Forward-Looking Statement

References to "Plum Creek," "the company," "we," "us," or "our," are references to Plum Creek Timber Company, Inc., a Delaware corporation and a real estate investment trust, or "REIT," for federal income tax purposes, and all of its wholly-owned subsidiaries.

This Report contains forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. Some of the forward-looking statements can be identified by the use of forward-looking words such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," "projects," "strategy," or "anticipates," or the negative of those words or other comparable terminology. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those described in the forward-looking statements, including those factors described under the heading "Risk Factors" in our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and Securities Act of 1933, as amended, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 2007. Some factors include changes in governmental, legislative and environmental restrictions, catastrophic losses from fires, floods, windstorms, earthquakes, volcanic eruptions, insect infestations or diseases, as well as changes in economic conditions and competition in our domestic and export markets and other factors described from time to time in our filings with the Securities and Exchange Commission. In addition, factors that could cause our actual results to differ from those contemplated by our projected, forecasted, estimated or budgeted results as reflected in forward-looking statements relating to our operations and business include, but are not limited to:

• the failure to meet our expectations with respect to our likely future performance;

• an unanticipated reduction in the demand for timber products and/or an unanticipated increase in supply of timber products;

• an unanticipated reduction in demand for higher and better use timberlands or non-strategic timberlands;

• our failure to make strategic acquisitions or to integrate any such acquisitions effectively or, conversely, our failure to make strategic divestitures; and

• our failure to qualify as a real estate investment trust, or REIT.

It is likely that if one or more of the risks materializes, or if one or more assumptions prove to be incorrect, the current expectations of Plum Creek and its management will not be realized. Forward-looking statements speak only as of the date made, and neither Plum Creek nor its management undertakes any obligation to update or revise any forward-looking statements.

The following discussion and analysis should be read in conjunction with the financial information and analysis included in our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.

Recent Events

Potential Timberland Transaction. During the second quarter of 2008, we signed an agreement to sell approximately 310,000 acres of Montana timberlands for $510 million in our Northern Resources Segment. The timberlands are scheduled to be sold in three phases as follows:

• $150 million (approximately 129,000 acres) in December 2008;

• $250 million (approximately 111,000 acres) in December 2009; and

• $110 million (approximately 70,000 acres) in December 2010.

In connection with the sales transaction, we will also enter into a wood fiber supply agreement (for up to 15 years) at market-based prices for our manufacturing facilities. The sales are subject to a number of conditions and contingencies. Our book basis in the Montana timberlands expected to be sold in 2008 is approximately $77 million and is included in our consolidated balance sheet on the line item Assets Held for Sale.

Investment in Joint Venture. On October 1, 2008, we contributed 454,000 acres of timberlands located in our Southern Resources Segment to Southern Diversified Timber, LLC ("the Joint Venture") in exchange for a $705 million preferred interest and a $78 million common interest. Following the contribution, we borrowed $783 million from the Joint Venture. The Joint Venture's other member, an affiliate of The Campbell Group LLC, contributed $783 million of cash in exchange for a common interest. The other member's common interest represents approximately 91% of the Joint Venture's common interests. Under the terms of our existing debt agreements, 50% of the loan proceeds ($392 million) are required to be used to repay outstanding indebtedness, including upcoming fixed rate debt maturities.

We believe there continues to be significant interest in the ownership of timberlands in the United States. Management decided to capture current strong timberland values, in a tax-efficient manner, through a contribution of 11% of its southern timberlands to the Joint Venture. This transaction allows us to immediately capture substantially all of the value of these timberlands while maintaining an ongoing interest in the timberlands.

We expect to receive annually a preferred return of $56 million associated with our $705 million preferred interest in the Joint Venture. In addition to our preferred interest, we also received a 9% common interest, which is entitled to periodic distributions of cash flow, if any, but only after all outstanding preferred distributions have been paid. Our preferred interest has a priority in liquidation over the common interests with respect to all the assets of the Joint Venture. Our annual interest payments on the loan from the Joint Venture are $58 million. See Note 10 of the Consolidated Notes to Financial Statements of Plum Creek Timber Company, Inc.

