $345 million of Upper DECS and $500 million of 7.875% Senior Notes
due 2012. Total proceeds from these offerings were $1,060 million, before
expenses of $28 million. The net proceeds from these offerings were used to
repay the bridge financing facility and other borrowings. As a result of the
early repayment of these borrowings, approximately $11 million of unamortized
debt financing fees was charged to other expense.

The Upper DECS consist of contracts to purchase common stock and $345 million of
6.42% senior notes due in 2007. The interest rate on the Upper DECS senior notes
will be reset during February 2005. The purchase contracts represent an
obligation to

17

purchase, for an aggregate of $345 million, shares of common stock based on a
settlement rate, which is subject to anti-dilution adjustments. The number of
shares to be purchased will range from 5.438 million shares to 6.634 million
shares. The shares can be purchased at any time through May 2005. If the
purchase contracts had been settled at second quarter-end 2002, the settlement
rate would have resulted in the issuance of 6.153 million shares of common
stock. The purchase contracts also provide for contract adjustment payments at
an annual rate of 1.08 percent. The present value of these contract adjustment
payments was recorded as a liability at the time the Upper DECS were sold.

The $500 million of 7.875% senior notes due 2012 were sold at 99.289 percent of
par. The notes bear interest at an effective rate of 7.98 percent.

NOTE I - OTHER OPERATING EXPENSES

Other operating expense for the second quarter 2002 includes a $6 million charge
related to promissory notes previously sold with recourse. In connection with
the 1998 sale of the company's Argentine box plant, the company received $11
million in promissory notes repayable in U.S. dollars, which were subsequently
sold with recourse to a financial institution. During May 2002, the borrower
notified the financial institution that Argentine legislation enacted as a
result of that country's currency crisis requires the borrower to repay these
promissory notes in Argentine pesos at a specified exchange rate, which is less
favorable to the company than the current exchange rate. During June 2002, the
company purchased these notes from the financial institution at their unpaid
principal balance of $6 million. Based on current exchange rates these notes and
related prepaid interest totaling $7 million have a U.S. dollar value of $1
million. The difference of $6 million was charged to other operating expense.

NOTE J - ACCOUNTING PRONOUNCEMENTS

Goodwill

Beginning January 2002, the company adopted Statement of Financial Accounting
Standards (FAS) No. 142, Goodwill and Other Intangible Assets. Under this
statement, amortization of goodwill and other indefinitely lived intangible
assets is precluded but is periodically measured for impairment.

The cumulative effect of adopting this statement was to reduce first six months
2002 net income by $11 million, or $0.22 per diluted share, for an $18 million
goodwill impairment associated with the Paper Group's pre-2001 specialty
packaging acquisitions. Under this statement, impairment is measured based upon
the present value of future operating cash flows while under the prior
methodology impairment was measured based upon undiscounted future cash flows.

18

At second quarter-end 2002, the company has $298 million of indefinitely lived
intangible assets, which are not subject to amortization, including $292 million
of goodwill and $6 million of trademarks. Based upon the most recent preliminary
allocation of the Gaylord purchase price, the company has now assigned $117
million to goodwill. The actual allocations will probably differ from those
assumed and could give rise to intangible assets with finite or indefinite
useful lives other than goodwill. Any intangible assets with finite useful lives
will be amortized. At second quarter-end 2002, the company has $12 million of
core deposit intangible assets, which are being amortized at the rate of $2
million per year.

The effects of not amortizing goodwill and trademarks in periods prior to the
adoption of this statement follows (in millions, except per share):

Impairment or Disposal of Long-Lived Assets

Beginning first quarter 2002, the company adopted FAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The effect on earnings or
financial position of adopting this statement is not material.

Rescission of FAS No. 4

Beginning second quarter 2002, the company adopted FAS No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and
Technical Corrections. The principal effect of adopting this statement was that
the charge-off of the unamortized debt financing fees commensurate with the
early repayment of the bridge financing facility and other borrowings was not
classified as an extraordinary item in the determination of income from
continuing operations.

Accounting for Stock Options

Beginning with options granted in first quarter 2003, the company will adopt the
fair value based method of accounting for employee stock options as set forth in
FAS No. 123, Accounting for Stock Based Compensation. Under this method, the
fair value of options granted is charged to expense over the option vesting
period. If

19

options are granted in 2003 at a similar level with 2002, the expected effect on
earnings or financial position of adopting this method would not be material.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

Temple-Inland manages its operations through three business segments:
paper, building products and financial services. Each of these business segments
is affected by the factors of supply and demand and changes in domestic and
global economic conditions, aspects of which have varying degrees of impact on
the business segments. As used herein the term "parent company" refers to the
financial statements of Temple-Inland and its manufacturing business segments,
paper and building products, with financial services reflected on the equity
method.

