UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10239

PLUM CREEK TIMBER COMPANY, INC.

(Exact name of registrant as specified in its charter)

Organized in the	I.R.S. Employer Identification No.
State of Delaware	91-1912863

999 Third Avenue, Suite 4300

Seattle, Washington 98104-4096

Telephone: (206) 467-3600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer  x                    Accelerated filer  ¨                    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock, as of July 23, 2007, was 174,575,989.

PLUM CREEK TIMBER COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter ended June 30, 2007

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	PLUM CREEK TIMBER COMPANY, INC.	1
	PLUM CREEK TIMBERLANDS, L.P.	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 4.	Submission of Matters to a Vote of Security Holders	40
Item 6.	Exhibits	42
EXHIBIT INDEX		42

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Quarter Ended June 30,
(In Millions, Except per Share Amounts)	2007			2006
REVENUES:
Timber	$	190		$	193
Real Estate		71			52
Manufacturing		129			130
Other		5			5
Total Revenues		395			380
COSTS AND EXPENSES:
Cost of Goods Sold:
Timber		124			113
Real Estate		23			25
Manufacturing		123			117
Other		—			—
Total Cost of Goods Sold		270			255
Selling, General and Administrative		30			26
Total Costs and Expenses		300			281
Other Operating Income (Expense), net		(1	)		—
Operating Income		94			99
Interest Expense, net		35			34
Income before Income Taxes		59			65
Provision for Income Taxes		1			3
Income from Continuing Operations		58			62
Gain on Sale of Properties, net of tax		2			—
Net Income	$	60		$	62
PER SHARE AMOUNTS:
Income From Continuing Operations – Basic	$	0.33		$	0.34
Income From Continuing Operations – Diluted	$	0.33		$	0.34
Net Income per Share – Basic	$	0.34		$	0.34
Net Income per Share – Diluted	$	0.34		$	0.34
Dividends Declared – per Common Share Outstanding	$	0.42		$	0.40
Weighted-Average Number of Shares Outstanding
– Basic		175.7			182.3
– Diluted		176.1			182.8

See accompanying Notes to Consolidated Financial Statements

1

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Six Months Ended June 30,
(In Millions, Except per Share Amounts)	2007			2006
REVENUES:
Timber	$	399		$	407
Real Estate		110			113
Manufacturing		244			264
Other		11			10
Total Revenues		764			794
COSTS AND EXPENSES:
Cost of Goods Sold:
Timber		258			234
Real Estate		40			41
Manufacturing		236			240
Other		1			1
Total Cost of Goods Sold		535			516
Selling, General and Administrative		59			54
Total Costs and Expenses		594			570
Other Operating Income (Expense), net		1			2
Operating Income		171			226
Interest Expense, net		71			65
Income before Income Taxes		100			161
Provision (Benefit) for Income Taxes		(3	)		7
Income from Continuing Operations		103			154
Gain on Sale of Properties, net of tax		2			—
Income Before Cumulative Effect of Accounting Change		105			154
Cumulative Effect of Accounting Change, net of tax		—			2
Net Income	$	105		$	156
PER SHARE AMOUNTS:
Income from Continuing Operations – Basic	$	0.58		$	0.84
Income from Continuing Operations – Diluted	$	0.58		$	0.84
Net Income per Share – Basic	$	0.59		$	0.85
Net Income per Share – Diluted	$	0.59		$	0.85
Dividends Declared – per Common Share Outstanding	$	0.84		$	0.80
Weighted-Average Number of Shares Outstanding
– Basic		176.4			183.2
– Diluted		176.8			183.7

See accompanying Notes to Consolidated Financial Statements

2

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In Millions, Except per Share Amounts)	June 30, 2007			December 31, 2006
ASSETS
Current Assets:
Cash and Cash Equivalents	$	107		$	273
Restricted Advance from Customer		—			4
Accounts Receivable		47			40
Like-Kind Exchange Funds Held in Escrow		58			—
Inventories		75			83
Deferred Tax Asset		7			7
Real Estate Development Properties		4			3
Assets Held for Sale		86			82
Other Current Assets		20			21
		404			513
Timber and Timberlands – Net		3,836			3,876
Property, Plant and Equipment – Net		206			216
Investment in Grantor Trusts		26			28
Other Assets		34			28
Total Assets	$	4,506		$	4,661
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt	$	72		$	125
Accounts Payable		42			42
Interest Payable		29			30
Wages Payable		18			27
Taxes Payable		22			24
Deferred Revenue		12			17
Other Current Liabilities		15			16
		210			281
Long-Term Debt		1,920			1,617
Line of Credit		345			581
Deferred Tax Liability		20			25
Other Liabilities		68			68
Total Liabilities		2,563			2,572
Commitments and Contingencies
STOCKHOLDERS’ EQUITY
Preferred Stock, $0.01 par value, authorized shares – 75.0, outstanding – none		—			—
Common Stock, $0.01 par value, authorized shares – 300.6, issued (Net of Treasury Stock) – 174.6 at June 30, 2007 and 177.1 at December 31, 2006		2			2
Additional Paid-In Capital		2,199			2,190
Retained Earnings		170			214
Treasury Stock, at cost, Common Shares – 12.3 at June 30, 2007 and 9.5 at December 31, 2006		(418	)		(307	)
Accumulated Other Comprehensive Income (Loss)		(10	)		(10	)
Total Stockholders’ Equity		1,943			2,089
Total Liabilities and Stockholders’ Equity	$	4,506		$	4,661