Results of Operations

Third Quarter 2008 Compared to Third Quarter 2007

The following table and narrative compare operating results by segment for the
quarters ended September 30 (in millions):



                                             Quarter Ended September 30,
                                             2008                  2007           Change

 Operating Income (Loss) by Segment
 Northern Resources                      $          12         $           8     $      4
 Southern Resources                                 29                    39          (10 )
 Real Estate                                        73                    61           12
 Manufactured Products                              (4 )                   2           (6 )
 Other                                               7                     3            4


 Total Segment Operating Income                    117                   113            4

 Other Costs and Eliminations                      (17 )                 (14 )         (3 )

 Other Operating Income (Expense), net              (1 )                  (1 )         -


 Operating Income                        $          99         $          98     $      1

Northern Resources Segment. Revenues increased by $9 million, or 11%, to $95 million in the third quarter of 2008 compared to the third quarter of 2007. This increase was due primarily to higher pulpwood prices ($6 million) and higher pulpwood harvest volumes ($4 million), offset in part by lower sawlog prices ($2 million). Pulpwood prices were 24% higher in 2008 due primarily to strong demand for wood fiber from pulp and paper companies, wet weather conditions which limited pulpwood availability in certain markets, a reduced supply of woodchips as a result of lumber and plywood mill curtailments, and increasing demand for wood fiber for energy use. Sawlog prices were 2% lower in 2008 compared to 2007 due primarily to mill curtailments as a result of weak lumber prices caused by the significant decline in housing starts.

Harvest volumes for the third quarter of 2008 increased by 7% compared to the third quarter of 2007. Almost all of the harvest volume increase was pulpwood, which we temporarily increased during the third quarter of 2008 to take advantage of favorable pulpwood prices. Harvest levels for all of 2008 are expected to be approximately 6.0 million tons compared to 6.2 million tons harvested in 2007.

Northern Resources Segment operating income was 13% of its revenues for the third quarter 2008 and 9% for the third quarter of 2007. This increase was due primarily to a $4 million loss in the third quarter of 2007 for timber volume destroyed by fires on approximately 41,000 acres in Montana. Segment costs and expenses increased by $5 million, or 6%, to $83 million. This increase was due primarily to higher log and haul costs as a result of both higher fuel prices and higher harvest levels, offset in part by the $4 million fire loss reported in 2007. On a per ton basis, logging and hauling costs increased 11% ($5 million) due primarily to higher fuel costs.

Southern Resources Segment. Revenues decreased by $5 million, or 4%, to $116 million in the third quarter of 2008. This decrease was due primarily to lower sawlog prices ($5 million) and a lower margin mix of log sales ($6 million), partially offset by higher pulpwood prices ($5 million).

Sawlog prices on a stumpage basis were 18% lower in the third quarter of 2008 compared to the third quarter of 2007 due primarily to a combination of weak demand and higher hauling costs. Sawlog prices on a delivered basis decreased by 10%. The demand for sawlogs has declined due primarily to mill curtailments as a result of weak lumber prices caused by the significant decline in housing starts. Pulpwood prices were 15% higher in the third quarter of 2008 compared to the third quarter of 2007. This increase was due primarily to the continued strong demand for wood fiber from pulp and paper companies

and a reduced supply of woodchips as a result of lumber and plywood mill curtailments. On a delivered basis, pulpwood prices increased 10%. As a result of the improved pulpwood prices and weak sawlog prices, we increased the percentage of pulpwood harvested and decreased the percentage of sawlogs harvested, which resulted in an overall lower margin mix from log sales.

Harvest levels for all of 2008 are expected to be approximately 13.6 million tons compared to the 14.1 million tons we harvested in 2007. However, we expect the percentage of pulpwood harvested in 2008 to increase to approximately 58% of the total tons harvested compared to 55% of the total tons harvested in 2007. We have temporarily accelerated the harvest of pulpwood to capture favorable prices and have deferred the harvest of sawlogs until prices improve. On October 1, 2008, we contributed approximately 11% of our southern timberlands to a joint venture (see "Recent Events"). Harvest volume from these timberlands were approximately 1.4 million tons for both the nine months ended September 30, 2008 and the twelve months ended December 31, 2007, and in both periods the percentage of sawlogs harvested was slightly greater than 50%.

