1
Focused on Value Creation
for Our Shareholders
for Our Shareholders
June 2011
2
Forward-looking statements are made throughout this presentation. These forward-looking statements are sometimes
identified by the use of terms and phrases such as "believe," "should," "would," "expect," "project," "estimate,"
"anticipate," "intend," "plan," "will," "can," "may," or similar expressions elsewhere in this presentation. All forward-
looking statements are subject to a number of important factors, risks, uncertainties, and assumptions that could
cause actual results to differ materially from those described in any forward-looking statements. These factors and
risks include, but are not limited to, general economic conditions, demand for new housing, accuracy of certain
accounting assumptions, changes in actual or forecasted cash flows, competitive pressures, future sales volume,
significant increases in the costs of certain commodities, timely implementation of price increases, successful
execution of cost saving strategies, changes in tax laws, integration risks associated with recent acquisitions,
changes in weighted average shares for diluted EPS, increases in transportation costs, and other financial,
operational, and legal risks and uncertainties detailed from time to time in Temple-Inland’s cautionary statements
contained in its filings with the SEC. Temple-Inland disclaims and does not undertake any obligation to update or
revise any forward-looking statement in this presentation except as required by law. Temple-Inland notes that forward
-looking statements made in connection with a tender offer are not subject to the safe harbors created by the Private
Securities Litigation Reform Act of 1995. Temple-Inland is not waiving any other defenses that may be available under
applicable law.
This presentation includes non-GAAP financial measures. The required reconciliations to GAAP financial measures
are included on our website, www.templeinland.com.
identified by the use of terms and phrases such as "believe," "should," "would," "expect," "project," "estimate,"
"anticipate," "intend," "plan," "will," "can," "may," or similar expressions elsewhere in this presentation. All forward-
looking statements are subject to a number of important factors, risks, uncertainties, and assumptions that could
cause actual results to differ materially from those described in any forward-looking statements. These factors and
risks include, but are not limited to, general economic conditions, demand for new housing, accuracy of certain
accounting assumptions, changes in actual or forecasted cash flows, competitive pressures, future sales volume,
significant increases in the costs of certain commodities, timely implementation of price increases, successful
execution of cost saving strategies, changes in tax laws, integration risks associated with recent acquisitions,
changes in weighted average shares for diluted EPS, increases in transportation costs, and other financial,
operational, and legal risks and uncertainties detailed from time to time in Temple-Inland’s cautionary statements
contained in its filings with the SEC. Temple-Inland disclaims and does not undertake any obligation to update or
revise any forward-looking statement in this presentation except as required by law. Temple-Inland notes that forward
-looking statements made in connection with a tender offer are not subject to the safe harbors created by the Private
Securities Litigation Reform Act of 1995. Temple-Inland is not waiving any other defenses that may be available under
applicable law.
This presentation includes non-GAAP financial measures. The required reconciliations to GAAP financial measures
are included on our website, www.templeinland.com.
3
Agenda
• Our response to International Paper’s unsolicited proposal
• Our strong track record creating shareholder value
• We are well-positioned to capitalize on favorable industry
dynamics
dynamics
• We are poised to continue creating superior and sustainable
value for our shareholders
value for our shareholders
4
Our Response to International
Paper’s Unsolicited Proposal
Paper’s Unsolicited Proposal
5
Our Rejection of International Paper’s Unsolicited
Proposal
Proposal
• On June 6, International Paper Company (“IP”) announced its Proposal (“the Proposal”¹) to acquire
Temple-Inland Inc. (“Temple-Inland”) for $30.60 per share in cash
Temple-Inland Inc. (“Temple-Inland”) for $30.60 per share in cash
• The Proposal grossly undervalues Temple-Inland because it does not reflect the value of:
− our accelerating growth in earnings and ROI
− our significant outperformance of “precedent transactions” referenced by IP in the Proposal
• The Proposal is opportunistic given:
− fundamental changes occurring in the corrugated packaging industry
− significant benefits to come from our previously announced Box Plant
Transformation II
Transformation II
− current weakness in housing markets
• Our management team has a track record of creating significant value for our shareholders
• The Proposal likely will face prolonged and rigorous investigation by antitrust enforcers
• The Proposal has a number of statements we disagree with, including facts relating to our debt balance
1 The use of “Proposal” herein refers to and includes written materials provided to Temple-Inland by International Paper in connection with the Proposal.
