TEMPLE INLAND INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended April 2, 2005
OR

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

Commission File Number: 001-08634

Temple-Inland Inc.

(Exact name of registrant as specified in its charter)


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

1300 MoPac Expressway South, Austin, Texas 78746
(Address of Principal Executive Offices, including 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 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. þ Yes o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). þ Yes o No

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


Class		Number of common shares outstanding as of April 2, 2005

Common Stock (par value $1.00 per share)		111,922,484

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

TEMPLE-INLAND INC. AND SUBSIDIARIES
First Quarter 2005
Unaudited


	Parent		Financial
	Company		Services		Consolidated
	(In millions)
ASSETS
Cash and cash equivalents	$	8	$	252	$	260
Loans held for sale		––		391		391
Loans, net of allowance for loan losses of $82 in 2005		––		9,758		9,758
Securities available-for-sale		––		1,070		1,070
Securities held-to-maturity		––		3,580		3,580
Trade receivables, less allowance of $16 in 2005		469		––		469
Inventories		433		––		433
Timber and timberland		499		––		499
Property, premises, and equipment		1,732		172		1,904
Goodwill		236		164		400
Prepaid expenses and other assets		457		592		971
Investment in financial services		1,148		––		––

TOTAL ASSETS	$	4,982	$	15,979	$	19,735


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	––	$	9,129	$	9,129
Federal Home Loan Bank borrowings		––		4,278		4,278
Securities sold under repurchase agreements		––		711		711
Accounts payable, accrued expenses, and other liabilities		740		197		901
Long-term debt and other borrowings		1,582		211		1,793
Deferred income taxes		142		––		100
Pension liability		286		––		286
Postretirement benefits		143		––		143
Preferred stock issued by subsidiaries		––		305		305

TOTAL LIABILITIES		2,893		14,831		17,646


SHAREHOLDERS’ 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						124
Additional paid-in capital						374
Accumulated other comprehensive loss						(195	)
Retained earnings						2,086

						2,389
Cost of shares held in the treasury: 11,682,860 shares						(300	)

TOTAL SHAREHOLDERS’ EQUITY						2,089

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	19,735

Common stock and additional paid-in capital and common shares issued and held in treasury have been adjusted to reflect our two-for-one stock split on April 1, 2005.

See the notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEET
TEMPLE-INLAND INC. AND SUBSIDIARIES
Year-End 2004
Unaudited


	Parent		Financial
	Company		Services		Consolidated
	(In millions)
ASSETS
Cash and cash equivalents	$	9	$	363	$	372
Loans held for sale		—		510		510
Loans, net of allowance for loan losses of $85 in 2004		—		9,618		9,618
Securities available-for-sale		—		1,118		1,118
Securities held-to-maturity		—		3,864		3,864
Trade receivables, less allowances of $16 in 2004		404		—		404
Inventories		427		—		427
Timber and timberland		496		—		496
Property, premises, and equipment		1,738		167		1,905
Goodwill		236		152		388
Prepaid expenses and other assets		469		658		1,042
Investment in financial services		1,121		—		—

TOTAL ASSETS	$	4,900	$	16,450	$	20,144


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	—	$	8,964	$	8,964
Federal Home Loan Bank borrowings		—		4,717		4,717
Securities sold under repurchase agreements		—		787		787
Accounts payable, accrued expenses, and other liabilities		740		350		1,052
Long-term debt and other borrowings		1,485		206		1,691
Deferred income taxes		136		—		89
Pension liability		289		—		289
Postretirement benefits		143		—		143
Preferred stock issued by subsidiaries		—		305		305

TOTAL LIABILITIES		2,793		15,329		18,037


SHAREHOLDERS’ 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 122,779,104 shares, including shares held in the treasury						123
Additional paid-in capital						350
Accumulated other comprehensive loss						(192	)
Retained earnings						2,067

						2,348
Cost of shares held in the treasury: 10,592,914 shares						(241	)

TOTAL SHAREHOLDERS’ EQUITY						2,107

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	20,144

Common stock and additional paid-in capital and common shares issued and held in treasury have been adjusted to reflect our two-for-one stock split on April 1, 2005.

See the notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

TEMPLE-INLAND INC. AND SUBSIDIARIES
Unaudited


	First Quarter
	2005			2004
	(In millions, except
	per share amounts)
REVENUES
Manufacturing	$	967		$	893
Financial services		236			261

		1,203			1,154


COSTS AND EXPENSES
Manufacturing		913			895
Financial services		189			208

		1,102			1,103

OPERATING INCOME		101			51
Parent company interest		(28	)		(32	)
Other non-operating income (expense)		1			––


INCOME BEFORE INCOME TAXES		74			19
Income tax (expense) benefit		(29	)		(7	)


INCOME FROM CONTINUING OPERATIONS		45			12
Discontinued operations		––			––


NET INCOME	$	45		$	12


EARNINGS PER SHARE
Basic:
Income from continuing operations	$	0.40		$	0.11
Discontinued operations		––			––

Net income	$	0.40		$	0.11


Diluted:
Income from continuing operations	$	0.39		$	0.11
Discontinued operations		––			––

Net income	$	0.39		$	0.11


DIVIDENDS PAID PER SHARE OF COMMON STOCK	$	0.23		$	0.18

Per share amounts have been adjusted to reflect our two-for-one stock split on April 1, 2005.

See the notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

TEMPLE-INLAND INC. AND SUBSIDIARIES
Unaudited


	First Quarter
	2005			2004
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	45		$	12
Adjustments:
Depreciation and amortization		62			64
Amortization and accretion of financial instruments		4			11
Provision for loan losses		2			––
Deferred income taxes (benefit)		10			4
Other non-cash charges and (credits), net		4			13
Net assets of discontinued operations		(2	)		(1	)
Other		1			93
Changes in:
Trade receivables		(65	)		(48	)
Inventories		(6	)		6
Prepaid expenses and other assets		9			(8	)
Accounts payable and accrued expenses		13			(27	)
Loans held for sale, originations		(575	)		(1,639	)
Loans held for sale, sales		694			1,576
Collections on loans serviced for others, net		(117	)		13

		79			69


CASH PROVIDED BY (USED FOR) INVESTING
Capital expenditures		(64	)		(37	)
Sale of non-strategic assets and operations		9			8
Securities available-for-sale, net		47			49
Securities held-to-maturity, net		281			(283	)
Loans originated or acquired, net of principal collected		(144	)		(147	)
Sales of loans and mortgage servicing rights		42			35
Acquisitions, net of cash acquired, and joint ventures		(22	)		(15	)
Other		1			––

		150			(390	)


CASH PROVIDED BY (USED FOR) FINANCING
Net increase (decrease) in deposits		165			(161	)
Additions to debt		134			111
Payments of debt		(214	)		(179	)
Repurchase agreements and short-term borrowings, net		(332	)		459
Cash dividends paid to shareholders		(25	)		(20	)
Repurchase of common stock		(104	)		––
Exercise of stock options		30			35
Settlement of equity purchase contracts		26			––
Other		(21	)		9

		(341	)		254


Net increase (decrease) in cash and cash equivalents		(112	)		(67	)
Cash and cash equivalents at beginning of period		372			399

Cash and cash equivalents at end of period	$	260		$	332

See the notes to consolidated financial statements.

SUMMARIZED BALANCE SHEETS

PARENT COMPANY (TEMPLE-INLAND INC.)
Unaudited


	First
	Quarter			Year-End
	2005			2004
	(In millions)
ASSETS
Current Assets
Cash and cash equivalents	$	8		$	9
Trade receivables, less allowances of $16 in 2005 and $16 in 2004		469			404
Inventories:
Work in process and finished goods		102			129
Raw materials and supplies		331			298

Total inventories		433			427
Prepaid expenses and other		78			98

Total current assets		988			938
Investment in Financial Services		1,148			1,121
Timber and Timberland		499			496
Property and Equipment
Land and buildings		638			637
Machinery and equipment		3,344			3,327
Construction in progress		101			86
Less allowances for depreciation		(2,351	)		(2,312	)

Total property and equipment		1,732			1,738
Goodwill		236			236
Assets Held for Sale		35			34
Other Assets		344			337

TOTAL ASSETS	$	4,982		$	4,900


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	215		$	220
Accrued employee compensation and benefits		57			93
Accrued interest		25			24
Accrued property taxes		13			21
Other accrued expenses		191			145
Liabilities of discontinued operations		7			7
Current portion of long-term debt		3			3

Total current liabilities		511			513
Long-Term Debt		1,582			1,485
Deferred Income Taxes		142			136
Pension Liability		286			289
Postretirement Benefits		143			143
Other Long-Term Liabilities		229			227

Total liabilities		2,893			2,793
Shareholders’ Equity		2,089			2,107

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	4,982		$	4,900

See the notes to consolidated financial statements.

