Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of the federal securities laws. These forward-looking statements are identified by their use of terms and phrases such as "believe," "anticipate," "could," "estimate," "likely," "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 risk and uncertainties. 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 us and that we may pursue;

• fluctuations in costs and expenses including the costs of raw materials, purchased energy, and freight;

• changes in interest rates;

• current conditions in financial markets could adversely affect our ability to finance our operations;

• demand for new housing;

• accuracy of accounting assumptions related to impaired assets, pension and postretirement costs, contingency reserves, and income taxes;

• competitive actions by other companies;

• changes in laws or regulations;

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

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

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

Our actual results, performance, or achievement probably will differ 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. Except as required by law, 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. A significant portion of senior management's compensation is based on achieving ROI targets.

In evaluating overall performance, we define ROI as total segment operating income, less general and administrative expenses and share-based compensation not included in segments, divided by total assets, less certain assets and certain 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, ROI is a non-GAAP financial 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.

Accounting Policies

Critical Accounting Estimates

In preparing our financial statements, we follow generally accepted accounting principles, which in many cases require us to make assumptions, estimates, and judgments that affect the amounts reported. Our significant accounting policies are included in Note 1 to the Consolidated Financial Statements. Many of these principles are relatively straightforward. There are, however, a few accounting policies that are critical because they are important in determining our financial condition and results, and they are difficult for us to apply. They include asset impairments, contingency reserves, pension accounting and income taxes. The difficulty in applying these policies arises from the assumptions, estimates and judgments that we have to make currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations, as well as our intentions. As the difficulty increases, the level of precision decreases, meaning actual results can, and probably will, be different from those currently estimated. We base our assumptions, estimates, and judgments on a combination of historical experiences and other factors that we believe are reasonable. We have reviewed the selection and disclosure of these critical accounting estimates with our Audit Committee.

• Measuring assets for impairment requires estimating intentions as to holding periods, future operating cash flows and residual values of the assets under review. Changes in our intentions, market conditions, or operating performance could require us to revise the impairment charges we previously provided.

• Contingency reserves are established for potential losses related to litigation, environmental remediation and other items. Estimating these reserves requires us to make certain judgments and assumptions regarding actual or potential claims, interpretations to be made by courts or regulatory bodies, and other factors and events that are outside our control. Changes and inaccuracies in our interpretations and actions of others could require us to revise the reserves we previously provided.

• The expected long-term rate of return on pension plan assets is an important assumption in determining pension expense. In selecting that rate, particular consideration is given to our asset allocation because 86 percent of our plan assets are debt related with a duration that closely matches that of our benefit obligation. Another important consideration is the discount rate used to determine the present value of our benefit obligation. We determined the discount rate by referencing the Citigroup Pension Discount Curve. We believe that using a yield curve more accurately reflects changes in the present value of our defined benefit plan obligation because each year's cash flow will be discounted at a rate at which it could effectively be settled versus the use of a single index rate. We previously referenced an index for long-term, high-quality bonds, ensuring that the duration of that index did not materially differ from the duration of the plan's liabilities. Differences between actual and expected rates of return and changes in the discount rate will affect future pension expense and funded status. For example, a 25 basis point change in the discount rate would affect the projected benefit obligation by about $41 million and the net periodic pension cost by about $4 million. A 25 basis point change in the expected long-term rate of return would affect the net periodic pension cost by about $3 million.

• Tax provisions are based on the respective tax rules and regulations of the jurisdictions in which we operate. Where we believe a tax position is supportable for income tax purposes, it is included in the respective tax return. When a position is uncertain, a liability is recorded for the most likely outcome considering the technical merits of the position and specific facts. Changes to liabilities are only made when an event occurs that changes the most likely outcome, such as settlement with the relevant tax authority, expiration of statutes of limitations, changes in tax law, or recent court rulings.

New Accounting Pronouncements

In the last three years, we adopted a number of new accounting pronouncements, including in 2008, Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements and SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. In addition, there are three new accounting pronouncements that we will be required to adopt in 2009 none of which we expect to have a significant effect on our financial position, results of operations or cash flows. Please read Note 1 to the Consolidated Financial Statements.