Southern Resources Segment operating income was 25% of its revenues for the third quarter of 2008 and 32% for the third quarter of 2007. This decrease was due primarily to lower sawlog prices, a lower margin mix from log sales and higher hauling rates. Segment costs and expenses increased by $5 million, or 6%, to $87 million. This increase was due primarily to higher logging and hauling costs. On a per ton basis, logging and hauling costs increased 9% ($5 million) due primarily to higher fuel costs.

Real Estate Segment.



                                                Quarter Ended September 30, 2008                Quarter Ended September 30, 2007
                                             Acres         Revenues         Revenue          Acres          Revenues         Revenue
Property                                     Sold         (millions)        per Acre          Sold         (millions)       per Acre

Small Non-Strategic                            14,800    $         17    $        1,145         30,735    $         43    $       1,400
Conservation                                   39,880              41             1,035          2,650               6            2,150
Higher and Better Use / Recreational           15,640              50             3,220         10,400              38            3,675
Development Properties                             10              -             13,130            890               7            8,410
Conservation Easements                            n/a              -                               n/a              -

Total                                          70,330    $        108                           44,675    $         94

Revenues increased by $14 million to $108 million in the third quarter of 2008. This increase was due primarily to higher revenues from sales of conservation properties ($35 million), increase in the number of acres of higher and better use / recreational land sales ($19 million), offset in part by a decrease in the number of acres of small non-strategic sales ($22 million), lower prices from higher and better use / recreational properties ($7 million) and lower revenues from sales of development properties ($7 million).

The number of acres of conservation properties sold during the third quarter of 2008 increased primarily due to timing of sales. Conservation sales vary significantly from period to period and are primarily impacted by government and not-for-profit funding, a limited number of conservation buyers, and the timing of our offerings. Additionally, the price per acre for conservation properties can vary significantly due to the geographic location and the rationale for the conservation designation.

The number of acres of small non-strategic properties sold during the third quarter of 2008 decreased primarily due to the timing of sales. The number of acres of higher and better use / recreational properties sold during the third quarter of 2008 increased by 50% compared to the third quarter of 2007, due primarily to our long-term plan to expand the number of acres available for sale in many of our real estate markets. Our average sale price per acre for higher and better use / recreational properties decreased by 12% due primarily to sales
mix. During the third quarter of 2008, demand for properties with a higher value per acre has weakened. As a result, we increased our sales of properties with a lower value per acre. Demand in regions with a higher value per acre has weakened due to the slowing U.S. economy, the decline in consumer confidence and the reduced availability of credit. Revenue from our development properties declined due primarily to a significant decrease in the demand for these properties as a result of a decline in consumer confidence and the financial market turmoil.

Real Estate Segment operating income was 67% of its third quarter revenues for 2008, compared to 65% for 2007. Real Estate Segment costs and expenses increased by $2 million to $35 million in the third quarter of 2008.

Manufactured Products Segment.Revenues decreased by $15 million, or 13%, to $104 million in the third quarter of 2008 compared to the third quarter of 2007 due primarily to lower MDF sales volumes ($11 million), lower plywood sales volumes ($3 million), lower lumber sales volumes ($2 million) and lower lumber prices ($2 million), offset in part by higher MDF prices ($3 million).

MDF sales volume decreased by 31% in the third quarter of 2008 compared to the same period in the prior year. MDF demand weakened considerably during the third quarter and is expected to remain weak until the housing market recovers. The weaker demand was due primarily to the significant decline in housing starts and the excess supply of inventories held by flooring and door manufacturers, distributors and retailers. MDF prices were 13% higher compared to the same period in the prior year. Despite weaker demand, customers were generally willing to pay higher prices to partially compensate manufacturers for the higher cost of raw materials.

Plywood sales volumes were 11% lower during the third quarter of 2008 due primarily to weakness in specialty markets, such as recreational vehicle, transportation and concrete forming applications. The decline in these markets is due primarily to weakening economic conditions in the U.S.