See accompanying Notes to Consolidated Financial Statements

3

PLUM CREEK TIMBER COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
(In Millions)	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	105		$	156
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization		65			60
Basis of Real Estate Sold		23			23
Deferred Income Taxes		(5	)		—
Gain on Sales of Properties and Other Assets		(2	)		—
Working Capital Changes Impacting Cash Flow:
Like-Kind Exchange Funds		(58	)		20
Other Working Capital Changes		(14	)		(6	)
Expenditures for Real Estate Development		(6	)		(2	)
Other		3			1
Net Cash Provided By Operating Activities		111			252
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (Excluding Timberland Acquisitions)		(33	)		(36	)
Timberlands Acquired		(9	)		(17	)
Proceeds from Sale of Properties and Other Assets		2			1
Other		2			(3	)
Net Cash Used In Investing Activities		(38	)		(55	)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends		(149	)		(147	)
Borrowings on Line of Credit		1,596			1,474
Repayments on Line of Credit		(1,832	)		(1,453	)
Repayment of Short-Term Debt		—			(50	)
Proceeds from Issuance of Long-Term Debt		350			216
Principal Payments and Retirement of Long-Term Debt		(99	)		(29	)
Proceeds from Stock Option Exercises		6			3
Acquisition of Treasury Stock		(111	)		(184	)
Net Cash Used In Financing Activities		(239	)		(170	)
Increase (Decrease) In Cash and Cash Equivalents		(166	)		27
Cash and Cash Equivalents:
Beginning of Period		273			369
End of Period	$	107		$	396

See accompanying Notes to Consolidated Financial Statements

4

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation

General. When we refer to “Plum Creek,” “the company,” “we,” “us,” or “our,” we mean Plum Creek Timber Company, Inc., a Delaware Corporation and a real estate investment trust, or “REIT,” and all of its wholly owned consolidated subsidiaries.

The consolidated financial statements include all of the accounts of Plum Creek and its subsidiaries. At June 30, 2007, the company owned and managed approximately 8.2 million acres of timberlands in the Northwest, Southern, and Northeast United States, and owned and operated ten wood product conversion facilities in the Northwest United States. Included in the 8.2 million acres are about 1.7 million acres of higher and better use timberlands, which are expected to be sold and/or developed over approximately the next 15 years for residential, recreational or conservation purposes. In addition, the company has approximately 400,000 acres of non-strategic timberlands, which are expected to be sold over the next five years. In the meantime, all of these timberlands continue to be used productively in our business of growing and selling timber.

Plum Creek has elected to be taxed as a REIT under sections 856-860 of the United States Internal Revenue Code and, as such, is generally not subject to corporate-level income tax. However, the company conducts certain non-REIT activities through various taxable REIT subsidiaries, which are subject to corporate-level income tax. These activities include our manufacturing operations, the harvesting and selling of logs, and the development and/or sales of some of our higher and better use timberlands. Plum Creek’s overall effective tax rate is lower than the federal statutory corporate rate due to Plum Creek’s status as a REIT.

Intercompany transactions and accounts have been eliminated in consolidation. All transactions are denominated in United States dollars.

The consolidated financial statements included in this Form 10-Q are unaudited and do not contain all of the information required by accounting principles generally accepted in the United States of America to be included in a full set of financial statements. The consolidated balance sheet at December 31, 2006, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The audited financial statements in the company’s 2006 annual report on Form 10-K include a summary of significant accounting policies of the company and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.