Transformation

On December 28, 2007, we completed our transformation plan, which included sale of our timberlands and spin-offs of our real estate segment, Forestar Group Inc. (Forestar), and our financial services segment, Guaranty Financial Group Inc. (Guaranty).

The transformation plan significantly changed our capital structure and operations. Temple-Inland is a manufacturing company focused on corrugated packaging and building products.

Results of Operations for the Years 2008, 2007, and 2006

Summary

Our two key objectives are:

• Maximizing ROI and

• Profitably growing our business.

We will accomplish our key objectives through execution of our strategic initiatives. Our key strategic initiatives in corrugated packaging are:

• Maintaining full integration,

• Driving for low cost through asset utilization and manufacturing excellence,

• Improving mix and margins through sales excellence, and

• Growing our business.

Our key strategic initiatives in building products are:

• Delivering a tailored portfolio of building products,

• Driving for low cost through manufacturing excellence,

• Serving growing markets with favorable demographics, and

• Promoting sales excellence.

In 2008, consistent with our key strategic initiatives:

• We had record production in our containerboard mills through manufacturing excellence.

• We improved asset utilization and lowered costs in our box plants through our box plant transformation.

• We grew our business through the purchase of our partner's 50 percent interest in PBL, a joint venture that manufactures containerboard and gypsum facing paper at a mill in Newport, Indiana. Late in 2008, we began producing white-top linerboard at this mill.

• We continued to drive down our costs throughout our company.

A summary of our consolidated results from continuing operations follows:

                                                                                 For the Year
                                                                  2008               2007               2006
                                                                   (Dollars in millions, except per share)

Consolidated revenues                                         $      3,884       $      3,926       $      4,185
Income (loss) from continuing operations                                (8 )            1,202                287
Income (loss) from continuing operations, per share                  (0.08 )            11.12               2.59
ROI                                                                    4.5 %              7.8 %             13.4 %

In 2008, significant items affecting income (loss) from continuing operations included:

• We experienced higher pricing and lower volumes for our corrugated packaging products, lower volumes for most of our building products and lower pricing for gypsum wallboard.

• While we continued to see the benefits in our manufacturing operations from our initiatives to lower costs, improve asset utilization, and increase operating efficiencies, the increased cost of energy, freight, and fiber in our corrugated packaging operations more than offset these benefits.

• Share-based compensation decreased due to the effect of the lower share price on our cash-settled awards.

• We incurred $20 million of costs primarily related to our transformation plan, of which $15 million is related to the settlement of supplemental retirement benefits. We also decreased litigation reserves by $5 million due to the settlement of the remaining claim related to our antitrust litigation.

• Charges related to the closure of our Rome, Georgia converting facility totaled $2 million and charges related to our exit of the hardboard siding business in building products totaled $7 million.

• Interest expense decreased primarily due to the December 2007 early retirement of $286 million of 6.75 percent Notes and $213 million of 7.875 percent Senior Notes.

• In July 2008, we purchased for $62 million the remaining 50 percent interest we did not previously own in PBL. Subsequent to the purchase we prepaid $50 million in joint venture debt and incurred a $4 million prepayment penalty.

In 2007, significant items affecting income from continuing operations included:

• In connection with our transformation plan, we recognized a $2.053 billion gain on sale of our strategic timberland, and we incurred $109 million in expenses primarily related to early repayment of debt, change of control agreements and other employee payments, and legal and advisory services.

• We experienced higher prices for our corrugated packaging products; however, we experienced lower prices and volumes for most of our building products.

• While we continue to see the benefit in our manufacturing operations from our initiatives to lower costs, improve asset utilization, and increase operating efficiencies, the higher cost of recycled fiber used at our containerboard mills offset some of the benefits.

• We recognized $120 million in charges, including $64 million as a result of the decision to cease production permanently at our Mt. Jewett particleboard facility and $56 million for the settlement of antitrust and other litigation.

In 2006, significant items affecting income from continuing operations included:

• We continued to see benefits in our manufacturing operations from our initiatives to lower costs, improve asset utilization, and increase operating efficiencies.

• We experienced improved markets for our corrugated packaging and building products, principally gypsum wallboard and particleboard. We acquired our partner's 50 percent interest in Standard Gypsum LP in January.

• Charges related to facility closures and environmental remediation at a paper mill site totaled $12 million.