Lumber prices were 5% lower during the third quarter of 2008 compared to the same quarter of 2007. The demand for lumber has declined due primarily to significantly lower housing starts. U.S. housing starts during the first nine months of 2008 were 31% lower compared to the same period a year ago. In response to the decline in housing starts, North American lumber production has also been declining. The supply of lumber decreased by 21% during the first six months of 2008 compared to the same period in the previous year. Despite the decline in lumber production, there still remains an ample supply of lumber at current demand levels. Lumber sales volume declined 10% during the third quarter of 2008 due primarily to curtailed production as a result of depressed lumber prices.

Manufactured Products Segment operating loss was $4 million for the third quarter of 2008 compared to operating income of $2 million for the third quarter of 2007. This decrease in operating performance was due primarily to weak lumber prices and higher MDF raw materials costs. Manufactured Products Segment costs and expenses decreased by $9 million, or 8%, to $108 million for the third quarter of 2008. This decrease was due primarily to lower lumber, plywood and MDF sales volume, offset in part by higher MDF raw materials costs and a $3 million write-down for purchase log commitments. The cost of MDF raw materials increased by $5 million due to higher wood chip costs (caused by a regional shortage from lower lumber production) and higher resin costs.

Other Costs and Eliminations. Other costs and eliminations (which consists of corporate overhead and intercompany profit elimination) decreased operating income by $17 million during the third quarter of 2008 and by $14 million during the third quarter of 2007. The increase of $3 million was due primarily to legal and accounting costs related to our equity investment in the Southern timberlands joint venture. See further discussion of the joint venture in "Recent Events" above.

Interest Expense, net. Interest expense (net of interest income) was $35 million for the third quarter of 2008 compared to $38 million for the third quarter of 2007. The $3 million decrease in interest expense was due to lower interest rates on our variable rate debt ($5 million), partially offset by higher interest expense due to additional borrowings outstanding ($2 million). During the fourth quarter of 2007, a combination of cash and debt financing was used to fund approximately $78 million of timberland acquisitions. During 2008, a combination of cash and debt financing was used to fund approximately $65 million of timberland acquisitions and repurchase $51 million, or approximately 1.3 million shares, of common stock.

Benefit for Income Taxes. The benefit for income taxes was $5 million for the third quarter of 2008 compared to a provision for income taxes of $1 million for the third quarter of 2007. The net decrease in tax expense of $6 million is due primarily to losses in our manufacturing business (resulting in a tax benefit of $3 million) and fewer real estate development sales by our taxable REIT subsidiaries (resulting in a tax benefit of $2 million).

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

The following table and narrative compare operating results by segment for the nine months ended September 30 (in millions):

                                                    Nine Months Ended September 30,
                                                    2008                      2007              Change

Operating Income (Loss) by Segment
Northern Resources                             $            33           $            41       $     (8 )
Southern Resources                                         103                       126            (23 )
Real Estate                                                141                       129             12
Manufactured Products                                      (24 )                       3            (27 )
Other                                                       17                        13              4


Total Segment Operating Income                             270                       312            (42 )

Other Costs and Eliminations                               (47 )                     (43 )           (4 )

Other Operating Income (Expense), net                        2                        -               2


Operating Income                               $           225           $           269       $    (44 )

Northern Resources Segment. Revenues of $263 million were essentially flat compared to 2007. Higher pulpwood prices ($9 million) were offset by lower sawlog prices ($10 million). Pulpwood prices were 14% higher in 2008 due primarily to strong demand for wood fiber from pulp and paper companies, wet weather conditions which limited pulpwood availability in certain markets, a reduced supply of woodchips as a result of lumber and plywood mill curtailments, and increasing demand for wood fiber for energy use. Sawlog prices were 6% lower in 2008 compared to 2007 due primarily to mill curtailments as a result of weak lumber prices caused by the significant decline in housing starts.

Harvest volumes for the nine months ended September 30, 2008 decreased by 1% compared to the same period in 2007. Harvest levels for all of 2008 are expected to be approximately 6.0 million tons compared to 6.2 million tons harvested in 2007.