Accounting for Real Estate Joint Venture Arrangements. Under the terms of our joint venture arrangements, we receive proceeds in connection with the sale of our land to a joint venture and additional contingent consideration (i.e., joint venture earnings) as parcels of land are sold by the joint venture to unrelated third parties. Real estate revenue is recognized under the cost recovery method in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate, in connection with the sale of land to a joint venture. Under the cost recovery method, no profit is recognized until cash received from the buyer exceeds our book basis in the property sold.

Equity in earnings of unconsolidated joint ventures is recognized in accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, as a result of parcel sales by a joint venture to unrelated third parties. Proceeds in connection with the sale of land to a joint venture are recognized as Real Estate Revenue and joint venture earnings are recognized as Equity in Earnings of Unconsolidated Joint Ventures in our Consolidated Statements of Income.

Accounting for Uncertainty in Income Taxes. In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). In summary, FIN 48 requires that all tax positions subject to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, be analyzed using a two-step approach. The first step requires an entity to determine if a tax

5

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

position is more-likely-than-not to be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more-likely-than-not to be realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006, with any adjustment in a company’s tax provision being accounted for as a cumulative effect of accounting change in beginning equity.

We adopted FIN 48 on January 1, 2007. The adoption of this standard did not result in a change to our beginning equity. As of the date of adoption and as of the quarter ended June 30, 2007, we do not have any liabilities for unrecognized tax benefits.

We recognize interest and penalties, if incurred, related to income taxes in our Provision for Income Taxes in our Consolidated Statements of Income. As of June 30, 2007 and December 31, 2006, we had a liability of $1 million for accrued interest related to income taxes in our Consolidated Balance Sheets. During both the quarters and six months ended June 30, 2007 and June 30, 2006, we recorded less than $1 million in our Consolidated Statements of Income for interest related to income taxes.

We filed our federal income tax return as part of Georgia-Pacific’s consolidated income tax return for all tax years through the date of the merger with The Timber Company on October 6, 2001. Under the agreement governing the terms of the merger with The Timber Company, we remain liable to Georgia-Pacific for any additional tax that would result from audit adjustments by the Internal Revenue Service (the “Service”) and by state and local taxing authorities. The Service has completed all examinations of Georgia-Pacific’s consolidated income tax returns through 2000. Georgia-Pacific’s consolidated income tax return for 2001 is currently under examination. Additionally, the Service has completed examinations of the federal income tax return of Plum Creek Timber Company, Inc. and the consolidated federal income tax return of the wholly-owned taxable REIT subsidiaries for the year 2003. We have no open tax years for Plum Creek Timber Company, Inc. prior to 2003.

New Accounting Pronouncements

SFAS No. 157. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The company will adopt SFAS No. 157 in the first quarter of 2008. The company is in the process of determining the effect, if any, the adoption of SFAS No. 157 will have on the consolidated financial statements.

SFAS No. 159. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of SFAS Statement No. 115 (“SFAS No. 159”). SFAS No. 159 allows entities to measure certain financial assets and liabilities and similar non-financial assets and liabilities at fair value. Generally, the adoption of this standard is optional. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007; early adoption is permitted for an entity’s first fiscal year that begins on or before November 15, 2007, provided that entity also adopts the provisions of SFAS No. 157 with the early adoption. We elected not to early adopt the provisions of SFAS No. 159. We are in the process of evaluating the impact the adoption of SFAS No. 159 would have on the consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2007 presentation. The reclassifications had no impact on operating income or net income.

6

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Earnings Per Share

The following tables sets forth the reconciliation of basic and diluted earnings per share for the quarterly and six-month periods ended June 30 (in millions, except per share amounts):

	Quarter Ended June 30,
	2007		2006
Income From Continuing Operations	$	58	$	62
Gain on Sale of Properties, net of tax		2		—
Net Income available to common stockholders	$	60	$	62
Denominator for basic earnings per share		175.7		182.3
Effect of dilutive securities – stock options		0.3		0.4
Effect of dilutive securities – restricted stock, restricted stock units, dividend equivalents and value management plan		0.1		0.1
Denominator for diluted earnings per share – adjusted for dilutive securities		176.1		182.8
Per Share Amounts – Basic:
Income From Continuing Operations	$	0.33	$	0.34
Gain on Sale of Properties, net of tax		0.01		—
Net Income	$	0.34	$	0.34
Per Share Amounts – Diluted:
Income From Continuing Operations	$	0.33	$	0.34
Gain on Sale of Properties, net of tax		0.01		—
Net Income	$	0.34	$	0.34