6
Temple-Inland Expects its Accelerating EPS and EBITDA will
Deliver Superior Value to Shareholders…
Deliver Superior Value to Shareholders…
Source: Public filings; EPS before special items; projections per IBES median estimates
Note: IBES median estimates for revenue, EBITDA, EBIT, EPS and ROI as of 15-Jun-2011 adjusted to include Goldman Sachs research estimates; Goldman Sachs research suspended coverage on 9-Jun-2011.
1 Historical ROI per 10-K. Historical and projected ROI calculated as EBIT over total assets less non-debt related current liabilities less municipal bonds related to capital leases included in other assets and less financial assets of special
purpose entities. Based on beginninf of the year balance sheet. EBIT, EBITDA and EPS for 2011 and 2012 per IBES median estimates, 2011E total assets and non-debt related current liabilities per IBES median estimates; assumes
municipal bonds related to capital leases included in other assets and financial assets of special purpose entities are constant.
2 2011E and 2012E represent total debt.
Over the last 3 years Temple-Inland’s forward EBITDA multiple has averaged approximately 7x
7
…Driven by Industry Leading ROA
Source: Public filings
Notes:
(1) EBIT excludes special items - For TIN, IP and Weyerhaeuser as reported by segment; for PCA, Gross Profit-selling and administrative expenses; for SSCC, for containerboard, corrugated containers and reclamation operations
(1) EBIT excludes special items - For TIN, IP and Weyerhaeuser as reported by segment; for PCA, Gross Profit-selling and administrative expenses; for SSCC, for containerboard, corrugated containers and reclamation operations
(2) Adjustments to EBIT - For SSCC, beginning in 2007, working capital interest was no longer charged to operations. Based on restatement of 2006 and 2005 data, EBIT is adjusted upward by $70 million for the years 2004 and 2003.
(3) Assets (beginning of year) - For TIN, IP and Weyerhaeuser as reported by segment adjusted for acquisitions made in Q3 2008; for PCA, consolidated Total Assets; for SSCC, consolidated Total Assets excluding Consumer Packaging prior to 2007. On January 26, 2009 SSCC filed for Chapter 11
Bankruptcy and emerged on June 30, 2010. For 2010, the Successor Total Assets (after adjustments for the Plan of Reorganization and Fresh Start) is used. For 2009, the Successor Total Assets, adjusted for actual cash and cash equivalents is used.
Bankruptcy and emerged on June 30, 2010. For 2010, the Successor Total Assets (after adjustments for the Plan of Reorganization and Fresh Start) is used. For 2009, the Successor Total Assets, adjusted for actual cash and cash equivalents is used.
(4) Restatements - Most recent reported data used to replace prior data, as reported, when available.
8
IP’s Proposal…
• The Proposal refers to Temple-Inland’s net debt balance of $828 million
− Our actual net debt is $737 million, a figure that can be derived from information in our latest 10-Q - this
represents a difference of $91 million in our shareholders’ favor
represents a difference of $91 million in our shareholders’ favor
• The Proposal refers to a liability associated with the sale of our timber assets of $385 million
− Excluding any tax benefits the present value of the liability is actually approximately $184 million
− Including the utilization of $281 million of AMT credits primarily associated with the sale of our
timber assets, the present value is a positive $60-70 million
timber assets, the present value is a positive $60-70 million
• Importantly, the “precedent transactions” cited by IP are simply not comparable
− Temple-Inland has generated higher returns than Smurfit-Stone Container Corporation’s (“SSCC”) and
Weyerhaeuser’s (“WY”) corrugated packaging operations
Weyerhaeuser’s (“WY”) corrugated packaging operations
− The substantial increase in the merger consideration received by SSCC’s shareholders must be taken into
account and significantly changes the transaction metrics
account and significantly changes the transaction metrics
9
IP’s Portrayal of the Proposal’s 2011E EBITDA Multiple is Self
-serving…
-serving…
Correct Debt
Balance2
Balance2
Excluding Timber
Monetization
“Liability”3
Monetization
“Liability”3
Actual
1 Source: Letters dated 19-May-2011 and 27-May-2011 from Mr. John V. Faraci to Mr. Doyle R. Simons.
2 Reflects adjustment of net debt from $828 million per IP’s letter to Temple-Inland’s current net debt of $737 million per latest 10Q as of 2-Apr-2011.