• We realized one-time cash gains of $89 million related to the settlement of tax litigation and $42 million related to the Softwood Lumber Agreement entered into between the U.S. and Canada.

Business Segments

We manage our operations through two business segments: corrugated packaging and building products. Timber and timberland is no longer an active segment as a result of the sale of our timberlands in fourth quarter 2007. The financial results of the spun-off entities, Forestar and Guaranty, are presented as discontinued operations.

Our operations are affected to varying degrees by supply and demand factors and economic conditions including changes in nondurable goods production, new housing starts, home repair and remodeling activities, 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 (collectively referred to as containerboard) that we convert into corrugated packaging. In July 2008, we purchased our partner's 50 percent interest in PBL, a joint venture that manufactures containerboard and light-weight gypsum facing paper at a mill in Newport, Indiana. We have integrated the PBL operations into our corrugated packaging system. Late in 2008, we began producing white-top linerboard at the Newport mill. Our corrugated packaging segment revenues are

principally derived from the sale of corrugated packaging products and, to a lesser degree, from the sale of containerboard and light-weight gypsum facing paper (collectively referred to as paperboard).

A summary of our corrugated packaging results follows:

                                                    For the Year
                                           2008         2007         2006
                                               (Dollars in millions)

              Revenues                   $  3,190     $  3,044     $  2,977
              Costs and expenses           (2,965 )     (2,757 )     (2,722 )

              Segment operating income   $    225     $    287     $    255

              Segment ROI                    11.3 %       14.3 %       12.5 %

Corrugated packaging results would not have been materially different from those reported assuming the purchase of PBL had occurred at the beginning of 2008.

Fluctuations in product pricing (which includes freight and is net of discounts) and shipments follow:

                                                        Year over Year
                                                     Increase (Decrease)
                                                 2008         2007       2006

          Corrugated packaging
          Average prices                              4 %         3 %        6 %
          Shipments, average week(a)                 (2 )%       (1 )%      (2 )%
          Industry shipments, average week(b)        (4 )%       (2 )%       1 %
          Paperboard
          Average prices                              1 %         5 %       22 %
          Shipments, in thousand tons(c)            166          (7 )       46

(a) Excluding the impact of the sale of Performance Sheets in August 2006, our shipments were up one percent in 2007.

(b) Source: Fibre Box Association

(c) The increase in 2008 includes 43,000 tons of light-weight gypsum facing paper and 25,000 tons of containerboard shipped by PBL since its purchase in July 2008.

In 2008, corrugated packaging prices were up as a result of price increases implemented in 2007 and mid-2008, however current economic conditions had a negative impact on our shipments. In 2007, corrugated packaging prices and paperboard prices moved higher as a result of price increases implemented in 2006 and 2007. In 2006, corrugated packaging and paperboard prices moved higher reflecting price increases implemented in late 2005 and in 2006.

Paperboard shipments to third parties in 2008 increased due to the acquisition of PBL. Shipments in 2007 were slightly lower than in 2006 and shipments increased in 2006 due to increased mill production.

Costs and expenses were up eight percent in 2008 compared with 2007, up one percent in 2007 compared with 2006, and up one percent in 2006 compared with 2005. In 2008, the increased costs were primarily the result of higher prices for recycled fiber, energy, chemicals, freight, and the inclusion of PBL since its purchase in July 2008. In 2007, higher raw material costs were partially offset by lower pension and postretirement costs, $8 million in business interruption and other insurance proceeds primarily related to an equipment outage and other operational issues at our mills that occurred in 2006, and cost reductions attributable to the sale of Performance Sheets. Increased mill reliability and efficiency resulted in lower maintenance costs and improved raw material yield and energy usage. In 2006, higher wood fiber and freight costs were partially offset by lower recycled fiber, energy, and healthcare costs.

Fluctuations in our significant cost and expense components included:

                                                      Year over Year
                                                    Increase (Decrease)
                                                2008         2007      2006
                                                       (In millions)

             Wood fiber                        $    5       $    8     $  16
             Recycled fiber                        15           77        (9 )
             Energy, principally natural gas       61           (1 )      (8 )
             Freight                               29           (3 )      32
             Depreciation                           4          (11 )      (7 )
             Health care                           (1 )         (1 )      (3 )
             Pension and postretirement             -          (12 )      (2 )

The costs of our wood and recycled fiber, energy, and freight fluctuate based on the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate in 2009. The decrease in depreciation in 2007 was principally due to the continued use of fully depreciated assets and the sale of Performance Sheets in August 2006.

