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. References in Item 2 to Notes to Consolidated Financial Statements refer to the Notes to Consolidated Financial Statements of Plum Creek Timber Company, Inc. included in Item 1 of this form.

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, 2008. 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 2008 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2009.

Results of Operations

First Quarter 2009 Compared to First Quarter 2008

The following tables and narrative compare operating results by segment for the
quarters ended March 31 (in millions):



                                               Quarter Ended March 31,
                                              2009                2008          Change

   Operating Income (Loss) by Segment
   Northern Resources                      $         2         $        14     $    (12 )
   Southern Resources                               20                  37          (17 )
   Real Estate                                     170                  33          137
   Manufactured Products                           (22 )                (9 )        (13 )
   Other                                             5                   5           -


   Total Segment Operating Income                  175                  80           95

   Other Costs and Eliminations                    (16 )               (14 )         (2 )

   Other Operating Income (Expense), net            -                    3           (3 )


   Operating Income                        $       159         $        69     $     90

Northern Resources Segment. Key operating statistics for the segment are as follows:

                                          Quarter Ended March 31, 2009                  Quarter Ended March 31, 2008
                                        Harvest Tons           Average Sales          Harvest Tons          Average Sales
                                         (millions)             Realization            (millions)            Realization

Sawlog ($/Ton Delivered)                            0.525     $            57                    0.978     $            67
Pulpwood ($/Ton Delivered)                          0.613     $            43                    0.738     $            39

Total                                               1.138                                        1.716

Revenues decreased by $37 million, or 39%, to $57 million in the first quarter of 2009 compared to the first quarter of 2008. This decrease was due primarily to lower sawlog harvest volumes ($29 million), lower sawlog prices ($6 million) and lower pulpwood harvest volumes ($5 million), partially offset by higher pulpwood prices ($3 million). Total harvest volumes for the first quarter of 2009 decreased by 34% compared to the first quarter of 2008. Sawlog harvest volumes were 46% lower compared to the first quarter of 2008 due primarily to harvest deferrals until log prices improve, recent timberland sales and reduced harvest levels in Montana. Pulpwood harvest volumes were 17% lower due primarily to temporarily increasing harvest levels in 2008 to capture favorable pulpwood prices. Sawlog harvest levels for all of 2009 are expected to decrease by approximately 33% compared to the 3.4 million tons harvested during 2008 due primarily to harvest deferrals until log prices improve, recent timberland sales and declining harvest levels in Montana. Pulpwood harvest levels for all of 2009 are expected to decrease by approximately 18% compared to the 2.6 million tons harvested during 2008 due primarily to harvest levels in 2008 that were temporarily increased to capture favorable pulpwood prices.

Sawlog prices were 15% lower in the first quarter of 2009 compared to the first quarter of 2008 due primarily to the decline in housing starts as a result of the recession in the U.S. During the first quarter of 2009, lower sawlog prices were partially offset by higher pulpwood prices, which increased 9% from the first quarter of 2008. Higher pulpwood prices during the first quarter of 2009 were due primarily to pulpwood sales contracts negotiated during the fourth quarter of 2008 when pulpwood demand was stronger. Pulpwood spot market prices declined in the first quarter of 2009 as a result of the global recession which has reduced the demand for paper and packaging materials. For the remainder of 2009, we expect prices for pulpwood to be similar to price levels in the first quarter of 2008.

Northern Resources Segment operating income was 4% of its revenues for the first quarter of 2009 and 15% for the first quarter of 2008. This decrease was due primarily to weaker sawlog prices and lower harvest volumes. Segment costs and expenses decreased by $25 million, or 31%, to $55 million due primarily to lower harvest volumes.

Southern Resources Segment. Key operating statistics for the segment are as follows:

                                          Quarter Ended March 31, 2009                  Quarter Ended March 31, 2008
                                        Harvest Tons           Average Sales          Harvest Tons           Average Sales
                                         (millions)             Realization            (millions)             Realization

Sawlog ($/Ton Stumpage)                             0.942     $            24                     1.459     $            29
Pulpwood ($/Ton Stumpage)                           1.487     $            11                     1.976     $            10

Total                                               2.429                                         3.435