SUMMARIZED STATEMENTS OF CASH FLOWS

PARENT COMPANY (TEMPLE-INLAND INC.)
Unaudited


	First Quarter
	2005			2004
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	45		$	12
Adjustments:
Depreciation and amortization		55			56
Non-cash stock based compensation		10			9
Non-cash pension and postretirement expense		15			15
Cash contribution to pension and postretirement plans		(17	)		(4	)
Deferred income taxes (benefit)		7			2
Net earnings of financial services		(29	)		(33	)
Dividends from financial services		––			30
Earnings of joint ventures		(8	)		(3	)
Dividends from joint ventures		4			1
Other non-cash charges (credits)		4			13
Net assets of discontinued operations		(2	)		(1	)
Other		(1	)		––
Changes in:
Trade receivables		(65	)		(48	)
Inventories		(6	)		6
Prepaid expenses and other assets		9			(8	)
Accounts payable and accrued expenses		13			(27	)

		34			20


CASH PROVIDED BY (USED FOR) INVESTING
Capital expenditures		(57	)		(28	)
Sales of non-strategic assets and operations		1			6
Acquisitions, net of cash acquired, and joint ventures		(3	)		––

		(59	)		(22	)


CASH PROVIDED BY (USED FOR) FINANCING
Payments of debt		(32	)		(2	)
Cash dividends paid to shareholders		(25	)		(20	)
Repurchase of common stock		(104	)		––
Exercise of options		30			35
Settlement of equity purchase contracts		26			––
Additions to debt		129			––

		24			13


Net increase (decrease) in cash and cash equivalents		(1	)		11
Cash and cash equivalents at beginning of period		9			20

Cash and cash equivalents at end of period	$	8		$	31

See the notes to consolidated financial statements.

SUMMARIZED BALANCE SHEETS

FINANCIAL SERVICES
Unaudited


	First
	Quarter		Year-End
	2005		2004
	(In millions)
ASSETS
Cash and cash equivalents	$	252	$	363
Loans held for sale		391		510
Loans, net of allowance for losses of $82 in 2005 and $85 in 2004		9,758		9,618
Securities available-for-sale		1,070		1,118
Securities held-to-maturity		3,580		3,864
Real estate		251		253
Premises and equipment, net		172		167
Accounts, notes and accrued interest receivable		117		170
Goodwill		164		152
Other assets		224		235

TOTAL ASSETS	$	15,979	$	16,450


LIABILITIES AND SHAREHOLDER’S EQUITY
Deposits	$	9,129	$	8,964
Federal Home Loan Bank borrowings		4,278		4,717
Securities sold under repurchase agreements		711		787
Other liabilities		197		350
Other borrowings		211		206
Preferred stock issued by subsidiaries		305		305

TOTAL LIABILITIES		14,831		15,329

Shareholder’s Equity		1,148		1,121

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY	$	15,979	$	16,450

See the notes to consolidated financial statements.

SUMMARIZED STATEMENTS OF INCOME

FINANCIAL SERVICES
Unaudited


	First Quarter
	2005			2004
	(In millions)
INTEREST INCOME
Loans and loans held for sale	$	129		$	114
Securities available-for-sale		15			15
Securities held-to-maturity		34			46
Other earning assets		1			1

Total interest income		179			176


INTEREST EXPENSE
Deposits		39			34
Borrowed funds		46			42

Total interest expense		85			76


NET INTEREST INCOME		94			100
(Provision) credit for loan losses		(2	)		––

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		92			100


NONINTEREST INCOME
Loan servicing fees		1			8
Amortization and impairment of servicing rights		––			(7	)
Loan origination and sale of loans		6			37
Real estate operations		14			15
Insurance commissions and fees		13			11
Service charges on deposits		10			9
Operating lease income		1			3
Other		12			9

Total noninterest income		57			85


NONINTEREST EXPENSE
Compensation and benefits		47			70
Real estate operations, other than compensation		6			8
Insurance operations, other than compensation		2			1
Occupancy		7			8
Data processing		4			4
Other		36			41

Total noninterest expense		102			132


INCOME BEFORE INCOME TAXES		47			53
Income tax (expense)		(18	)		(20	)

NET INCOME	$	29		$	33

See the notes to consolidated financial statements.

SUMMARIZED STATEMENTS OF CASH FLOWS

FINANCIAL SERVICES
Unaudited


	First Quarter
	2005			2004
	(In millions)
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income	$	29		$	33
Adjustments:
Depreciation		6			6
Depreciation of leased assets		1			2
Amortization and impairment of servicing rights		––			7
Provision for loan losses		2			––
Amortization and accretion of financial instruments		4			4
Deferred income taxes		3			2
Changes in:
Loans held for sale, originations		(575	)		(1,639	)
Loans held for sale, sales		694			1,576
Collections on loans serviced for others, net		(117	)		13
Other		(2	)		75

		45			79


CASH PROVIDED BY (USED FOR) INVESTING
Purchases of securities available-for-sale		––			(28	)
Principal payments and maturities of securities available-for-sale		47			77
Purchases of securities held-to-maturity		(3	)		(623	)
Principal payments and maturities of securities held-to-maturity		284			340
Loans originated or acquired, net of collections		(144	)		(147	)
Sales of loans and mortgage servicing rights		42			35
Acquisitions, net of cash acquired		(19	)		(15	)
Capital expenditures		(7	)		(9	)
Other		9			2

		209			(368	)


CASH PROVIDED BY (USED FOR) FINANCING
Net increase (decrease) in deposits		165			(161	)
Repurchase agreements and short-term borrowings, net		(332	)		459
Additions to debt and long-term FHLB borrowings		5			111
Payments of debt and long-term FHLB borrowings		(182	)		(177	)
Dividends paid to parent company		––			(30	)
Other		(21	)		9

		(365	)		211


Net increase (decrease) in cash and cash equivalents		(111	)		(78	)
Cash and cash equivalents at beginning of period		363			379

Cash and cash equivalents at end of period	$	252		$	301

See the notes to consolidated financial statements.

TEMPLE-INLAND INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note A – Basis of Presentation

Our consolidated financial statements are our primary financial statements and include the accounts of Temple-Inland Inc. and our manufacturing and financial services subsidiaries and variable interest entities of which we are the primary beneficiary. We also present as an integral part of the consolidated financial statements, summarized financial statements of Temple-Inland and our manufacturing subsidiaries, which we refer to as the parent company summarized financial statements, and summarized financial statements of our financial services subsidiaries. We do so in order to provide a clearer presentation of our different businesses and because almost all of the net assets invested in financial services are subject, in varying degrees, to regulatory rules and restrictions including restrictions on the payment of dividends to the parent company. As a result, all consolidated assets are not available to satisfy all consolidated liabilities.

You should read our parent company summarized financial statements and financial services summarized financial statements along with these consolidated financial statements. Our parent company financial statements reflect our financial services subsidiaries using the equity method.

We prepared these unaudited interim financial statements 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. As a result, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in our opinion, all adjustments (consisting only of normal accruals) considered necessary for a fair presentation have been included. These 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 our Annual Report on Form 10-K for the fiscal year ended January 1, 2005.

We have reclassified some prior year amounts to conform to this year’s classifications.

Note B – Earnings Per Share

We computed earnings per share using the following denominators:


	First Quarter
	2005		2004
	(In millions)
Denominator for basic earnings per share, weighted average common shares outstanding		112.5		110.2
Dilutive effect of:
Equity purchase contracts		1.5		––
Stock options		1.7		1.0

Denominator for diluted earnings per share		115.7		111.2

Basic and diluted weighted average shares outstanding have been adjusted to reflect our two-for-one stock split on April 1, 2005.

Some equity purchase contracts were settled in first quarter 2005, and as a result we issued 826,240 shares of common stock based on a fixed price of $31.72 per share and received $26 million in cash. We anticipate settling the remaining equity purchase contracts in May 2005. At that time, we will issue common stock and receive $319 million in cash. The actual number of shares we issue will be based on the average market price of our stock with a floor of $26, in which case we will issue 12.3 million shares, and a ceiling of $31.72, in which case we will issue 10 million shares.