Temple-Inland acquired effective control of Gaylord Container
Corporation and began consolidating the results of Gaylord at the beginning of
March 2002. Temple-Inland also acquired a box plant in Puerto Rico during March
2002 and certain assets of Mack Packaging Group, Inc. during May 2002. Also
during May 2002, Temple-Inland sold 4.1 million shares of common stock, $345
million of Upper DECS and $500 million of Senior Notes. These transactions
significantly increased the assets and operations of Temple-Inland and its paper
group and changed the capital structure of Temple-Inland. As a result, second
quarter 2002 financial information is not readily comparable to prior periods.

A summary of the results of operations by business segment follows.

20

Unless otherwise noted, increases or decreases refer to second quarter 2002
amounts compared with second quarter 2001 amounts and first six months 2002
amounts compared with first six months 2001 amounts. Second quarter and first
six months 2001 amounts have been reclassified to conform to current year
classifications.

FOR THE QUARTER ENDED JUNE 2002

PAPER
Operating income was $29 million, up $1 million. The benefits from the
inclusion of the acquired operations and lower energy prices were essentially
offset by the effects of the weak economy on corrugated container and linerboard
pricing and shipments and an increase in the cost of old corrugated containers
(OCC).

Revenues were $703 million, up 33 percent. This increase was primarily
due to the inclusion of the acquired operations,

21

offset in part by decreased prices and shipments. Adjusted to include the
acquired operations, average corrugated container prices were down 6 percent and
shipments were down 2 percent. Corrugated container prices and shipments were
adversely affected by the weak economy. Adjusted to include the acquired
operations, average linerboard prices were down 11 percent and shipments were up
4 percent. Linerboard markets continue to be adversely effected by the weak
economy and increased offshore capacity.

Revenues were up 26 percent compared with first quarter 2002 primarily
due to the inclusion of the acquired operations, offset in part by a decrease in
prices and shipments. Adjusted to include the acquired operations, average
corrugated container prices were down 2 percent and shipments were up 4 percent.
Adjusted to include the acquired operations, linerboard prices were up 2 percent
and shipments were up 2 percent. A $30 per ton increase in linerboard prices was
implemented in June and a box price increase in the range of 10 percent is
currently being implemented. These price increases should offset a portion of
the increase in OCC costs described below.

Costs, which include production, distribution and administrative costs
and expenses were $674 million, up 35 percent primarily due to the inclusion of
the acquired operations. Other factors increasing cost included higher OCC
costs, up $8 million, and higher pension costs, up $4 million. In addition,
depreciation expense was up $2 million resulting from the write-up of the
acquired property and equipment to fair values. Factors decreasing costs
included lower energy costs, down $10 million, less goodwill amortization, down
$1 million, and lower expenses associated with the specialty packaging
operations. The cost of OCC, which accounts for 41 percent of the paper group's
current fiber requirements, rose throughout second quarter 2002. Average OCC
prices were $102 per ton in second quarter 2002, $67 per ton in second quarter
2001 and $68 per ton in first quarter 2002. OCC prices were up $40 per ton in
July compared with second quarter 2002 but began to decline in August. Energy
costs peaked during first half 2001 and began to decline during the remainder of
2001 reaching more normalized levels by year-end 2001 and continuing at these
levels through second quarter 2002.

The mills operated at 89 percent of rated capacity. Mill production was
863,000 tons, down 2,000 tons compared with second quarter 2001 mill production,
adjusted to include the acquired operations. Of the mill production, 84 percent
was used by the corrugated packaging operations; the remainder was sold in the
domestic and export markets. Production was curtailed by 108,000 tons due to
market, maintenance and operational reasons compared with second quarter 2001
curtailments of 115,000 tons and first quarter 2002 curtailments of 163,000
tons. The paper group may curtail more production in future quarters for these
reasons.

Although demand for lightweight gypsum facing paper has improved
somewhat compared with first quarter 2002, market conditions continue to be
weak. As a result, the paper group's Premier Boxboard Limited LLC joint venture
continues to produce

22

some corrugating medium, of which the paper group purchased 45,000 tons during
the quarter. It is uncertain when market conditions for lightweight gypsum
facing paper will improve to levels that eliminate the venture's need to produce
corrugating medium.

The paper group announced its intentions to permanently close the
425,000 ton per year capacity recycled linerboard mill in Antioch, California
and three small paper machines aggregating 170,000 tons per year capacity at the
Bogalusa, Louisiana mill. It is anticipated that the Antioch mill will be closed
by third quarter-end 2002. During second quarter 2002, the paper group
established accruals for the estimated costs to be incurred in connection with
the Antioch closure. These accruals aggregate $30 million, which consists of $3
million for the involuntary terminations of the work force, $7 million for
contract terminations, $8 million for environmental compliance and $12 million
for demolition and clean up. This accrual is recognized as a liability incurred
in connection with the acquisition of Gaylord and is included in the allocation
of the purchase price resulting in an increase in goodwill. As a result, these
costs will not affect current operating income. It is anticipated that the
majority of these costs will be incurred and paid within the next year and a
half. The carrying value of the Antioch mill's land and equipment has been
adjusted to estimated realizable values. Two of the paper machines in the
Bogalusa mill were permanently closed during second quarter 2002. The third
paper machine will be closed during fourth quarter 2002. There are no
significant costs anticipated in connection with the closure of these three
paper machines. As a result of these closures, the paper group's annual
linerboard and medium mill capacity will be approximately 3,290,000 tons, of
which approximately 67 percent will be dependent on virgin fiber and
approximately 33 percent will be dependent on recycled raw materials.