Revenues decreased by $39 million, or 32%, to $83 million in the first quarter of 2009 compared to the first quarter of 2008. This decrease was due primarily to lower sawlog harvest volumes ($23 million), lower pulpwood harvest volumes ($13 million) and lower sawlog prices ($3 million). During the fourth quarter of 2008, we contributed 454,000 acres of timberlands in our Southern Resources Segment to Southern Diversified Timber, LLC ("the Timberland Venture"). Excluding the 0.133 million tons of sawlogs harvested in the first quarter of 2008 related to the Timberland Venture properties, sawlog harvest volumes decreased by 29% due primarily to harvest deferrals. We intend to realize the harvest of these timber volumes once log prices improve. Excluding the 0.150 million tons of pulpwood harvested in the first quarter of 2008 related to the Timberland Venture properties, pulpwood harvest volumes decreased by 19% due primarily to temporarily increasing harvest levels in 2008 to capture favorable pulpwood prices. Sawlog harvest volumes for all of 2009 (excluding the 0.690 million tons of sawlogs harvested during 2008 from the Timberland Venture properties) are expected to decrease by 4% compared to the 4.9 million tons harvested in 2008 due primarily to continuing the deferral of harvests until log prices improve. Pulpwood harvest volumes for all of 2009 (excluding the 0.667 million tons of pulpwood harvested during 2008 from the Timberland Venture properties) are expected to decrease by 14% compared to the 7.3 million tons harvested in 2008 due primarily to the temporary increase in harvest levels in 2008 to capture favorable pulpwood prices.

Sawlog prices on a stumpage basis were 15% lower in the first quarter of 2009 compared to the first quarter of 2008 due primarily to the decline in housing starts as a result of the recession in the U.S. Sawlog prices on a delivered basis decreased by 8%. Pulpwood prices were 6% higher in the first quarter of 2009 compared to the first quarter of 2008 due primarily to improved pulpwood prices during most of 2008. Pulpwood prices improved due to strong pulp and paper markets and a shortage of wood chips as a result of curtailed lumber production. Most first quarter 2009 sawlog and pulpwood prices were negotiated during the fourth quarter of 2008 when log demand was stronger. If current market prices continue throughout the second quarter, we expect prices realized for both sawlogs and pulpwood during the second quarter to be approximately $2/ton (on a stumpage basis) lower than prices realized during the first quarter of 2009.

Southern Resources Segment operating income was 24% of its revenues for the first quarter of 2009 and 30% for the first quarter of 2008. This decrease was due primarily to weaker sawlog prices and lower harvest volumes. Segment costs and expenses decreased by $22 million, or 26%, to $63 million. This decrease was due primarily to lower harvest levels and lower log and haul rates per ton. Log and haul rates per ton decreased 7% ($3 million) due primarily to lower fuel costs.

Real Estate Segment.



                                               Quarter Ended March 31, 2009                 Quarter Ended March 31, 2008
                                            Acres         Revenues       Revenue       Acres         Revenues        Revenue
Property                                    Sold         (millions)      per Acre       Sold        (millions)       per Acre

Small Non-Strategic                            1,665    $          2    $    1,330       17,145    $         20    $      1,180
Conservation                                 113,355             252         2,225        1,015              -              395
Higher and Better Use / Recreational           2,180               7         3,420       10,635              31           2,875
Development Properties                         1,485               6         4,075           65              -            5,825
Conservation Easements                           n/a              -             -           n/a              -               -

Total                                        118,685    $        268                     28,860    $         52

Revenues increased by $216 million to $268 million in the first quarter of 2009. This increase is due primarily to higher revenues from sales of conservation properties ($252 million) and development properties ($6 million), offset in part by a decrease in the number of acres of higher and better use / recreational and small non-strategic land sales ($42 million).

Revenues from the sale of conservation properties increased by $252 million due primarily to the sale of approximately 112,000 acres in Montana for $250 million during the first quarter of 2009. The $250 million conservation sale during the first quarter of 2009 was the second in a three phase transaction. The third phase of approximately 70,000 acres in Montana is expected to close late in 2010 for approximately $89 million. Conservation sales vary significantly from period to period and are primarily impacted by government and not-for-profit funding, the limited number of conservation buyers, and the timing of our transactions. 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 higher and better use / recreational and small non-strategic properties sold during the first quarter of 2009 decreased compared to the first quarter of 2008 due primarily to a significant decrease in the demand for rural real estate. The demand for rural real estate fell due to the decline in consumer wealth during the past year (e.g., declining home values and stock market losses), declining consumer confidence, inability of buyers to obtain financing and the reluctance to buy when real estate prices are generally declining. Revenue from the sales of our development property consisted primarily of one unentitled parcel to a developer. Additionally, 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 to obtain entitlements, the number of properties listed for sale, the seasonal nature of sales (particularly in the northern states), the plans of adjacent landowners, our expectation of future price appreciation, the timing of harvesting activities, and the availability of government and not-for-profit funding.