Information about our converting facilities and mills follows:

                                                                            For the Year
                                                                     2008       2007       2006

Number of converting facilities (at year-end)                           63         64         64
Corrugated packaging shipments, in million tons                        3.3        3.4        3.4
Paperboard production, in million tons                                 3.7        3.6        3.6
Percent containerboard production used internally                       87 %       92 %       91 %
Percent of total fiber requirements sourced from recycled fiber         42 %       36 %       34 %

As a part of our continuing efforts to lower cost and improve operating efficiencies and asset utilization, in fourth quarter 2008 we closed our Rome, Georgia converting facility. Impairment charges and employee related costs totaling $2 million are not included in segment results.

In third quarter 2008, we lost production of 38,000 tons of containerboard due to hurricanes Gustav and Ike. In addition, in fourth quarter 2008 we reduced our containerboard production by 108,000 tons to match our production to demand.

Building Products

We manufacture lumber, gypsum wallboard, particleboard, medium density fiberboard (MDF), and fiberboard. Our building products segment revenues are principally derived from sales of these products. We also own a 50 percent interest in Del-Tin Fiber LLC, a joint venture that produces MDF at a facility in El Dorado, Arkansas.

A summary of our building products results follows:

                                                        For the Year
                                                2008        2007       2006
                                                   (Dollars in millions)

             Revenues                          $  694      $  806     $ 1,119
             Costs and expenses                  (734 )      (798 )      (898 )

             Segment operating income (loss)   $  (40 )    $    8     $   221

             Segment ROI                         (7.1 )%      1.4 %      37.7 %

Fluctuations in product pricing (which includes freight and is net of discounts) and shipments follow:

                                               Year over Year
                                            Increase (Decrease)
                                         2008       2007       2006

                    Lumber:
                    Average prices           1 %      (13 )%     (16 )%
                    Shipments               (8 )%       1 %        7 %
                    Gypsum wallboard:
                    Average prices         (18 )%     (27 )%      26 %
                    Shipments              (28 )%     (26 )%     132 %
                    Particleboard:
                    Average prices           4 %        2 %       15 %
                    Shipments               (7 )%     (17 )%      (5 )%
                    MDF:
                    Average prices          12 %        1 %        5 %
                    Shipments                4 %       (5 )%     (30 )%

While pricing was up for lumber, particleboard and MDF compared with 2007, demand for most products was down due to challenging market conditions in the housing industry. We expect this trend to continue in 2009.

Segment results also includes our share of income from our MDF joint venture of $1 million in 2008, $1 million in 2007, and $3 million in 2006. The operating results from the joint venture generally fluctuate in relation to the price and shipment changes noted above for MDF.

Costs and expenses were down eight percent in 2008 compared with 2007, down 11 percent in 2007 compared with 2006, and up 16 percent in 2006 compared with 2005. The lower costs in 2008 are primarily attributable to curtailment of production to match demand for our products and headcount reductions. We incurred severance charges of $3 million in 2008 related to headcount reductions. The lower costs in 2007 were primarily driven by lower volumes. The increase in cost in 2006 is primarily attributable to the acquisition of Standard Gypsum LP in January 2006, partially offset by lower wood fiber costs and cost reductions attributable to the sale of our Pembroke MDF facility in June 2005.

Fluctuations in our significant cost and expense components included:

                                                       Year over Year
                                                    Increase (Decrease)
                                                 2008        2007      2006
                                                       (In millions)

              Wood fiber                        $   (43 )    $ (32 )   $ (12 )
              Energy, principally natural gas        (6 )      (21 )      16
              Freight                                (6 )      (12 )      26
              Chemicals                              12         (5 )      (1 )
              Depreciation                            3          1         9
              Health care                            (2 )        1        (1 )
              Pension and postretirement              1          1        (3 )

The cost of our fiber, energy, freight, and chemicals fluctuates based on usage and the market prices we pay for these commodities. It is likely that these costs will continue to fluctuate in 2009.

. . .