7

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Six Months Ended June 30,
	2007		2006
Income From Continuing Operations	$	103	$	154
Gain on Sale of Properties, net of tax		2		—
Income before Cumulative Effect of Accounting Change		105		154
Cumulative Effect of Accounting Change, net of tax		—		2
Net Income available to common stockholders	$	105	$	156
Denominator for basic earnings per share		176.4		183.2
Effect of dilutive securities – stock options		0.3		0.4
Effect of dilutive securities – restricted stock, restricted stock units, dividend equivalents and value management plan		0.1		0.1
Denominator for diluted earnings per share – adjusted for dilutive securities		176.8		183.7
Per Share Amounts – Basic:
Income From Continuing Operations	$	0.58	$	0.84
Gain on Sale of Properties, net of tax		0.01		—
Income per Share Before Cumulative Effect of Accounting Change		0.59		0.84
Cumulative Effect of Accounting Change, net of tax		—		0.01
Net Income	$	0.59	$	0.85
Per Share Amounts – Diluted:
Income From Continuing Operations	$	0.58	$	0.84
Gain on Sale of Properties, net of tax		0.01		—
Income per Share Before Cumulative Effect of Accounting Change		0.59		0.84
Cumulative Effect of Accounting Change, net of tax		—		0.01
Net Income	$	0.59	$	0.85

8

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Antidilutive options were excluded for certain periods from the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of the common shares. Antidilutive options were as follows for the quarterly and six-month periods ended June (shares in millions):

	Quarter Ended June 30,
	2007			2006
Number of options		0.5			0.9
Range of exercise prices		$36.93 to $40.42			$35.68 to $37.61
Expiration on or before		April 2017			April 2016
	Six Months Ended June 30,
	2007			2006
Number of options		0.6			0.8
Range of exercise prices		$35.54 to $40.42			$35.68 to $37.61
Expiration on or before		April 2017			April 2016
Note 3. Timber and Timberlands, Property, Plant and Equipment, and Inventory Timber and Timberlands consisted of the following (in millions):
	June 30, 2007			December 31, 2006
Timber and logging roads – net	$	2,611		$	2,631
Timberlands		1,225			1,245
Timber and Timberlands – net	$	3,836		$	3,876
Property, Plant and Equipment consisted of the following (in millions):
	June 30, 2007			December 31, 2006
Land, buildings and improvements	$	87		$	87
Machinery and equipment		302			296
		389			383
Accumulated depreciation		(183	)		(167	)
Property, Plant and Equipment – net	$	206		$	216

9

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Inventories, accounted for using the lower of average cost or market, consisted of the following (in millions):

	June 30, 2007		December 31, 2006
Raw materials (logs)	$	16	$	25
Work-in-process		4		4
Finished goods		42		41
		62		70
Supplies		13		13
Total	$	75	$	83

Note 4. Borrowings

The company has a $750 million revolving line of credit agreement that matures in June 2011. The revolving line of credit may be increased to $1 billion subject to certain terms and conditions. As of June 30, 2007, the weighted-average interest rate for the borrowings on the line of credit was 5.79%. The interest rate on the line of credit is based on LIBOR plus 0.425%. This rate can range from LIBOR plus 0.27% to LIBOR plus 1% depending on our debt ratings. Subject to customary covenants, the line of credit allows for borrowings from time to time up to $750 million, including up to $100 million of standby letters of credit. Borrowings on the line of credit fluctuate daily based on cash needs. As of June 30, 2007, we had $345 million of borrowings and $6 million of standby letters of credit outstanding; $399 million remained available for borrowing under our line of credit. As of July 3, 2007, $105 million of the borrowings under our line of credit was repaid.

On June 15, 2007, the company entered into a $350 million term credit agreement that matures in June 2012. As of June 30, 2007 the interest rate for the credit agreement was 5.77%. The interest rate on the term credit agreement is based on LIBOR plus 0.45%. This rate can range from LIBOR plus 0.3% to LIBOR plus 1.15% depending on our debt ratings. The term credit agreement is subject to covenants similar to those of our revolving line of credit and allows prepayment of the borrowings at any time prior to the maturity date without premium or penalty.

The company has a shelf registration statement filed with the Securities and Exchange Commission under which Plum Creek Timber Company, Inc., from time to time, may offer and sell any combination of preferred stock, common stock, depositary shares, warrants and guarantees, and under which Plum Creek Timberlands, L.P., the company’s wholly owned operating partnership, may from time to time, offer and sell debt securities. The shelf registration statement expires on April 25, 2009.