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

In first quarter 2005, we repurchased 2.8 million shares of common stock for $104 million cash under a February 4, 2005 Board of Director’s authorization to repurchase up to 12 million shares.

Note C – Comprehensive Income

Comprehensive income consists of:


	First Quarter
	2005			2004
	(In millions)
Net income	$	45		$	12
Other comprehensive income (loss), net of taxes:
Unrealized gains (losses) on:
Available-for-sale securities		(3	)		(2	)
Derivative instruments		––			––

Foreign currency translation adjustments		––			––

Other comprehensive income (loss)		(3	)		(2	)

Comprehensive income	$	42		$	10

At first quarter-end 2005, the aggregate fair value of our interest rate swap, linerboard and OCC derivative instruments was a $4 million liability consisting of $4 million of liabilities for our interest rate swap derivatives and an immaterial asset for our linerboard and OCC derivatives. Of the interest rate swap derivative liabilities, $2 million is related to a hedged transaction and $2 million is a non-hedging instrument. Changes in the fair value of the hedged transaction decreased other comprehensive income by $1 million in first quarter 2005 and an immaterial amount in first quarter 2004. The gain recognized in other non-operating (income) expense for the change in the fair value of the non-hedging instrument was $1 million in first quarter 2005. Additionally, the fair value of our financial services interest rate lock commitments and forward sales of loans was a liability of $1 million at first quarter-end 2005.

Note D – Segment Information

We have three reportable segments: corrugated packaging, forest products, and financial services. Corrugated packaging manufactures containerboard and corrugated packaging. Forest products manages our timber resources and manufactures a variety of building products. Financial services operates a savings bank and an insurance agency and engages in real estate development activities.

We evaluate performance based on operating income before unallocated expenses and income taxes. Unallocated expenses represent expenses managed on a company-wide basis and include corporate general and administrative expense; other operating and non-operating income (expense); and parent company interest expense. Other operating income (expense) includes gain or loss on sale of assets, asset impairments and expenses associated with consolidation initiatives and facility closures. The accounting policies of the segments are the same as those described in the accounting policy notes to the financial statements.

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


							Unallocated
For First Quarter or at	Corrugated		Forest		Financial		Expenses and
Quarter-End 2005	Packaging		Products		Services		Eliminations			Total
(In millions)
Revenues from external customers	$	718	$	249	$	236	$	––		$	1,203
Depreciation and amortization		40		13		7		2			62
Income (loss) before taxes		50		54		47		(77	)^(a)		74
Financial services, net interest income		––		––		94		––			94
Total assets		2,473		1,024		15,979		259			19,735
Capital expenditures		39		14		7		4			64
Goodwill		236		––		164		––			400


For First Quarter or at
Quarter-End 2004
(In millions)
Revenues from external customers	$	673	$	220	$	261	$	––		$	1,154
Depreciation and amortization		39		15		8		2			64
Income (loss) before taxes		8		32		53		(74	) ^(b)		19
Financial services, net interest income		––		––		100		––			100
Total assets		2,359		1,034		17,384		307			21,084
Capital expenditures		18		8		9		2			37
Goodwill		237		––		158		––			395

^(a)	Includes other operating expenses for first quarter 2005 of $24 million, which consists of a $11 million charge associated with converting and production facility closures, a $7 million charge related to antitrust litigation, a $4 million charge associated with the recently completed proxy contest, and $2 million of other. Of these amounts, $18 million applies to corrugated packaging and $6 million does not apply to a business segment.

^(b)	Includes other operating expenses for first quarter 2004 of $19 million, which consists of a $14 million charge associated with converting and production facility closures and asset impairments and a $5 million charge related to consolidation and supply chain initiatives. Of these amounts, $2 million applies to corrugated packaging, $12 million applies to forest products, and $5 million does not apply to a business segment.

Note E – Employee Benefit Plans

The components of net periodic benefit cost of our defined benefit pension plans and postretirement plans for first quarter are:


							Postretirement
	Pension Benefits						Benefits
	2005			2004			2005			2004
	(In millions)
Service costs	$	7		$	6		$	1		$	1
Interest cost on projected benefit obligation		18			18			2			2
Expected return on plan assets		(18	)		(17	)		––			––
Amortization of prior service costs		––			––			(1	)		(1	)
Amortization of net loss		6			6			––			––

Net periodic benefit cost	$	13		$	13		$	2		$	2

In first quarter 2005, we made a $15 million voluntary, discretionary contribution to the defined benefit pension plan.

Note F – Stock-Based Compensation

Beginning January 2003, we voluntarily adopted the prospective transition method of accounting for stock-based compensation contained in Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for

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

Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123. The principal effect of adopting the prospective transition method is that the fair value of stock options granted in 2003 and thereafter is charged to expense over the option-vesting period. Prior to 2003, we used the intrinsic value method in accounting for stock-based compensation. As a result, no stock-based compensation expense related to stock options granted prior to 2003 is reflected in net income, as all stock options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Therefore, the cost related to stock-based compensation recognized in net income for 2005 and 2004 is less than would have been recognized if the fair value method had been applied to all stock options granted. The following table illustrates the effect on net income and earnings per share as if the fair value method had been applied to all stock options granted.


	First Quarter
	2005			2004
	(In millions)
Net income, as reported	$	45		$	12
Add: Stock-based compensation expense, net of related tax effects, included in the determination of reported net income		6			6
Deduct: Total stock-based compensation expense, net of related tax effects, determined under the fair value based method for all awards		(7	)		(8	)

Pro forma net income	$	44		$	10


Earnings per share:
Basic, as reported	$	0.40		$	0.11
Basic, pro forma	$	0.39		$	0.09

Diluted, as reported	$	0.39		$	0.11
Diluted, pro forma	$	0.38		$	0.09

Note G – Contingencies

We are involved in various legal proceedings that arise from time to time in the ordinary course of doing business. We believe that the possibility of a material liability from any of these proceedings is remote and we do not believe that the outcome of any of these proceedings should have a material adverse effect on our financial position, results of operations, or cash flow.

As we have previously reported, on May 14, 1999, two of our subsidiaries and eight other linerboard manufacturers were named as defendants in a consolidated class action complaint that alleged a civil violation of Section 1 of the Sherman Act. We executed a settlement agreement on April 11, 2003, with the representatives of the class, which received final approval by the trial court. We paid a total of $8 million into escrow to fulfill the terms of the class action settlement.

Twelve individual complaints containing allegations similar to those in the class action have been filed by certain opt-out plaintiffs and over 3,000 of their named subsidiaries against the original defendants in the class action. As a result of our periodic assessment of loss contingencies, we increased our reserve for this matter by $7 million in first quarter 2005. We continue to believe that the plaintiffs’ allegations in the opt-out litigation have no merit and are vigorously defending against the suits.

Note H – Assets Held For Sale

Assets held for sale include assets of discontinued operations and other non-strategic assets held for sale.

At first quarter-end 2005, discontinued operations consist of the chemical business obtained in the acquisition of Gaylord Container Corporation. At first quarter-end 2005, the assets and liabilities of the discontinued operations include $2 million of working capital and $13 million of property and equipment. Revenues from discontinued operations were $5 million in first quarter 2005 and $4 million in first quarter 2004.

At first quarter-end 2005, the carrying value of non-strategic assets held for sale was $13 million.

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

Note I – Other Operating (Income) Expense


	First Quarter
	2005			2004
	(In millions)
Equity in earnings of joint ventures	$	(8	)	$	(3	)
Loss on closure of production and converting facilities		11			14
Antitrust litigation		7			––
Proxy contest		4			––
Expense associated with consolidation of administrative functions		––			5
Other		2			––

Total	$	16		$	16

We continue our efforts to enhance return on investment by lowering costs, improving operating efficiencies and increasing asset utilization. As a result, we will continue to review operations that are unable to meet return objectives and determine appropriate courses of action, including consolidating and closing facilities and selling under-performing assets. In first quarter 2005, we announced our intentions to close our Antioch, California corrugated packaging facility and we effected workforce reductions at a number of other converting and production facilities. These actions affected or will affect approximately 185 employees. The Antioch facility is scheduled to close by June 1, 2005. In connection with these and other actions initiated in 2004, we recognized $4 million in asset impairments, $4 million in exit costs, and incurred $3 million in retention and severance obligations, of which $2 million was paid in first quarter 2005, with the remainder to be paid in second quarter 2005.