3 Reflects exclusion of timber liability of $385 million mentioned in IP’s letter.
10
…And IP Has Chosen to Highlight “Precedent Transactions” That Involved
Operations with Demonstrably Inferior Performance to Our Assets
Operations with Demonstrably Inferior Performance to Our Assets
The “precedent transactions” referred to in IP’s Proposal refer to assets which had demonstrably lower returns than those
of Temple-Inland
of Temple-Inland
Source: Public filings
Notes:
(1) EBIT excludes special items - For TIN and Weyerhaeuser as reported by segment; for SSCC, for containerboard, corrugated containers and reclamation operations.
(2) Adjustments to EBIT - For SSCC, beginning in 2007, working capital interest was no longer charged to operations. Based on restatement of 2006 and 2005 data, EBIT is adjusted upward by $70 million for the years 2004 and 2003.
(3) Assets (beginning of year) - For TIN, IP and Weyerhaeuser as reported by segment adjusted for acquisitions made in Q3 2008; or SSCC, consolidated Total Assets excluding Consumer Packaging prior to 2007. On 26-Jan-2009 SSCC filed for Chapter 11 Bankruptcy and
emerged on 30-Jun-2010. For 2010, the Successor Total Assets (after adjustments for the Plan of Reorganization and Fresh Start) is used. For 2009, the Successor Total Assets, adjusted for actual cash and cash equivalents is used.
emerged on 30-Jun-2010. For 2010, the Successor Total Assets (after adjustments for the Plan of Reorganization and Fresh Start) is used. For 2009, the Successor Total Assets, adjusted for actual cash and cash equivalents is used.
(4) Restatements - Most recent reported data used to replace prior data, as reported, when available.
11
…IP’s Characterization of the “Precedent” Smurfit-Stone
Transaction Tells Only One Side of the Story
Transaction Tells Only One Side of the Story
• Rock-Tenn announced synergies well below precedents due to very limited operational overlap
• Temple-Inland’s historic ROA has been substantially in excess of that of Smurfit-Stone
EBITDA
Multiple
Multiple
Premia3
Source: Company filings and press release, Capital IQ; market data as of 27-May-2011
Note: Multiples exclude impact of pensions.
1 Transaction closed on 27-May-2011.
2 Price increase between announcement and closing.
3 1 day prior share price based upon Smurfit-Stone closing price of $27.52 on 21-Jan-2011. 30 and 60 day average prices are based upon the average share price computed using share prices for the 30 and 60 trading days prior to announcement. The average 30 day and 60
day average trading prices are $26.30 and $25.00, respectively.
day average trading prices are $26.30 and $25.00, respectively.
Opportunistically Timed Proposal
12
…And there is little or no market value ascribed to Temple-Inland’s building products operations
IP’s Proposal front-runs significant future benefits associated with fundamental changes occurring in the
corrugated packaging industry and our Box Plant Transformation II
corrugated packaging industry and our Box Plant Transformation II
Proposed Transaction Raises Serious Regulatory
Issues
Issues
13
• A combined IP/TIN would have an almost 40% share of North American
containerboard capacity
containerboard capacity
• The potential acquisition is likely to face a prolonged and rigorous investigation
by antitrust enforcers and an uncertain outcome
by antitrust enforcers and an uncertain outcome
North American Containerboard Capacity Share1
Source: RISI
1 Analysis above utilizes containerboard capacity shares rather than corrugated capacity shares, due to the unavailability of corrugated capacity shares for all large players in the industry. Temple-Inland’s management believes that
the combined capacity share of International Paper and Temple-Inland is approximately 40 percent.
14
Temple-Inland’s Strong Track
Record of Creating Shareholder
Value
Record of Creating Shareholder
Value
Note: Since Spin-off (31-Dec-2007) until 2-Jun-2011.