Northern Resources Segment operating income was 13% of its revenues for the nine months ended September 30, 2008 and 16% for the nine months ended September 30, 2007. This decrease was due primarily to lower sawlog prices and higher hauling rates, offset in part by higher pulpwood prices. Segment costs and expenses increased by $7 million, or 3%, to $230 million. This increase was due primarily to higher log and haul costs, offset in part by the $4 million fire loss reported in 2007. On a per ton basis, logging and hauling costs increased 7% ($10 million) due primarily to higher fuel costs.

Southern Resources Segment. Revenues decreased by $8 million, or 2%, to $366 million for the first nine months of 2008. This decrease was due primarily to lower sawlog prices ($15 million) and a lower margin mix of log sales ($13 million), partially offset by higher pulpwood prices ($15 million) and higher pulpwood harvest volumes ($4 million).

Sawlog prices were 15% lower on a stumpage basis in 2008 compared to 2007 due primarily to a combination of weak demand and higher hauling costs. Sawlog prices on a delivered basis decreased by 8%. The demand for sawlogs has declined due primarily to mill curtailments as a result of weak lumber prices caused by the significant decline in housing starts. Pulpwood prices on a stumpage basis were 14% higher in 2008 compared to 2007 due primarily to the continued strong demand for wood fiber from pulp and paper companies and a reduced supply of woodchips as a result of lumber and plywood mill

curtailments. On a delivered basis, pulpwood prices increased 11%. As a result of the improved pulpwood prices and weak sawlog prices, we increased the percentage of pulpwood harvested and decreased the percentage of sawlogs harvested, which resulted in an overall lower margin mix from log sales.

Harvest levels for all of 2008 are expected to be approximately 13.6 million tons compared to the 14.1 million tons we harvested in 2007. However, we expect the percentage of pulpwood harvested in 2008 to increase to approximately 58% of the total tons harvested compared to 55% of the total tons harvested in 2007. We have temporarily accelerated the harvest of pulpwood to capture favorable prices and have deferred the harvest of sawlogs until prices improve. On October 1, 2008, we contributed approximately 11% of our southern timberlands to a joint venture (see "Recent Events"). Harvest volume from these timberlands were approximately 1.4 million tons for both the nine months ended September 30, 2008 and the twelve months ended December 31, 2007, and in both periods the percentage of sawlogs harvested was slightly greater than 50%.

Southern Resources Segment operating income was 28% of its revenues for 2008 and 34% for 2007. This decrease was due primarily to lower sawlog prices, a lower margin mix from log sales and higher hauling rates. Segment costs and expenses increased by $15 million, or 6%, to $263 million. This increase was due primarily to higher logging and hauling costs. On a per ton basis, logging and hauling costs increased 8% ($12 million) due primarily to higher fuel costs.

Real Estate Segment.



                                                Nine Months Ended September 30, 2008              Nine Months Ended September 30, 2007
                                               Acres           Revenues         Revenue         Acres          Revenues          Revenue
Property                                        Sold          (millions)       per Acre          Sold         (millions)        per Acre

Small Non-Strategic                                45,160    $         54    $       1,200         60,635    $         84    $         1,370
Conservation                                       41,490              42            1,030          7,340              16              2,210
Higher and Better Use / Recreational               38,060             113            2,975         22,845              81              3,580
Development Properties                                775               7            9,045          1,530              21             13,795
Conservation Easements                                n/a              -                              n/a              -

Total                                             125,485    $        217                          92,350    $        202


Proceeds from Joint Ventures                                 $         -                                     $          2

Revenues increased by $13 million to $217 million in the first nine months of 2008. This increase was due primarily to an increase in the number of acres of higher and better use / recreational land sales ($54 million), higher revenues from sales of conservation properties ($26 million), offset in part by lower prices from higher and better use / recreational properties ($23 million), a decrease in the number of acres of small non-strategic sales ($21 million), and lower revenues from sales of development properties ($14 million).

The timing of real estate sales is a function of many factors, including the general state of the economy, demand in local real estate markets, the ability . . .