Activity within our accruals for exit costs follows:


	Beginning				Cash
	of Period		Additions		Payments			End of Period
	(In millions)
Involuntary employee terminations	$	2	$	3	$	(3	)	$	2
Contract termination penalties		6		––		––			6
Environmental compliance		8		––		(3	)		5
Demolition		8		––		––			8

Total	$	24	$	3	$	(6	)	$	21

In addition, $6 million of financial services exit cost accruals were finalized and paid in first quarter 2005, and an additional $1 million was accrued. At first quarter-end 2005, financial services accruals for exit cost was $6 million.

Note J – Acquisitions And Other Items

In first quarter 2005, our financial services segment completed the acquisition of an insurance agency for $18 million cash with potential additional consideration of up to $7 million. This acquisition did not materially affect our financial position, results of operations, or liquidity.

Note K – Change in Method of Accounting and Accounting Pronouncements

Change in Method of Accounting for Certain Inventories

In January 2005, we changed our method of accounting for our corrugated packaging inventories from the LIFO method to the average cost method, which approximates FIFO. As a result of our ongoing efforts to reduce cost permanently and increase asset utilization, we believe the average cost method is preferable because it: (i) increases the transparency of our financial reporting through a more balanced income statement and balance sheet presentation; (ii) results in the valuation of all of our inventories at current cost in our financial statements; and (iii) conforms all of our inventories to a single method of accounting.

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

As a result, at the beginning of first-quarter 2005, we increased inventories $25 million, increased our income tax liability by $10 million and increased retained earnings by $15 million. In addition, as required by generally accepted accounting principles, we have retrospectively applied the average cost method to our prior period income statements and segment operating results, the effect of which is summarized as follows:


	Corrugated Packaging				Income from Continuing
	Segment Operating Income				Operations				Per Diluted Share
	As		Retrospective		As		Retrospective				Retrospective
	Reported		Application		Reported		Application		As Reported		Application
	(In millions, except per share)
2004
First quarter	$	10	$	8	$	13	$	12	$	0.12	$	0.11
Second quarter		26		24		55		54		0.49		0.48
Third quarter		42		40		40		39		0.36		0.35
Fourth quarter		27		24		54		52		0.47		0.45

Year	$	105	$	96	$	162	$	157	$	1.44	$	1.39

Pending Accounting Pronouncements

In April 2005, the Securities and Exchange Commission adopted a rule delaying the effective date of FASB SFAS No. 123 (revised December 2004), Share Based Payment, which requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on their estimated fair value. As a result, SFAS No. 123R will now be effective for us beginning first quarter 2006.

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

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties and are identified by their use of terms and phrases such as “believe,” “anticipate,” “could,” “estimate,” “intend,” “may,” “plan,” “expect,” and similar expressions, including references to assumptions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for these forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors and uncertainties could cause our actual results to differ significantly from the results discussed in the forward-looking statements. Factors and uncertainties that might cause such differences include, but are not limited to:

•   general economic, market or business conditions;

•   the opportunities (or lack thereof) that may be presented to and pursued by us and our subsidiaries;

•   the availability and price of raw materials used by us and our subsidiaries;

•   fluctuations in the cost of purchased energy;

•   fluctuations in the cost we incur to transport the raw materials we use and the products we manufacture;

•   assumptions related to pension and postretirement costs;

•   assumptions related to the accounting for impaired assets;

•   the collectibility of loans and accounts receivable and related provision for losses;

•   competitive actions by other companies;

•   changes in laws or regulations and actions or restrictions of regulatory agencies;

•   the accuracy of certain judgments and estimates concerning our integration of acquired operations;

•   our ability to execute certain strategic and business improvement initiatives; and

•   other factors, many of which are beyond our and our subsidiaries’ control.

Our actual results, performance, or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition. In view of these uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements contained in this report to reflect the occurrence of events after the date of this report.

Non-GAAP Financial Measure

Return on investment (ROI) is an important internal measure for us because it is a key component of our evaluation of overall performance and the performance of our business segments. Studies have shown that there is a direct correlation between shareholder value and ROI and that shareholder value is created when ROI exceeds the cost of capital. ROI allows us to evaluate our performance on a consistent basis as the amount we earn relative to the amount invested in our business segments and a significant portion of senior management’s compensation is based on achieving ROI targets.

In evaluating overall performance, we define ROI as operating income, adjusted for significant unusual items, divided by parent company total assets, less certain assets and current liabilities, excluding the current portion of debt. In evaluating segment performance, we define ROI as segment-operating income divided by segment assets less segment current liabilities. We do not believe there is a comparable GAAP financial measure to our definition of ROI. The reconciliation of our ROI calculation to amounts reported under GAAP is included in a later section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Despite its importance to us, remember that ROI is a non-GAAP measure that has no standardized definition and as a result may not be comparable with other companies’ measures using the same or similar terms. Also there may be limits in the usefulness of ROI to investors. As a result, we encourage you to read our consolidated financial statements in their entirety and not to rely on any single financial measure.

Results of Operations for First Quarter 2005 and 2004

Summary

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


	First Quarter
	2005			2004
	(In millions, except
	per share)
Revenues
Corrugated packaging	$	718		$	673
Forest products		249			220
Financial services		236			261

Total revenues	$	1,203		$	1,154

Segment Operating Income
Corrugated packaging	$	50		$	8
Forest products		54			32
Financial services		47			53

Total segment operating income		151			93
Expenses not allocated to segments
General and administrative		(26	)		(23	)
Other operating income (expense)		(24	)		(19	)
Other non-operating income (expense)		1			––
Parent company interest		(28	)		(32	)

Income before income taxes		74			19
Income (taxes) benefit		(29	)		(7	)

Income from continuing operations	$	45		$	12

Income from continuing operations, per diluted share	$	0.39		$	0.11
Average diluted shares outstanding		115.7			111.2
Temple-Inland ROI		9.7	%		5.0	%

Significant items affecting 2005 income from continuing operations included:

• In 2005, we continued to see the benefits in our manufacturing operations of our initiatives to lower costs and improve asset utilization and operating efficiencies. In addition, market demand strengthened, resulting in higher prices and shipments for most of our product offerings. Our financial services operations were negatively impacted by lower net interest income resulting from a decrease in average earning assets. Actions taken to lower cost and improve asset utilization and operating efficiencies included the announced closure of our Antioch, California converting facility and other workforce reductions which resulted in $11 million in charges and expenses. In addition, we incurred $13 million in charges principally associated with antitrust litigation and the recently completed proxy contest.

• In 2004, actions taken to lower costs and improve asset utilization and operating efficiencies resulted in charges and expenses of $19 million, principally related to the closure of converting and production facilities and the consolidation of administrative functions.

Share and per share amounts for all periods have been adjusted to reflect our two-for-one stock split on April 1, 2005.

Business Segments

We manage our operations through three business segments:

•   Corrugated packaging,

•   Forest products, and

•   Financial services.

Our operations are affected to varying degrees by supply and demand factors and economic conditions including changes in energy costs, interest rates, new housing starts, home repair and remodeling activities, loan collateral values, particularly real estate, and the strength of the U.S. dollar. Given the commodity nature of our manufactured products, we have little control over market pricing or market demand.

Corrugated Packaging

We manufacture linerboard and corrugating medium that we convert into corrugated packaging and sell in the open market. Our corrugated packaging segment revenues are principally derived from the sale of corrugated packaging products and, to a lesser degree, from the sale of linerboard in the domestic and export markets.

A summary of our corrugated packaging results follows:


	First Quarter
	2005			2004
	(Dollars in millions)
Revenues	$	718		$	673
Segment operating income		50			8
Segment ROI		9.5	%		1.6	%

Corrugated packaging pricing and shipments improved due to market demand and market share growth.


	First Quarter 2005 versus
	First Quarter 2004
	Increase (Decrease)
Corrugated packaging
Average prices		9	%
Shipments, average week		5	%
Industry shipments, average week ^(a)		1	%

Linerboard		24	%
Average prices		24	%
Shipments, tons		(38	)%

^(a) Source: Fibre Box Association

The increase in corrugated packaging shipments was generated with five fewer converting facilities in first quarter 2005 compared with first quarter 2004.

Linerboard sales and shipments to third parties were down because more of our production was used in our converting facilities, which is consistent with our strategy to convert more of the linerboard we produce in our own converting facilities.