The paper group intends to sell the multi-wall bag business, kraft
paper mill and chemical business obtained in the acquisition of Gaylord. The
operating results and cash flows of these operations are classified as
discontinued operations and are excluded from business segment operating income.
To date, the paper group has disposed of several non-strategic assets obtained
in the Gaylord acquisition, including the retail bag business, which was sold
during May 2002. Of the dispositions to date, proceeds total $59 million and are
currently expected to be collected by year-end 2002.

During second quarter 2002, the paper group terminated 85 employees of
Gaylord's corporate staff. It is anticipated that this action will reduce costs
by approximately $3 million during third quarter 2002.

BUILDING PRODUCTS

Operating income was $21 million, up $12 million. Significant
improvements in gypsum pricing and shipments and improvements at the
company-owned MDF facilities were partially offset by declines in particleboard
operations. Operating income

23

continued to benefit from the ongoing initiatives to sell high-value lands.

Building products' revenues were $218 million, up 15 percent. Average
prices for lumber were down 11 percent and particleboard prices were down 14
percent. Average prices for MDF were up 2 percent and gypsum prices were up 64
percent. Shipments for all products were up with lumber shipments up 17 percent,
particleboard up 19 percent, MDF up 13 percent and gypsum up 8 percent. The
ongoing initiative to sell high-value land contributed $5 million in operating
income for the quarter, up $2 million.

Compared with first quarter 2002, revenues were up 15 percent. Average
prices for lumber were up 6 percent, MDF prices were up 2 percent and gypsum
prices were up 6 percent. Average prices for particleboard were down 1 percent.
Shipments for all products except gypsum, which was down 4 percent, were up with
lumber up 21 percent, particleboard up 9 percent and MDF up 27 percent. Industry
over-capacity continues to hamper product pricing and volumes. The contribution
to operating income of sales of high-value lands was down $3 million.

Costs, which include production, distribution and administrative costs,
were $197 million, up 9 percent. Increased production volume and higher pension
costs, up $1 million, offset lower energy costs, down $1 million. Energy costs
peaked during first half of 2001 and began to decline during the remainder of
2001 reaching more normalized levels by year-end 2001 and continuing at these
levels through first quarter 2002. Compared with first quarter 2002, costs were
up 9 percent due to higher production volumes offset by lower energy cost.

Although demand for most products improved throughout the quarter,
production in the various product lines was curtailed to varying degrees during
second quarter 2002 to match customer demand. Production in the various product
lines averaged from a low of 74 percent to a high of 98 percent of capacity. The
building products group's joint venture operations also experienced production
curtailments during second quarter 2002. The building products group and its
joint venture operations may curtail more production in future quarters for this
reason.

The building products group improved operations and production costs at
its owned MDF facilities. However, the Del-Tin Fiber LLC MDF joint venture in El
Dorado, Arkansas continues to experience production and cost issues. Deltic
Timber Corporation, the partner in this venture, announced its intentions to
evaluate strategic alternatives for its one-half interest in the venture. It is
uncertain what effects this will have on the joint venture or its operations.
The building products group has $13 million invested in this venture and has
agreed to provide $38 million of venture production support obligations.

24

FINANCIAL SERVICES

OPERATIONS

Operating income was $37 million, down $9 million. The decrease in net
interest income resulting from tighter net interest spreads was partially offset
by an increase in noninterest expense. Revenues, consisting of interest and
noninterest income, were $281 million, down 18 percent. The reduction in
revenues was primarily a result of lower interest income due to declines in
average loans outstanding and interest rates.

Changes in operating income are discussed below.

Net interest income was $91 million, down 12 percent. This decrease was
due to tighter net interest spreads resulting from the lower interest rate
environment, a change in the mix of earning assets and a competitive market for
deposits. If the downward trend in interest rates continues, it is likely that
net interest income could be adversely affected.

The provision for loan losses was $15 million, up $1 million. The
provision for second quarter 2002 largely related to certain senior housing and
commercial and business loans. The commercial and business loans are primarily
asset-based and equipment leasing relationships.

Noninterest income, which consists primarily of income from mortgage
banking, real estate and insurance activities, loan related fees, service
charges on deposits, and alternative investment sales, was $94 million, up 16
percent. The increase was due to increased mortgage originations and continued
focus on fee-based products, partially offset by a decline in income from real
estate operations. The increase in mortgage originations resulted from the
acquisition of mortgage production operations in the last half 2001 and
continued re-finance activities.