We expect revenues from real estate sales during 2009 to range between $430 million and $460 million of which approximately $250 million is from the sale of 112,000 conservation acres in Montana that closed in February 2009. In addition to the Montana transaction, we expect sales in 2009 will consist of up to 140,000 acres of other properties. We expect sales activity for the remainder of the year to improve due to the seasonal nature of real estate sales, additional listings in markets with good demand, listings in new areas, and sales through new channels, such as sealed bids and specialty brokers. In addition to the aforementioned expected revenues and acres, from time to time, we may dispose of larger blocks of other timberlands to maximize value.

Real Estate Segment operating income was 63% of its first quarter revenues for 2009 and 2008. Real Estate Segment costs and expenses increased by $79 million to $98 million in the first quarter of 2009 due primarily to the selling of more acres during 2009.

Manufactured Products Segment. Key operating statistics for the segment are as follows:

                    Quarter Ended March 31, 2009                  Quarter Ended March 31, 2008
                 Sales Volume         Sales Realization        Sales Volume         Sales Realization

Lumber                 35,123 MBF    $               374             69,596 MBF    $               366
Plywood                35,439 MSF    $               362             68,746 MSF    $               398
Fiberboard             34,044 MSF    $               601             58,784 MSF    $               591

Revenues decreased by $47 million, or 45%, to $58 million in the first quarter of 2009 compared to the first quarter of 2008 due primarily to lower MDF sales volume ($15 million), lower plywood sales volume ($14 million), lower lumber sales volume ($13 million) and lower plywood prices ($2 million).

MDF sales volume decreased by 42% in the first quarter of 2009 compared to the first quarter of 2008. MDF demand has weakened considerably 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 increased competition from foreign MDF manufacturers due to favorable exchange rates.

Plywood sales volume was 48% lower during the first quarter of 2009 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 weak economic conditions in the U.S. Plywood sales prices were 9% lower during the first quarter of 2009.

Lumber sales volume declined 50% during the first quarter of 2009 due primarily to the weak demand for lumber as a result of declining housing starts. Housing starts for all of 2008 were 905,000 homes compared to average annual starts of 1.7 million earlier in the decade. Housing starts for 2009 are now forecasted to be approximately 550,000. As a result of the weak outlook for housing starts, we are permanently closing two lumber mills during 2009 and are curtailing production at our other mills.

Manufactured Products Segment operating loss was $22 million for the first quarter of 2009 compared to a $9 million operating loss for the first quarter of 2008. This decrease in operating performance was due primarily to a $12 million charge resulting from a $10 million lumber assets impairment and a $2 million write-down of related spare parts. See Note 6 of the Notes to Consolidated Financial Statements. Manufactured Products Segment costs and expenses decreased by $34 million, or 30%, to $80 million for the first quarter of 2009. This decrease was due primarily to lower lumber, plywood and MDF sales volume, offset in part by the lumber assets impairment and spare parts charge.

Other Costs and Eliminations. Other costs and eliminations (which consists of corporate overhead and intercompany profit elimination) decreased operating income by $16 million during the first quarter of 2009 and by $14 million during the first quarter of 2008. The increase of $2 million was due primarily to severance costs incurred in 2009 and higher pension expense in 2009 resulting from pension plan asset losses during 2008.

Equity Earnings from Timberland Venture. On October 1, 2008, we contributed 454,000 acres of timberlands to Southern Diversified Timber, LLC ("SDT") in exchange for a common and preferred interest. Both interests are accounted for under the equity method of accounting. During the first quarter of 2009, we recorded our share of equity earnings from SDT of $15 million, which includes amortization ($2 million increase in equity earnings) of the difference between the book value of the company's investment and its proportionate share of SDT's net assets. We received cash distributions of $25 million from SDT during the first quarter of 2009.

Interest Expense, net (Debt Obligations to Unrelated Parties). Interest expense, net of interest income, for debt obligations to unrelated parties decreased $12 million, or 33%, to $24 million in the first quarter of

2009. This decrease was due primarily to lower borrowings outstanding compared to the first quarter of 2008 ($7 million) and lower interest rates on our variable rate debt ($5 million). During the fourth quarter of 2008, we made approximately $219 million of debt principal payments and reduced outstanding borrowings on our line of credit by $201 million. During the first quarter of 2009, we made approximately $105 million of debt principal payments and reduced our line of credit by $20 million.

Interest Expense (Note Payable to Timberland Venture). On October 1, 2008, we borrowed $783 million from SDT (a related party) for a ten-year term at a fixed annual interest rate of 7.375%. During the first quarter of 2009, we recorded $14 million of interest expense related to the note.