Compared with fourth quarter 2004, average corrugated packaging prices were flat and shipments were up one percent while average linerboard prices were down three percent and shipments were down 14 percent.

As part of our continuing efforts to lower cost and improve operating efficiency and asset utilization, we announced that we would close our Antioch, California converting facility by June 2005.

Fluctuations in our significant cost and expense components included:


	First Quarter 2005 versus
	First Quarter 2004
	Increase (Decrease)
	(In millions)
Wood fiber	$	8
Recycled fiber		9
Energy, principally natural gas		4
Depreciation		1
Pension and postretirement		(1	)

Our wood and recycled fiber and energy costs fluctuate based on the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate during 2005.

Information about our converting facilities and mills follows:


	First Quarter
	2005			2004
Number of converting facilities (at quarter-end)		69			73
Mill capacity, in thousand tons		892			827
Mill production, in thousand tons		875			832
Percent mill production used internally		92	%		87	%
Percent of total fiber requirements sourced from recycled fiber		36	%		34	%
Corrugating medium purchases from our Premier Boxboard Limited LLC joint venture, in thousand tons		15			28

Forest Products

We own or lease two million acres of timberland in Texas, Louisiana, Georgia, and Alabama. We grow timber, cut the timber and convert it into products. We intend to create the infrastructure necessary for real estate development of our designated high-value timberland in Georgia, principally near Atlanta. We manufacture lumber, particleboard, gypsum wallboard, fiberboard and medium density fiberboard (MDF). Our forest products segment revenues are principally derived from the sales of these products and, to a lesser degree, from sales of fiber and high-value lands and other income. We also own 50 percent interests in a gypsum wallboard joint venture and in an MDF joint venture.

A summary of our forest products results follows:


	First Quarter
	2005			2004
	(Dollars in millions)
Revenues	$	249		$	220
Segment operating income		54			32
Segment ROI		23.1	%		13.1	%

Pricing and shipment improved for most product offerings due to the strong housing and remodeling markets.


	First Quarter 2005 versus
	First Quarter 2004
	Increase (Decrease)
Lumber:
Average prices		9	%
Shipments		––	%
Particleboard:
Average prices		16	%
Shipments		8	%
Gypsum:
Average prices		13	%
Shipments		21	%
MDF:
Average prices		11	%
Shipments		18	%

Segment operating income includes our share of gypsum and MDF joint ventures’ operating income: $6 million in 2005 and $3 million in 2004. The joint ventures’ operating results generally fluctuate in relation to the price and shipment changes noted above. Segment operating income also includes income from hunting, mineral, and recreational leases of $6 million in 2005 and $4 million in 2004.

Compared with fourth quarter 2004, average prices were up four percent for lumber and two percent for gypsum, while average prices were down three percent for particleboard and four percent for MDF. Shipments were up seven percent for lumber, 26 percent for particleboard, six percent for gypsum, and 26 percent for MDF.

Information regarding our high-value land sales follows:


	First Quarter
	2005		2004
High-value land:
Acres sold		448		430
Profit included in segment operating income (in millions)	$	4	$	3

Fluctuations in our significant cost and expense components included:


	First Quarter 2005 versus
	First Quarter 2004
	Increase (Decrease)
	(In millions)
Wood fiber	$	8
Energy, principally natural gas		3
Depreciation		(2	)
Pension and postretirement		1

Our goal is to increase our use of wood fiber from our timberland and reduce our reliance on outside purchases. Our outside purchases of fiber and energy costs fluctuate based on the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate during 2005.

Information about our timber harvest and converting and manufacturing facilities follows:


	First Quarter
	2005			2004
Timber harvest, in million tons:
Sawtimber		0.5			0.6
Pulpwood		0.8			0.8

Total		1.3			1.4

Number of converting and manufacturing facilities (at quarter-end)		18			18
Average operating rates for all product lines:
High		106	%		92	%
Low		62	%		57	%
Average operating rates for all products lines excluding sold or closed facilities:
High		106	%		95	%
Low		91	%		76	%

In second quarter 2003, we indefinitely closed our Mt. Jewett particleboard facility.

Financial Services

We own a savings bank, Guaranty Bank, and an insurance agency and engage in real estate development activities. In late 2004, we repositioned our mortgage origination activities and sold our third-party mortgage-servicing portfolio. Guaranty makes up the predominant amount of our financial services segment operating income, revenues, assets, and liabilities. In general, we gather funds from depositors, borrow money, and invest the resulting cash in loans and securities. In first quarter 2005, we acquired an insurance agency for $18 million cash with potential additional consideration of up to $7 million. This acquisition did not significantly affect our operating results.

A summary of our financial services results follows:


	First Quarter
	2005			2004
	(Dollars in millions)
Net interest income	$	94		$	100
Segment operating income		47			53
Segment ROI		16.8	%		18.9	%

The change in net interest income in first quarter 2005 was principally due to a decline in our average earning assets, principally single-family mortgage backed securities.

Net Interest Income and Earning Assets and Deposits

Information concerning our interest rate spread follows:


	First Quarter
	2005					2004
	Average		Yield/			Average		Yield/
	Balance		Rate			Balance		Rate
	(Dollars in millions)
Earning assets	$	15,137		4.72	%	$	16,222		4.34	%
Interest-bearing liabilities		14,232		2.39	%		15,136		2.01	%

Interest rate spread				2.33	%				2.33	%

Our interest rate spread remained constant, as the yield on our earning assets and interest-bearing liabilities moved in tandem. As we are currently positioned, if interest rates remain relatively stable, it is likely that our net

interest spread will remain near its current level. However, if interest rates change significantly, it is likely that our interest rate spread will decline.

The following tables summarize the composition of earning assets and deposits:


	First Quarter-End
	2005			2004
	(Dollars in millions)
Residential housing assets
Loans and loans held for sale	$	7,451		$	7,025
Securities		4,650			6,301

Total residential housing assets		12,101			13,326
Other earning assets		2,890			2,964

Total earning assets	$	14,991		$	16,290

Residential housing assets as a percentage of total earning assets		81	%		82	%
Transaction accounts	$	4,751		$	5,236
Certificates of deposit		4,378			3,300

Total deposits	$	9,129		$	8,536

The change in earning assets at first quarter-end 2005 was principally due to a decrease in single-family mortgage-backed securities resulting from reduced purchases coupled with prepayments related to refinancing activity and a decrease in loans held for sale due to the repositioning of our mortgage origination activities. These changes were partially offset by increases in single-family mortgage and single-family mortgage warehouse loans. As previously disclosed, we anticipate our earning assets to remain at first quarter 2005 levels or slightly lower for several more months, but we expect to begin to see increased funding on new loan commitments beginning in late 2005.

Asset Quality and Allowance for Loan Losses

A summary of various asset quality measures we monitor follows:


	First Quarter-End
							Year-
	2005			2004			End 2004
	(Dollars in millions)
Non-performing loans	$	63		$	102		$	50
Restructured operating lease assets		35			39			37
Foreclosed real estate		4			27			4

Non-performing assets	$	102		$	168		$	91

Non-performing loans as a percentage of total loans		0.64	%		1.10	%		0.51	%
Non-performing assets ratio		1.03	%		1.80	%		0.93	%
Allowance for loan losses/non-performing loans		130	%		111	%		170	%
Allowance for loan losses/total loans		0.83	%		1.22	%		0.88	%

The change in non-performing loans at first quarter-end 2005 compared with first quarter-end 2004 was principally a result of repayments or collateral foreclosure on a number of commercial real estate loans in 2004. The change in non-performing loans at first quarter-end 2005 compared with year-end 2004 was principally due to a previously disclosed direct-financing lease transaction with an automotive parts manufacturer that declared bankruptcy in first quarter 2005. The lease has a carrying value of $11 million and is secured by equipment used to manufacture original-equipment automotive parts.

The following table summarizes changes in the allowance for loan losses:


	First Quarter
	2005			2004
	(Dollars in millions)
Balance at beginning of period	$	85		$	111
Net charge-offs		(5	)		2
Provision (credit) for loan losses		2			––

Balance at end of period	$	82		$	113

Net charge-offs as a percentage of average loans outstanding		0.22	%		(0.10	)%

Charge-offs in first quarter 2005 principally relate to the direct-financing lease described above and to a lesser extent, an asset-based loan. In first quarter 2005, our provision for loan losses increased. Although changes in credit quality are difficult to predict, it is likely that the provision will continue to increase throughout 2005. Credit quality improvements in our portfolio and recoveries on previously charged-off loans resulted in no provision for loan losses in first quarter 2004.