Noninterest expense was $133 million, up 7 percent. The increase was
due to continued re-finance activities and the acquisition of mortgage
production operations in the last half 2001, resulting in a $17 million increase
in mortgage-related salary, commissions and benefits and occupancy expense. This
was partially offset by a $2 million decrease in goodwill amortization and a
decline in expenses related to real estate operations.

25

During first quarter 2002, due to the slow down in loan demand, the
financial services group took actions to lower costs and exit certain businesses
and product delivery methods that were not expected to meet return objectives in
the near term. These actions resulted in a $7 million charge during first
quarter 2002 related to severance for work force reductions and the write-off of
certain technology investments.

Compared with first quarter 2002, operating income was up $3 million,
due principally to a $4 million decrease in noninterest expense resulting from
the effects of the first quarter 2002 work force reduction and a slow down in
mortgage re-financing activity.

EARNING ASSETS

Earning assets include cash equivalents, mortgage loans held for sale,
securities and loans. At second quarter-end 2002, cash equivalents, securities
and residential loans comprised 71 percent of total earning assets, compared
with 68 percent at second quarter-end 2001 and 69 percent at first quarter-end
2002.

Securities, which include mortgage-backed and other securities, were
$4.8 billion, up 57 percent and up 28 percent compared with first quarter-end
2002. This growth is the result of an increased focus on single-family mortgage
assets.

Loans were $9.7 billion compared with $10.4 billion at second
quarter-end 2001 and $9.9 billion at first quarter-end 2002. The decrease in the
loan portfolio from second quarter-end 2001 is primarily due to the pay down of
single-family mortgage, single family warehouse and construction, and commercial
real estate loans and the sale of purchase money second loans. These were
partially offset by growth in the commercial and business portfolio. The
decrease in the loan portfolio from first quarter-end 2002 is primarily due to
the pay down of single-family mortgage warehouse, single-family construction,
and commercial real estate loans.

A summary of loans by major category follows:

26

Single-family mortgages are made to owners to finance the purchase of a
home. Single-family mortgage warehouse provides funding to mortgage lenders to
support the flow of loans from origination to sale. Single-family construction
finances the development and construction of single-family homes, including the
acquisition and development of home lots. Multifamily and senior housing loans
are for the development, construction and lease up of apartment and town home
projects and housing for independent, assisted and memory-impaired residents.

The commercial real estate portfolio provides funding for the
development, construction and lease up primarily of office, retail and
industrial projects and is geographically diversified among 26 states and 30
market areas. The commercial and business portfolio finances business operations
and is primarily comprised of asset-based and middle market loans and direct
financing leases on equipment. The consumer and other portfolio is primarily
comprised of loans secured by second liens on single-family homes.

ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES

Several key measures are used to evaluate and monitor the asset quality
of the financial services group. These measures include the level of loan
delinquencies, nonperforming loans and nonperforming assets.

27

The increase in the level of nonaccrual loans was primarily due to
certain large loans in the multifamily and senior housing (senior housing) and
commercial and business (asset-based) portfolios.

The allowance for loan losses is comprised of specific allowances
(assessed for loans that have known credit weaknesses), general allowances and
an unallocated allowance. At second quarter-end 2002, the unallocated allowance
for loan losses was $32 million, down $3 million. Compared with first
quarter-end 2002, the unallocated allowance for loan losses was up $5 million,
due primarily to the potential impact on borrowers of continued uncertain
economic conditions.

Second quarter 2002 charge-offs were $17 million, offset by recoveries of
$1 million. The charge-offs related primarily to certain loans in the senior
housing and commercial and business portfolios.

CORPORATE AND PARENT COMPANY INTEREST

Parent company interest expense was $36 million, up $11 million due to
an increase in debt and an increase in interest rates incurred. Long-term debt
was up $677 million, primarily due to the acquisition of Gaylord offset in part
by a reduction in other borrowings. In addition, the parent company effected a
number of financing transactions during the quarter that lengthened debt
maturities and reduced reliance on short-term borrowings. As a result, the
average interest rate incurred on debt increased. The average interest rate
incurred was 6.93 percent at

28

second quarter-end 2002 compared with 6.39 percent at second quarter-end 2001
and 4.93 percent at first quarter-end 2002.

OTHER INCOME (EXPENSE)

In connection with the early repayment of the bridge financing facility
and other borrowings, $11 million of unamortized financing fees were charged off
during second quarter 2002.

In connection with the 1998 sale of the company's box plant in
Argentina, the company received $11 million in promissory notes payable in U.S.
dollars. These notes were subsequently sold with recourse to a financial
institution. During May 2002, the borrower notified the financial institution
that Argentine legislation enacted as a result of that country's currency crisis
now requires the borrower to repay these notes in Argentine pesos at a fixed
exchange rate. This fixed exchange rate is less favorable to the parent company
than the current market exchange rate. During June 2002, the parent company
purchased these notes from the financial institution at their unpaid principal
balance of $6 million. Based on current exchange rates these notes and related
prepaid interest totaling $7 million have a U.S. dollar value of approximately
$1 million. The difference of $6 million was charged to other operating expense
during second quarter 2002.