Benefit for Income Taxes. The benefit for income taxes was $20 million for the first quarter of 2009 compared to a benefit for income taxes of $5 million for the first quarter of 2008. The increase in the tax benefit of $15 million is due primarily to the reversal of $5 million of previously accrued built-in gains tax, a reduction to our deferred tax liability of $3 million, and higher losses in our manufacturing business (resulting in a tax benefit of $5 million). See Note 7 of the Notes to Consolidated Financial Statements.

At March 31, 2009, we have recorded deferred tax assets of $66 million and deferred tax liabilities of $42 million. We have not recorded a valuation allowance in connection with our deferred tax asset of $66 million. A valuation allowance is recognized if it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Management believes that due to either the reversal of various timing differences or the planned execution of prudent and feasible tax planning strategies, sufficient taxable income can be generated to fully utilize the company's deferred tax assets.

Financial Condition and Liquidity

During the first quarter of 2009, our operating cash flows increased $285 million compared to the quarter ended March 31, 2008. This increase was due primarily to completion of the second phase of our sale of 310,000 acres in Montana for which we received proceeds of $250 million (for 112,000 acres) in February 2009. We believe we have a strong balance sheet and do not foresee any short-term liquidity issues. At March 31, 2009, we had a cash balance of $355 million and had availability of $525 million under our line of credit. Additionally, we expect Net Cash Provided by Operating Activities for 2009 to exceed the $420 million we reported for 2008. We believe based on our strong balance sheet and liquidity, and the cash we expect to generate from operating activity, that we will meet all of our long-term interest and principal payments, required capital expenditures and quarterly dividend distributions in 2009.

The following table summarizes total cash flows for operating, investing and financing activities for the three months ended March 31 (in millions):

                                                      Three Months Ended March 31,
                                                       2009                   2008            Change

Net Cash Provided By (Used In) Operating
Activities                                        $          284         $           (1 )     $   285
Net Cash Used In Investing Activities                        (17 )                  (14 )          (3 )
Net Cash Used In Financing Activities                       (281 )                 (107 )        (174 )


Change in Cash and Cash Equivalents               $          (14 )       $         (122 )     $   108

Cash Flows from Operating Activities. Net cash provided by operating activities for the three months ended March 31, 2009 totaled $284 million, compared to $1 million of net cash used in operating activities for the same period in 2008. This increase of $285 million is due primarily to higher proceeds from real estate sales of $211 million, and a favorable working capital change related to like-kind exchange transactions of $76 million, offset in part by lower operating income of $29 million from our Resources Segments. The higher proceeds from real estate sales was due primarily to the $250 million of proceeds received in February 2009 in connection with the second phase of a three phase transaction of 310,000 acres in Montana. The lower operating income from our Resources Segments was due primarily to weaker sawlog prices and lower harvest levels.

The favorable working capital change of $76 million is due primarily to the timing of when proceeds from a like-kind exchange trust are either reinvested in replacement property or distributed to the company. Proceeds associated with a forward like-kind exchange are either reinvested in like-kind property within 180 days or distributed to the company at the end of either the 45-day identification period or the 180-day reinvestment period. During the first quarter of 2009, we received proceeds of $45 million from our like-kind exchange trust compared to $31 million of proceeds placed in a like-kind exchange trust at March 31, 2008. We expect to significantly reduce our use of like-kind exchange trusts for timberland dispositions going forward.

Capital Expenditures. Capital expenditures were as follows for the three months ended March 31 (in millions):

                                                           Three Months Ended March 31,
                                                             2009                2008

Capital Expenditures (Excluding Timberland
Acquisitions)                                            $          17       $          13
Expenditures for Real Estate Development                            -                    3

Total Capital Expenditures                               $          17       $          16

Planned capital expenditures for 2009, excluding the acquisition of timberlands, are expected to range between $60 million and $65 million and include approximately $51 million for our timberlands, $4 million for our manufacturing facilities, and $6 million for investments in information technology, primarily for resource accounting system enhancements. The timberland expenditures are primarily for reforestation and other expenditures associated with the planting and growing of trees. Approximately 40% of planned capital expenditures in 2009 are discretionary. Capital expenditures at our manufacturing facilities consist primarily of expenditures to sustain operating activities and improve safety.

Debt Financing. Our financial policy is to maintain a balance sheet that provides the financial flexibility to pursue our strategic objectives. In order to maintain this financial flexibility, our objective is to maintain an . . .