Non-Interest Income and Non-Interest Expense

Fluctuations in our non-interest income components included:


	First Quarter 2005 versus
	First Quarter 2004
	Increase (Decrease)
	(In millions)
Noninterest income:
Loan origination and sale of loans	$	(31	)
Servicing rights amortization and impairment		(7	)

The change in loan origination and sale of loans and servicing rights amortization and impairment was due to the repositioning of our mortgage origination activities and the sale of our third party mortgage-servicing portfolio in late 2004.

Fluctuations in our non-interest expense components included:


	First Quarter 2005 versus
	First Quarter 2004
	Increase (Decrease)
	(In millions)
Noninterest expense:
Compensation and benefits	$	(23	)

A significant portion of our compensation expense was related to our mortgage loan origination activity and was directly variable with origination activities. The change in compensation and benefits was due to the repositioning of our mortgage origination activities in late 2004.

Information regarding mortgage loan origination activity follows:


	First Quarter
	2005		2004
	(Dollars in millions)
Loans originated and retained	$	208	$	375
Loans originated for sale to third parties		368		1,257

The change in mortgage loan origination activity is due to the repositioning of our mortgage origination activities in late 2004.

Expenses Not Allocated to Segments

Unallocated expenses represent expenses managed on a company-wide basis and include corporate general and administrative expense; other operating and non-operating income (expense); and parent company interest expense.

The change in general and administrative expenses in first quarter 2005 was principally due to increases in stock-based compensation.

Other operating income (expense) consists of:

• In first quarter 2005, $24 million, including an $11 million charge associated with the closure of converting and production facilities, a $7 million charge associated with antitrust litigation, a $4 million charge associated with the recently completed proxy contest and $2 million of other charges.

• In first quarter 2004, $19 million, including a $5 million charge associated with consolidation of administrative functions and $14 million related to the closure or sale of production and converting facilities.

We will continue our efforts to enhance return on investment by lowering cost, improving operating efficiencies and increasing asset utilization. As a result, we will continue to review operations that are unable to meet return objectives and determine appropriate courses of action, including consolidating and closing converting facilities and selling under-performing assets.

Other non-operating income (expense) includes income of $1 million related to the change in fair value of non-hedged portion of our interest rate swap.

The change in parent company interest expense in first quarter 2005 was due to reductions in long-term debt and lower interest rates.

Income Taxes

Our effective tax rate was 39 percent in first quarter 2005, the likely effective tax rate for the year 2005, and 39 percent in first quarter 2004. Differences between the effective tax rate and the statutory rate are due to state income taxes, nondeductible items, foreign operating losses, and other items for which no financial benefit is recognized until realized.

Average Shares Outstanding

Average shares outstanding has been adjusted to reflect the two-for-one stock split on April 1, 2005. The change in average diluted shares outstanding was principally due to the dilutive effect of employee stock options and the equity purchase contracts resulting from the increase in the market price of our common stock in first quarter 2005.

The expected settlement of our remaining equity purchase contracts in May 2005 will result in the issuance of between 10 million and 12.3 million shares of stock, and we will receive $319 million in cash. In first quarter 2005, we repurchased 2.8 million shares of common stock for $104 million cash under a February 4, 2005 Board of Director’s authorization to repurchase up to 12 million shares.

Capital Resources and Liquidity for First Quarter 2005

We discuss our capital resources and liquidity for Temple-Inland and our manufacturing subsidiaries, which we refer to as the parent company, and our financial services subsidiaries separately in order for the reader to better understand our different businesses and because almost all of the net assets invested in financial services are subject, in varying degrees, to regulatory rules and regulations including restrictions on the payment of dividends to the parent company.

Sources and Uses of Cash

Consolidated cash from operations was $79 million in first quarter 2005 and $69 million in first quarter 2004. Consolidated cash from operations represents the sum of parent company and financial services cash from operations, less the dividends from financial services, which are eliminated upon consolidation. In first quarter 2005,we received no dividends from financial services and in first quarter 2004 we received $30 million in dividends from financial services.

Parent Company Sources and Uses of Cash


	First Quarter
	2005			2004
	(In millions)
We received cash from
Operations	$	83		$	67
Dividends from financial services ^(a)		––			30
Working capital changes		(49	)		(77	)

From operations		34			20
Sale of non-strategic assets		1			6
Exercise of options and in 2005 the settlement of equity purchase contracts		56			35
Borrowings		129			––

Total sources		220			61


We used cash to
Reduce debt and other obligations		(32	)		(2	)
Pay dividends to shareholders		(25	)		(20	)
Repurchase common stock		(104	)		––
Reinvest in the business through
Capital expenditures		(57	)		(28	)
Joint ventures		(3	)		––

Total uses		(221	)		(50	)

Change in cash and cash equivalents	$	(1	)	$	11



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

We operate in cyclical industries and our operating cash flows vary accordingly. Our principal operating cash requirements are for compensation, wood and recycled fiber, energy, interest and taxes. The dividends we receive from financial services are dependent on its level of earnings and capital needs and are subject to regulatory approval and restrictions. As previously disclosed, dividends from financial services are expected to be substantially less in 2005 than in 2004 because of an anticipated increase in the capital requirements of Guaranty to support growth in its earning assets.

Working capital is subject to cyclical operating needs, the timing of collection of receivables and the payment of payables and expenses and to a lesser extent to seasonal fluctuations in our operations.

In 2005 and 2004, many of our employees took advantage of the increasing spread between the market price of our common stock and the exercise price of employee stock options and exercised their stock options. As a result, we issued 1,145,058 shares of common stock in first quarter 2005 and 1,330,128 shares in first quarter 2004 to employees exercising options. In addition, in first quarter 2005, we issued 826,240 shares of our common stock and received $26 million in cash resulting from the early settlement of a portion of our equity purchase contracts.

Debt reductions in 2005 included $21 million of variable rate industrial revenue bonds.

We paid cash dividends to shareholders of $0.23 per share in first quarter 2005 and $0.18 per share in first quarter 2004. In February 2005, the Board of Directors increased the quarterly cash dividend to $0.23 per share.

In February 2005, we announced that our Board of Directors approved a repurchase program of up to 12 million shares, which represents over 10% of our common stock. In first quarter 2005, we repurchased 2.8 million shares for $104 million, at an average price of $37.16.

Capital expenditures are expected to approximate $225 million in 2005 or about 100% of expected 2005 depreciation. Most of the expected 2005 expenditures relate to initiatives to increase reliability at our linerboard mills.

Financial Services Sources and Uses of Cash


	First Quarter
	2005			2004
	(In millions)
We received cash from
Operations	$	45		$	54
Changes in loans held for sale, and other		––			25

From operations		45			79
Sale of non-strategic assets and mortgage servicing rights		42			35

Total sources		87			114

We used cash to
Pay dividends to the parent company ^(a)		––			(30	)
Change in deposits and borrowings		(344	)		232
Reinvest in the business through
Loans and securities, net of payments		184			(381	)
Capital expenditure, acquisitions and other uses		(38	)		(13	)

Total uses		(198	)		(192	)

Change in cash and cash equivalents	$	(111	)	$	(78	)



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

Our principal operating cash requirements are for compensation, interest, and taxes. Changes in loans held for sale are subject to the timing of the origination and subsequent sale of the loans and the level of refinancing activity. A significant portion of our first quarter 2005 cash from operations was due to the sale of loans held for sale. As a result of the repositioning of our mortgage origination activities in late 2004, it is likely that the cash flow related to these activities will decrease substantially in 2005.

Guaranty did not pay any dividends to the parent company in first quarter 2005. The changes in deposits and borrowings and the amounts invested in loans and securities generally move in tandem because we use deposits and borrowings to finance these investments. The change in first quarter 2005 was principally due to the decrease in loans and securities from year-end 2004 and our routine cash management activities. Additionally, in first quarter 2005, we completed the acquisition of an insurance agency for $18 million cash.

We did not increase our loan commitments in first quarter 2005 as much as we anticipated. As a result, our regulatory capital requirements did not increase substantially. We anticipate continued loan commitments growth in 2005. However, funding of these commitments, particularly commercial real estate construction commitments, will not likely increase our earning assets or significantly increase our capital requirements until the second half of 2005. As a result, it is likely that Guaranty may pay a dividend to the parent company in second quarter 2005.