INCOME TAXES

The effective tax rate is 39 percent and is based on current
expectations of income and expenses for the year 2002. The effective tax rate
includes federal and state income taxes and the effects of non-deductible items.
The effective tax rate for the second quarter 2001 was 41 percent.

AVERAGE SHARES OUTSTANDING

As reported average diluted shares outstanding were 52.4 million, up 6
percent due to the May 2002 sale of 4.1 million shares of common stock. There
were 53.6 million common shares outstanding at second quarter-end 2002.

FOR THE SIX MONTHS ENDED JUNE 2002.

PAPER

Operating income was $51 million, up $2 million. The benefits from the
inclusion of the acquired operations and lower energy prices were essentially
offset by the effects of the weak economy on corrugated container and linerboard
pricing and shipments and an increase in the cost of OCC.

Revenues were $1,260 million, up 21 percent, primarily due to the
inclusion of the acquired operations. Adjusted to include the acquired
operations, average corrugated container prices were down 6 percent while
shipments were down 3 percent. Corrugated

29

container prices and shipments were adversely affected by the weak economy.
Adjusted to include the acquired operations, average linerboard prices were down
13 percent and shipments were up 3 percent. Linerboard markets continue to be
adversely affected by the weak economy and increased offshore capacity.

Costs, which include production, distribution and administrative costs
and expenses were $1,209 million, up 22 percent primarily due to the inclusion
of the acquired operations. Other factors increasing cost included higher OCC
costs, up $7 million, and higher pension costs, up $8 million. In addition,
depreciation expense was up $2 million resulting from the write-up of the
acquired property and equipment to fair values. Factors decreasing cost included
lower energy costs, down $30 million, less goodwill amortization, down $2
million, and lower expenses associated with the specialty packaging operations.

The mills operated at 86 percent of capacity. Mill production was
1,478,000 tons, down 198,000 tons compared with first six months 2001 mill
production adjusted to include the acquired operations. Of the mill production,
83 percent was used by the corrugated packaging operations; the remainder was
sold in the domestic and export markets. Production was curtailed by 271,000
tons due to market, maintenance and operational reasons compared with first six
months 2001 curtailments of 279,000 tons.

The paper group's Premier Boxboard Limited LLC joint venture continues
to produce corrugating medium, of which the paper group purchased 82,000 tons
during the first six months 2002 compared with 85,000 tons during the first six
months 2001.

BUILDING PRODUCTS

Operating income was $31 million, up $31 million. Significant
improvements in gypsum pricing, improvements in shipments for all products, and
improvements at the company owned MDF facilities contributed to the increase in
operating income. Operating income continued to benefit from the ongoing
initiatives to sell high-value lands.

Revenues were $408 million, up 14 percent. Average prices were down 6
percent for lumber and 13 percent for particleboard. Average prices were up 4
percent for MDF and 43 percent for gypsum. Shipments for all products were up
with lumber shipments up 12 percent, particleboard up 12 percent, MDF up 3
percent and gypsum up 15 percent. Other revenues include sales from the ongoing
initiative to sell high-value land. These sales contributed $13 million in
operating income for the first six months 2002, up $5 million.

Costs, which include production, distribution and administrative costs
were $377 million, up 5 percent. Higher pension costs, up $2 million and
increased production volume, offset lower energy costs, down $4 million.

30

Although demand for most products improved, production was curtailed to
varying degrees in all product lines to match customer demand. Production in the
various product lines averaged from a low of 75 percent to a high of 98 percent
of capacity. The building products group's joint venture operations also
experienced production curtailments during the first six months 2002. The
building products group and its joint venture operations may curtail production
in the future for these and other reasons.

FINANCIAL SERVICES

Operating income was $71 million, down $20 million. The decrease in net
interest income from the tighter net interest spreads and the increase in
noninterest expense were partially offset by an increase in noninterest income.
Revenues, consisting of interest and noninterest income, were $562 million, down
21 percent. The reduction in revenues was a result of lower interest income due
to declines in average loans outstanding and interest rates.

Changes in operating income are discussed below.

Net interest income was $183 million, down 10 percent. This decrease
was due to tighter net interest spreads resulting from the lower interest rate
environment, a change in the mix of earning assets and a competitive market for
deposits.

The provision for loan losses was $29 million, down $2 million. The
provision for the first six months of 2002 largely related to certain senior
housing and commercial and business loans. The commercial and business loans are
primarily asset-based and equipment leasing relationships.

Noninterest income, which consists primarily of income from mortgage
banking, real estate and insurance activities, loan related fees and service
charges on deposits, was $187 million, up 15 percent. The increase was due to
increased mortgage originations, a $2 million decrease in the valuation
allowance for mortgage-servicing rights, and a continued focus on fee-based
products partially offset by a decrease in income from real estate operations.
The increase in mortgage originations resulted from the acquisition of mortgage
production operations in the last half 2001 and continued re-finance activities.
Valuations of the mortgage-servicing portfolio will continue to

31

be updated throughout the year and further adjustments to the valuation
allowance will be made as necessary.