Temple-Inland has the Highest Total Shareholder
Return in the Industry Since its Creation…
Return in the Industry Since its Creation…
15
…Driven by Increasing ROI and Dividends
16
Source: Public filings
1 Historical ROI per 10-K. ROI calculated as EBIT over total assets less non-debt related current liabilities less municipal bonds related to capital leases included in other assets and less financial assets of special purpose
entities. Based on beginning of year balance sheet.
…While Significantly Reducing Our Debt
17
• Projected to reach debt target by early 2012
• Investment grade rating by S&P and Moody’s
• 6.65 million share repurchase authorization
• Investment grade rating by S&P and Moody’s
• 6.65 million share repurchase authorization
Source: Public filings
18
Temple-Inland is Well-Positioned to
Benefit from Favorable Industry
Dynamics
Benefit from Favorable Industry
Dynamics
Industry Operating Rates Remain High
Industry capacity changes have resulted in high operating
rates despite lower demand levels
rates despite lower demand levels
Source: RISI
19
…Inventories Continue to Decline
Source: Fibre Box Association (FBA)
20
…While Demand is Expected to Return to Pre-
Recession Levels
Recession Levels
12%
4%
Source: RISI
21
…Driving Anticipated Favorable Long-Term
Pricing Trend
Pricing Trend
1993-1999
Average: $372
2000-2005
Average: $409
2006-2009
Average: $530
2010-2015
Estimated Average: $679
Improved industry fundamentals have led to
reduced volatility and higher average prices
22
Source: RISI
RockTenn / Smurfit-Stone Transaction Improves
Industry Fundamentals
Industry Fundamentals
23
24
Temple-Inland is Poised to Continue to
Deliver Superior and Sustainable Value
for Shareholders
Deliver Superior and Sustainable Value
for Shareholders
25
Create Superior and Sustainable Value
26
Corrugated Packaging Strategic Initiatives
26
• Maintain high integration level
- Box plant consumption = mill capacity
• Drive for low cost
- Asset utilization and manufacturing excellence
• Improve mix and margins
- Sales excellence
• Profitably grow business
- Organically / Acquisition
Execution of Strategic Initiatives Drives ROI
27
Integration Level - Highest in the Industry
27
Source: Company reports
Temple-Inland is the most integrated producer of corrugated containers
28
Temple-Inland Operates a Low Cost Mill System
28
Temple-Inland
Company A
Company B
Company C
Company D
Source: FisherSolve; Fisher International, Inc.
Corrugated Packaging Strategic Initiatives
• Drive Low Cost and Increase Asset
Utilization
Utilization
– Fewer Plants
– Fewer Machines
– Fewer Positions
• Improve Mix & Margins
29
C
U
L
T
U
R
E
Lower cost and higher margins
Box Plant Transformation Drives Costs Down
30
Box Plant Transformation will reduce cost by
an anticipated $180 million annually and generate 40%+ returns
an anticipated $180 million annually and generate 40%+ returns
67
51
348
194
7,911
5,837
2006 Pro-Forma 2013
(24%)
(44%)
(26%)
$90 million in expected annual benefits associated with
Box Plant Transformation II are still ahead of us
Box Plant Transformation II are still ahead of us
31
Improve Mix and Margins
Cumulative Tons
Customer Portfolio
“Sell to the left”
32
Profitably Grow Our Business
Successful Acquisition
Track Record
Track Record
•PBL acquisition
– $20 million of synergies
– $30 million from white-top
– 60% ROI
Box Shipment Growth
(2004-2010)
Source: Fibre Box Association (FBA), Average Week
33
Industry Leading ROA
Source: Public filings
Notes:
(1) EBIT excludes special items - For TIN, IP and Weyerhaeuser as reported by segment; for PCA, Gross Profit-selling and administrative expenses; for SSCC, for containerboard, corrugated containers and reclamation operations
(1) EBIT excludes special items - For TIN, IP and Weyerhaeuser as reported by segment; for PCA, Gross Profit-selling and administrative expenses; for SSCC, for containerboard, corrugated containers and reclamation operations
(2) Adjustments to EBIT - For SSCC, beginning in 2007, working capital interest was no longer charged to operations. Based on restatement of 2006 and 2005 data, EBIT is adjusted upward by $70 million for the years 2004 and 2003.