Liquidity

Almost all of the net assets invested in financial services are subject, in varying degrees, to regulatory rules and restrictions including restrictions on the payment of dividends to the parent company. As a result, all consolidated assets are not available to satisfy all consolidated liabilities. For the reader to better understand this and our different businesses, we discuss our contractual obligations for the parent company and financial services separately.

Parent Company Liquidity

Our sources of short-term funding are our operating cash flows, dividends received from financial services, and borrowings under our existing accounts receivable securitization program and committed credit agreements.

At first quarter-end, we had $582 million in unused borrowing capacity under our credit agreements and $105 million under our accounts receivable securitization program that expires in 2007.

In February 2005, we effected a successful remarketing of our $345 million 6.42% senior notes payable in 2007. The interest rate on these notes is now 5.003%. We expect to settle the remaining related equity purchase contracts in May 2005. At that time, we will issue common stock in exchange for $319 million in cash. The actual number of shares we will issue will be based on the average market price of our stock, subject to a floor of $26, in which case we will issue 12.3 million shares, and a ceiling of $31.72, in which case we will issue 10 million shares.

In first quarter 2005, we repurchased 2.8 million shares of the 12 million repurchase authorization. We anticipate that we will repurchase a significant portion of the remainder of the approved repurchase program, 9.2 million shares, in second quarter 2005. It is likely that a significant portion of this repurchase will be funded from the proceeds of the settlement of the equity purchase contracts.

We have interest rate and commodity derivative instruments outstanding at year-end 2004. The interest rate instruments expire in 2008 and the majority of the commodity instruments expire in 2005. These instruments are non-exchange traded and are valued using either third-party resources or models. At first quarter-end 2005, the aggregate fair value of all derivatives was a $4 million liability consisting of $4 million of liabilities for our interest rate swaps and an immaterial asset for our two commodity instruments.

Financial Services Liquidity

Our sources of short-term funding are our operating cash flows, new deposits, borrowings under our existing agreements and, if necessary, sales of assets. Assets that can be readily converted to cash, or against which we can readily borrow, include short-term investments, loans, mortgage loans held for sale, and securities. At first quarter-end 2005, we had available liquidity of $3.7 billion.

Off-Balance Sheet Arrangements

Parent Company

In first quarter 2005, there were no significant changes in parent company off-balance arrangements from that disclosed in our Annual Report on Form 10-K for the year 2004.

Financial Services

We enter into commitments to extend credit for loans, leases, and letters of credit in the normal course of our business. These commitments carry substantially the same risk as loans. We generally require collateral upon funding of these commitments, the receipt of which provides assets that generally increase our liquidity by increasing our borrowing capacity. These commitments normally include provisions allowing us to exit the commitment under certain circumstances. At first quarter-end 2005, our off-balance sheet unfunded arrangements consist of:


(In millions)
Single-family mortgage loans	$	264
Unused lines of credit		1,890
Unfunded portion of loan commitments		3,177
Other loan commitments		609
Letters of credit		373

Total	$	6,313

Capital Adequacy and Other Regulatory Matters

At first quarter-end 2005, Guaranty met or exceeded all applicable regulatory capital requirements. We expect to maintain Guaranty’s capital at a level that exceeds the minimum required for designation as “well capitalized” under the capital adequacy regulations of the Office of Thrift Supervision (OTS). From time to time, the parent company may make capital contributions to or receive dividends from Guaranty.

Selected financial and regulatory capital data for Guaranty and its consolidated subsidiaries follows:


	First
	Quarter-End		Year-End
	2005		2004
	(In millions)
Balance sheet data:
Total assets	$	15,594	$	16,065
Total deposits		9,129		8,964
Shareholder’s equity		1,022		997


				Regulatory			For Categorization as
	Actual			Minimum			“Well Capitalized”
Regulatory capital ratios:
Tangible capital		7.16	%		2.00	%		N/A
Leverage capital		7.16	%		4.00	%		5.00	%
Risk-based capital		11.02	%		8.00	%		10.00	%

Guaranty has implemented the corrective actions necessitated by the OTS consent order we previously disclosed.

Accounting Policies

Critical Accounting Estimates

In first quarter 2005, the only change in our critical accounting estimates from those we identified in our Annual Report on Form 10-K for the year 2004 was the elimination of accounting for mortgage servicing rights, as a result of the previously disclosed sale of our third-party mortgage servicing portfolio in late 2004.

Change in Method of Accounting for Inventories

As a result, at the beginning of first quarter 2005, we increased beginning inventories $25 million, increased our income tax liability by $10 million and increased retained earnings by $15 million. In addition, as required by generally accepted accounting principles, we have retrospectively applied the average cost method to our prior period income statements and segment operating results, the effect of which is summarized as follows:


	Corrugated Packaging				Income from Continuing
	Segment Operating Income				Operations				Per Diluted Share
	As		Retrospective		As		Retrospective				Retrospective
	Reported		Application		Reported		Application		As Reported		Application
					(In millions, except per share)
2004
First quarter	$	10	$	8	$	13	$	12	$	0.12	$	0.11
Second quarter		26		24		55		54		0.49		0.48
Third quarter		42		40		40		39		0.36		0.35
Fourth quarter		27		24		54		52		0.47		0.45

Year	$	105	$	96	$	162	$	157	$	1.44	$	1.39

Pending Accounting Pronouncements

In April 2005, the Securities and Exchange Commission adopted a rule delaying the effective date of FASB SFAS No. 123 (revised December 2004), Share Based Payment, which requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on their estimated fair value. As a result of this rule, SFAS No. 123R will now be effective for us beginning first quarter 2006.

Pension and Postretirement Matters

We made a voluntary, discretionary contribution of $15 million to the defined benefit pension plans in first quarter 2005, and it is likely that we will make additional voluntary, discretionary contributions to the defined benefit plans in the remainder of 2005 of $45 million, $15 million per quarter.

Energy and the Effects of Inflation

Energy costs were $77 million in first quarter 2005 compared with $70 million in first quarter 2004. Our energy costs fluctuate based on the market prices we pay for these commodities and on the amount and mix of the types of fuel we may use. We hedge very little of our energy needs. It is likely that these costs will continue to fluctuate during 2005.

Inflation has had minimal effects on operating results the last three years. Our fixed assets, timber and timberland, are carried at their historical costs. If carried at current replacement costs, depreciation expense and the cost of timber cut or timberland sold would be significantly higher than what we reported.

Litigation and Related Matters

We are involved in various legal proceedings that arise from time to time in the ordinary course of business. We believe that the possibility of a material liability from any of these proceedings is remote, and we do not believe that the outcome of any of these proceedings should have a material adverse effect on our financial position, results of operations, or cash flow.

Since we filed our Annual Report on Form 10-K for the year ended January 1, 2005, there have been no material developments in pending legal proceedings other than disclosed below.

As we have previously reported, on May 14, 1999, two of our subsidiaries were named as defendants in a consolidated class action complaint that alleged a civil violation of Section 1 of the Sherman Act. We executed a settlement agreement on April 11, 2003, with the representatives of the class, which received final approval by the trial court. We paid a total of $8 million into escrow to fulfill the terms of the class action settlement.

Calculation of Non-GAAP Financial Measure


	Parent			Corrugated			Forest			Financial
	Company			Packaging			Products			Services
	(Dollars in millions)
First Quarter 2005
Return
Operating income or segment operating income determined in accordance with GAAP	$	101	^(a)	$	50		$	54		$	47
Adjustments for significant unusual items		––			N/A			N/A			N/A

As defined	$	101		$	50		$	54		$	47


Investment
Beginning of year total assets, segment assets or investment in financial services determined in accordance with GAAP	$	4,900		$	2,431		$	1,006		$	1,121
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(510	)		(326	)		(71	)		––
Assets held for sale		(34	)		N/A			N/A			N/A
Municipal bonds related to capital leases		(188	)		N/A			N/A			N/A

As defined	$	4,168		$	2,105		$	935		$	1,121


ROI, annualized		9.7	%		9.5	%		23.1	%		16.8	%


First Quarter 2004
Return
Operating income or segment operating income determined in accordance with GAAP	$	51	^(a)	$	8		$	32		$	53
Adjustments for significant unusual items		––			N/A			N/A			N/A

As defined	$	51		$	8		$	32		$	53


Investment
Beginning of year total assets, segment assets or investment in financial services determined in accordance with GAAP	$	4,861		$	2,374		$	1,035		$	1,123
Adjustments:
Current liabilities (excluding current portion of long-term debt)		(503	)		(323	)		(57	)		––
Assets held for sale		(50	)		N/A			N/A			N/A
Municipal bonds related to capital leases		(188	)		N/A			N/A			N/A

As defined	$	4,120		$	2,051		$	978		$	1,123


ROI, annualized		5.0	%		1.6	%		13.1	%		18.9	%

^(a)

Net of expenses not allocated to segments of $50 million in 2005 and $42 million in 2004.