Noninterest expense was $270 million, up 10 percent. The increase was
due to continued re-finance activities and the acquisition of mortgage
production operations in the last half 2001, resulting in a $38 million increase
in mortgage-related salary, commissions, benefits and occupancy expense. This
was partially offset by a $4 million decrease in goodwill amortization and a
decline in expenses of the real estate operations.

CORPORATE AND PARENT COMPANY INTEREST

Parent company interest expense was $61 million, up $8 million due to
an increase in long-term debt and an increase in interest rates incurred due to
the shift to longer-term debt maturities.

OTHER INCOME (EXPENSE)

Other expenses include the write-off of $11 million of unamortized
financing fees related to the early repayment of the bridge financing facility
and other borrowings. It also includes a $6 million charge related to the
purchase of promissory notes previously sold with recourse, which applies to the
paper group, and a $7 million charge related to severance and technology
write-offs, which applies to the financial services group.

INCOME TAXES

The effective tax rate is 39 percent and is based on current
expectations of income and expenses for the year 2002. The effective tax rate
includes federal and state income taxes and the effects of non-deductible items.
The effective tax rate for the first six months 2001 was 41 percent.

AVERAGE SHARES OUTSTANDING

Average diluted shares outstanding were 51.0 million, up 3 percent due
to the May 2002 sale of 4.1 million shares of common stock.

ACCOUNTING CHANGE

The cumulative effect of adopting FAS No. 142, Goodwill and Other
Intangible Assets, was to reduce net income by $11 million, net of a deferred
tax benefit of $7 million

CAPITAL RESOURCES AND LIQUIDITY

FOR THE SIX MONTHS ENDED JUNE 2002

The consolidated net assets invested in financial services are subject,
in varying degrees, to regulatory rules and regulations including restrictions
on the payment of dividends to

32

the parent company. Accordingly, parent company and financial services capital
resources and liquidity are discussed separately.

PARENT COMPANY

OPERATING ACTIVITIES

Cash provided by operations was $178 million.

A $75 million dividend from the financial services group, resulting
from an increase in the financial services group dividend pay out ratio, coupled
with an increase in non-cash expenses more than offset increased working capital
needs and lower net income.

INVESTING ACTIVITIES

Investing activities used $627 million.

Capital expenditures were $52 million and depreciation was $108
million. Capital expenditures are expected to approximate $160 million for the
year 2002. Depreciation is expected to approximate $230 million for the year
2002.

Cash paid for acquisitions and joint venture investments was $605
million including $568 million to acquire Gaylord and $33 million to acquire a
box plant in Puerto Rico and the converting facilities of Mack Packaging Group,
Inc.

Cash received from the dispositions of Gaylord non-strategic assets and
operations was $33 million.

FINANCING ACTIVITIES

Financing activities provided $485 million.

Cash proceeds from the offerings of common stock, Upper DECS and senior
notes were $1,060 million before expenses of $28 million. These proceeds were
used to repay the $880 million bridge financing facility and, coupled with the
increase in cash from operations, used to repay $262 million in other borrowings
and increase short-term investments.

The 4.1 million shares of common stock were sold for $52 per share. The
Upper DECS were sold for $345 million and consist of contracts to purchase
common stock and $345 million of 6.42% senior notes due in 2007. The purchase
contracts represent an obligation to purchase, for an aggregate of $345 million,
shares of common stock based on a settlement rate, which is subject to
anti-dilution adjustments. The number of shares to be purchased will range from
5.438 million shares to 6.634 million shares. The shares can be purchased at any
time through May 2005. If the purchase contracts had been settled at second
quarter-end 2002, the settlement rate would have resulted in the issuance of
6.153 million shares of common stock. The purchase contracts provide

33

for contract adjustment payments at an annual rate of 1.08%. The interest rate
on the Upper DECS senior notes will be reset in February 2005. The $500 million
7.875% senior notes due 2012 were sold at 99.289 percent of par resulting in an
effective annual interest rate of 7.98 percent.

The bridge financing facility initially provided $880 million of which
$525 was used to acquire Gaylord, $285 million was used to repay Gaylord's
assumed bank debt, $16 million was used for financing fees and the remainder was
used for other acquisition related purposes.

Cash dividends paid were $33 million or $.32 per share.

LIQUIDITY AND OFF BALANCE SHEET FINANCING ARRANGEMENTS

The parent company's sources of short-term funding are its operating
cash flows, which include dividends received from financial services and its
existing credit arrangements. The dividends received from financial services are
subject to regulatory approval and restrictions.

At second quarter-end 2002, the parent company had $453 million in
unused borrowing capacity under its existing credit agreements. Most of the
credit agreements contain terms and conditions customary for such agreements
including minimum levels of interest coverage and limitations on leverage. At
second quarter-end 2002, the parent company has complied with all of the terms
and conditions of its credit agreements. During the second half 2002, $211
million in credit agreements expire all of which are unused at second
quarter-end 2002.