(3) Assets (beginning of year) - For TIN, IP and Weyerhaeuser as reported by segment adjusted for acquisitions made in Q3 2008; for PCA, consolidated Total Assets; for SSCC, consolidated Total Assets excluding Consumer Packaging prior to 2007. On January 26, 2009 SSCC filed for Chapter 11
Bankruptcy and emerged on June 30, 2010. For 2010, the Successor Total Assets (after adjustments for the Plan of Reorganization and Fresh Start) is used. For 2009, the Successor Total Assets, adjusted for actual cash and cash equivalents is used. Figures for Weyerhaeuser not relevant
past 2008 as the Company divested its containerboard assets in that year.
Bankruptcy and emerged on June 30, 2010. For 2010, the Successor Total Assets (after adjustments for the Plan of Reorganization and Fresh Start) is used. For 2009, the Successor Total Assets, adjusted for actual cash and cash equivalents is used. Figures for Weyerhaeuser not relevant
past 2008 as the Company divested its containerboard assets in that year.
(4) Restatements - Most recent reported data used to replace prior data, as reported, when available.
34
34
Building Products Strategic Initiatives
• Deliver tailored portfolio of building products
– Products for new home, repair and remodeling and
commercial markets
commercial markets
• Drive low cost
– Manufacturing excellence
• Serve preferred markets
– Favorable demographics
• Profitably grow business
35
Low Cost Building Products Operations
35
Buna
Pineland
Diboll
Rome
SWL
Lumber
Cost
Position
1st
Quartile
2nd
Quartile
3rd
Quartile
4th
Quartile
Gypsum
Cost
Position
Cumberland
Fletcher
W. Memphis
McQueeney
Panels
Cost
Position
Monroeville
Hope
Diboll
Thomson
PB
MDF
El Dorado
Mt. Jewett
80% of Building Products operations are in the first quartile
1st
Quartile
2nd
Quartile
3rd
Quartile
4th
Quartile
1st
Quartile
2nd
Quartile
3rd
Quartile
4th
Quartile
Source: Beck & RISI studies and internal analysis
36
36
…Drives Solid Performance
Housing Starts
Building Products EBITDA
2006
2007
2008
2009
2010
$8
$17
$22
Temple-Inland’s Focus on Value Creation
37
Temple-Inland drives shareholder value by
disciplined application of capital
disciplined application of capital
- High returns on invested capital
- Capital allocation process is disciplined and
shareholder friendly
shareholder friendly
Return on Investment
Capital Allocation
• Grow Dividends
• Repurchase Shares
• High Return Investments /
Acquisitions
• Repurchase Shares
• High Return Investments /
Acquisitions
38
Additional Information
June 2011
39
Our View of Why Our “Noncontrolling Interest” is
NOT a “Minority Interest” or Debt
NOT a “Minority Interest” or Debt
The above transactions resulted in us recording the following new line items on our 2007 balance sheet
– Financial Assets of Special Purpose Entities
– Nonrecourse Financial Liabilities of Special Purpose Entities
Our $91 million of “Noncontrolling Interest” is NOT a “minority interest “ or debt
It captures a “Noncontrolling Interest of Special Purpose Entities” (“NcISPE”) related to the sale of our timberlands in 2007
WE HAVE NO PRESENT OR FUTURE CASH OBLIGATION ASSOCIATED WITH THE $91 MILLION
Income or expense related to the NcISPE do NOT impact EBIT and do not necessitate an adjustment to Debt
1
2
3
Why the $91
million
Noncontrolling
Interest is on our
Balance Sheet
million
Noncontrolling
Interest is on our
Balance Sheet
40
Our View of the Present Value of the Timberland
Liability
Liability
The sale of our timberlands was structured as an installment sale which qualifies for deferred gain on sale for tax treatment until 2027
Excluding AMT credits, the timberland liability has a net present value of approximately $(184) million, not the $(385) million that IP claims. When
including the utilization of the AMT credits, the value is a positive $60 million to $70 million
including the utilization of the AMT credits, the value is a positive $60 million to $70 million
(US$ in millions)
• There are four components to consider when valuing the present value of the tax liability
– $243 million of net equity in the notes received (Notes of $2,383 million less the Borrowings of $2,140 million)
– The interest income on the Notes less interest expense on the Borrowings until 2027
– The settlement of the $819 million tax on the deferred gain in 2027
– The utilization of $281 million alternative minimum tax credits (AMTs) related to the structure
1 4.5% discount rate based on estimated cost of 16-year debt for AA or higher rated financial institutions.