STATISTICAL AND OTHER DATA

Parent Company

Revenues and unit sales of our manufacturing subsidiaries, excluding joint venture operations follows:


	First Quarter
	2005		2004
	(Dollars in millions)
*Revenues*
Corrugated Packaging
Corrugated packaging	$	691	$	637
Linerboard		27		36

Total	$	718	$	673

Forest Products
Pine lumber	$	89	$	79
Particleboard		54		44
Medium density fiberboard		31		25
Gypsum wallboard		31		23
Fiberboard		19		17
Other		25		32

Total	$	249	$	220

*Unit sales*
Corrugated Packaging
Corrugated packaging, thousands of tons		857		841
Linerboard, thousands of tons		69		112

Total, thousands of tons		926		953


Forest Products
Pine lumber, million board feet		235		236
Particleboard, million square feet		173		160
Medium density fiberboard, million square feet		67		57
Gypsum wallboard, million square feet		207		171
Fiberboard, million square feet		107		97

Financial Services

The following table summarizes the composition of our loan portfolio:


	First Quarter-End
							Year-End
	2005			2004			2004
				(In millions)
Single-family mortgage	$	3,598		$	3,351		$	3,560
Single-family mortgage warehouse		573			345			580
Single-family construction		1,515			964			1,303
Multifamily and senior housing		1,375			1,756			1,454

Total residential housing		7,061			6,416			6,897
Commercial real estate		665			974			709
Commercial and business		762			601			746
Energy lending		729			618			717
Asset-based lending and leasing		410			467			428
Consumer and other		213			176			206

Total loans		9,840			9,252			9,703
Less allowance for loan losses		(82	)		(113	)		(85	)

Loans receivable, net	$	9,758		$	9,139		$	9,618

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our current level of interest rate risk is primarily due to the lending and funding activities of our financial services segment. The following table illustrates the estimated effect on our pre-tax income of immediate, parallel and sustained shifts in interest rates for the next 12-months at first quarter-end 2005, with comparative year-end 2004 information. This estimate considers the effect of changing prepayment speeds, repricing characteristics and average balances over the next 12 months.


	Increase (Decrease) in Income Before Income Taxes
	First Quarter-End 2005						Year-End 2004
	Parent			Financial			Parent		Financial
	Company			Services			Company		Services
				(In millions)
Change in Interest Rates
+2%	$	(3	)	$	(22	)	$	1	$	(21	)
+1%		(2	)		(2	)		––		(1	)
-1%		2			(36	)		––		(34	)

We did not present a two percent interest rate decrease because of the current low interest rate environment. The analysis assumes that debt reductions from contractual payments will be replaced with short-term variable rate debt; however, that may not be the financing alternative we choose to follow.

Parent company interest rate risk is related to our long-term debt and our interest rate swap. The change in sensitivity since year-end 2004 is due to an increase in variable rate debt. Additionally, changes in interest rates will affect the value of the interest rate swap agreements (currently $50 million notional amount). We believe that any changes in value would not be significant.

Our financial services segment is subject to interest rate risk to the extent interest-earning assets and interest-bearing liabilities repay or reprice at different times or in differing amounts or both. Our financial services segment’s interest rate sensitivity has not changed significantly from year-end 2004.

Foreign Currency Risk

In first quarter 2005, there were no significant changes in foreign currency risk from that disclosed in our Annual Report on Form 10-K for the year 2004.

Commodity Price Risk

In first quarter 2005, there were no significant changes in commodity price risk from that disclosed in our Annual Report on Form 10-K for the year 2004.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

Our chief executive officer and chief financial officer, based on their evaluation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that our disclosure controls and procedures are adequate and effective to ensure that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities⁽¹⁾⁽²⁾

Maximum

Total Number

Number of

of Shares

Shares That

Purchased as

May Yet be

Average

Part of Publicly

Purchased

Total Number

Price

Announced

Under the

of Shares

Paid per

Plans or

Plans

Period

Purchased

Share

Programs

or Programs

Month 1(1/2/2005 –1/29/2005)

None

N/A

12,000,000

Month 2(1/30/2005 – 2/26/2005)

600,000

38.01

600,000

11,400,000

Month 3(2/27/2005 – 4/2/2005)

2,200,000

36.93

2,200,000

9,200,000

Total

2,800,000

37.16

2,800,000

⁽¹⁾

On February 4, 2005, the Company announced that the Board of Directors authorized the repurchase of up to 12,000,000 shares of the common stock of the Company. The plan has no expiration date. The Company has no other repurchase plans or programs. The Company has no plans or programs that expired during the period covered by the table above and no plans or programs that it intends to terminate prior to expiration or under which it no longer intends to make further purchases.

⁽²⁾

The amounts in the table above have been adjusted to reflect a two-for-one stock split on April 1, 2005, for shareholders of record on March 1, 2005.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits.


		18.1 – Letter from Ernst & Young LLP regarding change in accounting principle.

		31.1 – Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		31.2 – Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

		32.1 – Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

		32.2 – Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Temple-Inland Inc. and Subsidiaries
Consolidated Balance Sheet
Consolidated Statements of Income
Consolidated Statements of Cash Flows

Parent Company (Temple-Inland Inc. and its manufacturing subsidiaries)
Summarized Balance Sheets
Summarized Statements of Income
Summarized Statements of Cash Flows

Financial Services
Summarized Balance Sheets
Summarized Statements of Income
Summarized Statements of Cash Flows

Notes to the Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits

SIGNATURES
Letter
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

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

	•	general economic, market or business conditions;

	•	the opportunities (or lack thereof) that may be presented to and pursued by us and our subsidiaries;

	•	the availability and price of raw materials used by us and our subsidiaries;

	•	fluctuations in the cost of purchased energy;

	•	fluctuations in the cost we incur to transport the raw materials we use and the products we manufacture;

	•	assumptions related to pension and postretirement costs;

	•	assumptions related to the accounting for impaired assets;

	•	the collectibility of loans and accounts receivable and related provision for losses;

	•	competitive actions by other companies;

	•	changes in laws or regulations and actions or restrictions of regulatory agencies;

	•	the accuracy of certain judgments and estimates concerning our integration of acquired operations;

	•	our ability to execute certain strategic and business improvement initiatives; and

	•	other factors, many of which are beyond our and our subsidiaries’ control.

	•	In 2005, we continued to see the benefits in our manufacturing operations of our initiatives to lower costs and improve asset utilization and operating efficiencies. In addition, market demand strengthened, resulting in higher prices and shipments for most of our product offerings. Our financial services operations were negatively impacted by lower net interest income resulting from a decrease in average earning assets. Actions taken to lower cost and improve asset utilization and operating efficiencies included the announced closure of our Antioch, California converting facility and other workforce reductions which resulted in $11 million in charges and expenses. In addition, we incurred $13 million in charges principally associated with antitrust litigation and the recently completed proxy contest.

	•	In 2004, actions taken to lower costs and improve asset utilization and operating efficiencies resulted in charges and expenses of $19 million, principally related to the closure of converting and production facilities and the consolidation of administrative functions.

	•	Corrugated packaging,

	•	Forest products, and

	•	Financial services.

	•	In first quarter 2005, $24 million, including an $11 million charge associated with the closure of converting and production facilities, a $7 million charge associated with antitrust litigation, a $4 million charge associated with the recently completed proxy contest and $2 million of other charges.

	•	In first quarter 2004, $19 million, including a $5 million charge associated with consolidation of administrative functions and $14 million related to the closure or sale of production and converting facilities.


		TEMPLE-INLAND INC. (Registrant)

Dated: May 10, 2005	By	/s/ Louis R. Brill

		Louis R. Brill Chief Accounting Officer


Exhibit No.	Description	Page No.
18.1	Letter from Ernst & Young LLP regarding change in accounting principle		40

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		41

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		43

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		45

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		46