The receivable securitization agreement was amended during April 2002
and is no longer subject to rating triggers. Of the current credit agreements,
$75 million in lines of credit could not be accessed if the long-term debt of
the parent company was rated below "investment grade" by both major rating
agencies. The long-term debt of the parent company is currently rated BBB/Stable
by one rating agency and Baa3/Negative outlook by another rating agency.

During the second quarter 2002, the parent company affected a number of
financing transactions that lengthened debt maturities and reduced reliance on
short-term borrowings. At second quarter-end 2002, the parent company's
contractual cash payment obligations by year for long-term debt follows (in
millions): 2002 - $33; 2003 - $121; 2004 - $104; 2005 - $140; 2006 - $102; and
2008 and thereafter- $1,509.

FINANCIAL SERVICES

The principal sources of cash for financial services are operating cash
flows, deposits and borrowings. The financial services group uses these funds to
invest in earning assets, generally loans and securities.

34

OPERATING ACTIVITIES

Cash provided by operations was $292 million.

A $332 million decrease in mortgage loans held for sale was partially
offset by a $159 million change in escrowed cash related to mortgage loans
serviced for others.

INVESTING ACTIVITIES

Cash used in investment activities was $485 million.

Cash paid for securities purchases, net of maturities, were $660
million while loan collections exceeded originations by $154 million. In
addition, there were $731 million of mortgaged-back securities purchased that
will be settled during third quarter 2002. Proceeds from the sale of mortgage
servicing rights generated $34 million.

FINANCING ACTIVITIES

Cash provided by financing activities was $34 million.

Deposits decreased $592 million while borrowings increased $704
million. The decrease in deposits was due to competitive markets. In addition,
during third quarter 2002, it is expected that $698 million in amortizing
fixed-rate debt commitments will be used in connection with the settlement of
mortgage-backed securities purchased during the second quarter 2002.

Dividends paid to the parent company totaled $75 million.

OTHER

The financial services group's short-term funding needs are met through
operating cash flows, attracting new retail deposits, increased borrowings and
converting assets to cash through sales or reverse repurchase agreements. Assets
that can be converted to cash include short-term investments, mortgage loans
held for sale and securities. At second quarter-end 2002, financial services had
available liquidity of $1.6 billion. In addition, at second quarter-end 2002,
commitments to originate single-family residential mortgage loans totaled $675
million and commitments to sell single-family residential mortgage loans totaled
$754 million.

At second quarter-end 2002, the savings bank exceeded all applicable
regulatory capital requirements. The parent company expects to maintain the
savings bank's capital at a level that exceeds the minimum required for
designation as "well capitalized." From time to time, the parent company may
make capital contributions to the savings bank or receive dividends from the
savings bank. During the first six months-ended 2002, the parent company made no
contributions to the savings bank and received $75 million in dividends from the
savings bank.

35

Selected financial and regulatory capital data for the savings bank
follows:

ACCOUNTING PRONOUNCEMENTS

Beginning January 2002, Temple-Inland adopted FAS No. 142, Goodwill and
Other Intangible Assets. Under this Statement, amortization of goodwill is
precluded and goodwill is periodically measured for impairment. The cumulative
effect of adopting this statement was to reduce first quarter 2002 net income by
$11 million or $0.22 per diluted share for an $18 million goodwill impairment
associated with the paper group's specialty packaging acquisitions. The effect
of not amortizing goodwill in second quarter 2001 would have been to increase
operating income by $3 million and net income by $2 million or $0.04 per diluted
share. The effect of not amortizing goodwill in the first six months 2001 would
have been to increase operating income by $5 million and net income by $4
million or $0.08 per diluted share.

Beginning January 2002, Temple-Inland adopted FAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. The effect on earnings or
financial position of adopting this statement was not material.

Beginning the second quarter 2002, Temple-Inland adopted FAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No.
13 and Technical Corrections. The principal effect of adopting this statement
was that the $11 million charge off of the unamortized debt financing fees
commensurate with the early repayment of the bridge financing facility and other
borrowings was not classified as an extraordinary item in the determination of
income from continuing operations. Instead this charge off was reflected in
other income (expense).

Beginning with options granted in first quarter 2003, Temple-Inland
will adopt the fair value based method of accounting for employee stock options
as set forth in FAS No.

36

123, Accounting for Stock Based Compensation. Under this method, the fair value
of options granted is charged to expense over the option-vesting period. If
options are granted in 2003 at a similar level with 2002, the expected effect on
earnings or financial position of adopting this method would not be material.