2 Timber notes are secured by stand-by letters of credit from AAA to A+ rated banks and would trade at par as they are floating rate notes.
3 Interest expense = Citi conduit cost of funds (which is historically approximately equal to 3-month LIBOR) plus approximately 50 basis points or $2,140mm X 0.50% = $(10.7)mm / year.
Interest income = 3-month LIBOR + 4 basis points (which implies a rate of 3.67%, using a current 16-year floating to fixed swap rate of 3.63% + 4 basis points, or $243mm X 3.67% = $8.9mm / year).
Net interest = $(10.7)mm + $8.9mm = $(1.8)mm / year every year until 2027, discounted back to December 2011.
4 AMT generated in 2007 associated with the Timberland sale. Expected utilization of AMTs between 2012 and 2015. AMT discounted at 5.25%, which is the estimated cost of 16-year debt for Temple-Inland (BBB/Baa3).
41
Projected Total Housing Starts
2010A - 2016E
2010A - 2016E
Source: RISI (25-Apr-2011), IHS Global Insight Research (05-May-2011), Moody’s Economic Research (17-May-2011), NAHB / Housing Economics (26-Apr-2011), Raymond James INSight (22-Nov-2010), GS Research (19-May-
2011), Fannie Mae (11-Apr-2011), Freddie Mac (11-May-2011), National Association of Realtors (06-May-2011),Forest Economic Advisors (06-May-2011), Wells Fargo (11-May-2011), RBC (25-Apr-2011), Mesirow Financial (11-May-
2011), APA (11-May-2011); all based on most recent reports that include projections. Morgan Stanley (06-Jun-2011), Credit Suisse (07-Jun-2011) and Deutsche Bank (16-May-2011) per IP’s presentation “Temple-Inland Valuation
Discussion” from 09-Jun-2011.
2011), Fannie Mae (11-Apr-2011), Freddie Mac (11-May-2011), National Association of Realtors (06-May-2011),Forest Economic Advisors (06-May-2011), Wells Fargo (11-May-2011), RBC (25-Apr-2011), Mesirow Financial (11-May-
2011), APA (11-May-2011); all based on most recent reports that include projections. Morgan Stanley (06-Jun-2011), Credit Suisse (07-Jun-2011) and Deutsche Bank (16-May-2011) per IP’s presentation “Temple-Inland Valuation
Discussion” from 09-Jun-2011.
(Total Housing Starts in millions)
Independent Perspectives on TIN’s Potential
Transaction Price
Transaction Price
42
|
Analyst
|
Analyst Quotes
|
|
|
|
|
Barclays Capital
|
• “We would not be surprised if all of the synergies accrued to Temple-Inland shareholders, implying a valuation of ~$41 per share.
Importantly, our valuation is based on below consensus estimates for linerboard prices and profitability.” |
|
Credit Agricole
|
• “We think a bid of roughly $40 per share would be closer to the right ballpark, but that still leaves the question of compensating
investors for what we see as the significant lack of certainty in closing the deal on the terms IP has proposed.” • “While we tend to agree with Temple-Inland’s early comments about the numbers, this transaction is worth far more in practical terms
to IP than even the transformative Weyerhaeuser transaction.” |
|
JP Morgan
|
• “While valuation looks reasonable in the context of historical transactions, we expect Temple-Inland to aggressively seek a premium
valuation for its assets, particularly given its recent box plant investments in Corrugated, trough Building Products earnings and favorable corporate governance structure.” |
|
Buckingham
|
• “We agree that Int’l Paper could comfortably justify and will likely have to pay more in order to get a deal done especially given the
sizable synergies.” • “Allocating half the synergy benefits could potentially justify a $35-40 price target.”
|
|
Deutsche Bank
|
• “We view IP’s bid as an “opening salvo” and suspect that there will ultimately be a deal, but at a higher price.”
• “DB's best estimate of ultimate value: $35-$37.”
|
|
Longbow
|
• “Our net asset valuation yields $35-36/share.”
|
Source: Wall Street Analyst Research
43
Focused on Value
Creation For Our
Shareholders
Creation For Our
Shareholders