FORWARD-LOOKING STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements that involve risks and
uncertainties. The actual results achieved by Temple-Inland may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such differences include general economic, market, or
business conditions; the opportunities or lack thereof that may or may not be
presented to and pursued by Temple-Inland and its subsidiaries; availability and
price of raw materials used by Temple-Inland and its subsidiaries; competitive
actions by other companies; changes in laws or regulations; the accuracy of
certain judgments and estimates concerning the integration of Gaylord Container
Corporation into the operations of Temple-Inland; and other factors, many of
which are beyond the control of Temple-Inland and its subsidiaries.

37

STATISTICAL AND OTHER DATA

(a) Revenues and unit sales do not include joint venture operations

Note: Data for the paper group for 2002 is not comparable due to the effect of
acquisitions completed in 2002.

38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Temple-Inland's current level of interest rate risk is primarily due to
an asset sensitive position within the financial services group and, to a lesser
degree, variable rate debt at the parent company.

The following table illustrates the estimated effect on pre-tax income
of immediate, parallel and sustained shifts in interest rates for the subsequent
12-month period at second quarter-end 2002, with comparative information at
year-end 2001. The estimated effect takes into account the effects of changing
prepayment speeds and average balances over the next 12 months.

Increase (decrease) in Income Before Taxes
(In millions)

Due to the current low levels of interest rates, the 2 percent decrease in
interest rates is not presented.

The parent company's change in interest rate risk from year-end 2001 is
primarily due to a decrease in variable rate debt. During the second quarter
2002, the parent company effected a number of financing transactions that
reduced reliance on short-term borrowings.

The financial services group is subject to interest rate risk to the
extent that the interest-earning assets and interest-bearing liabilities repay
or reprice at different times or in differing amounts or both. The financial
services group is currently in an asset sensitive position whereby the rate and
paydown characteristics of its assets are more responsive to changes in market
interest rates than are its liabilities. Postured in this way, earnings will
generally be positively affected in a rising rate environment, but generally be
negatively affected in a falling rate environment. The effect of lower interest
rates during the first six months 2002 resulted in faster prepayments on
seasoned mortgage loans and mortgage-backed securities and increased sensitivity
to further changes in interest rates.

39

Additionally, the fair value of the financial services group's mortgage
servicing rights (estimated at $143 million at second quarter-end 2002) is also
affected by changes in interest rates. Temple-Inland estimates that a 1 percent
decline in interest rates from current levels would decrease the fair value of
the mortgage servicing rights by approximately $36 million.

Foreign Currency Risk

Temple-Inland's exposure to foreign currency fluctuations on its
financial instruments is not material because most of these instruments are
denominated in U.S. dollars.

Commodity Price Risk

From time to time Temple-Inland uses commodity derivative instruments
to mitigate its exposure to changes in product pricing and manufacturing costs.
These instruments cover a small portion of Temple-Inland's manufacturing volume
and range in duration from three months to three years. Based on the fair value
of these instruments at second quarter-end 2002, the potential loss in fair
value resulting from a hypothetical 10 percent change in the underlying
commodity prices would not be significant.

40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The information set forth in Note E to Notes to Consolidated Financial
Statements in Part I of this report is incorporated by reference
thereto.

On July 22, 2002, a delivery driver for a chemical supply company
overfilled a storage tank for caustic soda at a Gaylord Container
Corporation converting facility in Tipton, Indiana. The excess caustic
soda drained through an overflow pipe into the city sewer system,
resulting in a temporary shutdown of the city wastewater treatment
plant and killing approximately 2,000 fish in a local creek. Gaylord
has removed the fish, assisted in restoring operations at the
wastewater treatment plant, and taken other corrective actions to
assure no ongoing effect to human health or the environment. The
incident is being investigated by the U.S. Environmental Protection
Agency and the Indiana Department of Natural Resources. At this time,
the company is not able to predict whether Gaylord will be subject to
any monetary sanctions arising out of this incident or the amount of
any such monetary sanctions.

Item 2. Changes in Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its annual meeting of stockholders on May 3, 2002, at
which a quorum was present. The table below sets forth the number of
votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes for each matter voted upon at that
meeting.

41

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

99.1 - 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

99.2 - 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

(b) Reports on Form 8-K

During the quarter ended June 29, 2002, the company filed the following
Current Reports on Form 8-K:
1. Current Report on Form 8-K dated April 25, 2002, reporting under
Item 7 the filing of a consent from the independent auditor for
Gaylord Container Corporation.
2. Current Report on Form 8-K dated April 25, 2002, reporting under
Item 5 the execution of Underwriting Agreements related to the
offering of up to 6,000,000 Upper DECS and 3,600,000 shares of
common stock, prior to the exercise of any over-allotment option.
3. Current Report on Form 8-K dated April 25, 2002, reporting under
Item 5 additional information in connection with the Upper DECS
offering and the execution of an Underwriting Agreement related to
the offering of up to $500,000,000 of the company's 7.875% Senior
Notes due 2012.

42

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

TEMPLE-INLAND INC.
------------------
(Registrant)

Dated: August 12, 2002 By /s/ Louis R. Brill
---------------------------------
Louis R. Brill
Chief Accounting Officer

43

INDEX TO EXHIBITS