10

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5. Capital

The changes in the company’s capital accounts were as follows during 2007 (in millions):

(In Millions)	Common Stock				Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Equity
	Shares		Dollars
January 1, 2007	177.1		$	2	$	2,190	$	214		$	(307	)	$	(10	)	$	2,089
Net Income	—			—		—		45			—			—			45
Other Comprehensive Income, net of tax	—			—		—		—			—			—			—
Total Comprehensive Income																	45
Dividends	—			—		—		(75	)		—			—			(75	)
Stock Option Exercises	0.2			—		5		—			—			—			5
Shares Issued under Stock Incentive Plans	0.1			—		2		—			—			—			2
Common Stock Repurchased	(0.6	)		—		—		—			(22	)		—			(22	)
March 31, 2007	176.8		$	2	$	2,197	$	184		$	(329	)	$	(10	)	$	2,044
Net Income	—			—		—		60			—			—			60
Other Comprehensive Income, net of tax	—			—		—		—			—			—			—
Total Comprehensive Income																	60
Dividends	—			—		—		(74	)		—			—			(74	)
Stock Option Exercises	—			—		1		—			—			—			1
Shares Issued under Stock Incentive Plans	—			—		1		—			—			—			1
Common Stock Repurchased	(2.2	)		—		—		—			(89	)		—			(89	)
June 30, 2007	174.6		$	2	$	2,199	$	170		$	(418	)	$	(10	)	$	1,943

Note 6. Employee Pension Plans

The components of pension cost were as follows for the quarterly and six-month periods ended June 30 (in millions):

	Quarter Ended June 30,
	2007			2006
Service cost	$	2		$	2
Interest cost		3			3
Expected return on plan assets		(3	)		(3	)
Total pension cost	$	2		$	2

11

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Six Months Ended June 30,
	2007			2006
Service cost	$	4		$	4
Interest cost		4			4
Expected return on plan assets		(4	)		(4	)
Total pension cost	$	4		$	4

Note 7. Commitments and Contingencies

Contingencies. The company is subject to regulations regarding forest and harvest practices and is, from time to time, involved in various legal proceedings, including environmental and regulatory matters, incidental to its business. Moreover, the company is currently in the early stages of several lawsuits related to property damage caused by various sources (“Property Damage Litigations”). The company believes it is more likely than not that the Property Damage Litigations will be resolved favorably. However, the final outcome of any legal proceeding is subject to many variables and cannot be predicted with any degree of certainty. The company believes that there are meritorious defenses for these claims and is vigorously defending these matters.

Environmental Contingencies. In connection with the October 6, 2001 merger with The Timber Company, Plum Creek agreed to indemnify Georgia-Pacific for substantially all of the liabilities attributed to The Timber Company. During 2003, Georgia-Pacific provided Plum Creek with information about the existence of mine tailings and approximately 4.5 billion gallons of acidic surface water on approximately 90 acres in Hot Spring County, Arkansas, on former Georgia-Pacific properties (“Arkansas Environmental Issue”). Barite mining and related activities were conducted on the site between 1939 and 1981 in part by lessees of an entity that was acquired by Georgia-Pacific. The site is currently being investigated and no remediation plan has yet been approved. No amounts have been accrued for this potential liability. Furthermore, to the extent Plum Creek is required to indemnify Georgia-Pacific for its share of the remediation costs, Plum Creek may be able to recover a portion of its cost from Georgia-Pacific’s insurance policy, or indemnity obligations of the various lessees that conducted mining operations on the property, or both.

Unrecorded Contingencies. The company believes it will be successful in defending the Property Damage Litigations and the Arkansas Environmental Issue. However, if the company is not successful in defending these claims, we believe the aggregate combined losses for the Property Damage Litigations and Arkansas Environmental Issue would range between $0 and $4 million. Other than the Property Damage Litigations and the Arkansas Environmental Issue, management currently believes that resolving pending legal proceedings against the company, individually or in aggregate, will not have a material adverse impact on our financial position or results of operations. However, these matters are subject to inherent uncertainties and management’s view on these matters may change in the future. Were an unfavorable final outcome in one or multiple legal proceedings to occur, there exists the possibility of a material adverse impact on our financial position and the results of operations for the period in which any unfavorable outcome becomes reasonably estimable.

12

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 8. Segment Information

The tables below present information about reported segments for the quarterly and six-month periods ended June 30 (in millions):

	Northern Resources		Southern Resources		Real Estate		Manufactured Products		Other		Total (A)
Quarter Ended June 30, 2007
External revenues	$	64	$	126	$	71	$	129	$	5	$	395
Intersegment revenues		15		—		—		—		—		15
Depreciation, depletion and amortization		8		15		—		8		—		31
Basis of real estate sold		—		—		14		—		—		14
Operating income		14		41		47		2		5		109
Quarter Ended June 30, 2006
External revenues	$	72	$	121	$	52	$	130	$	5	$	380
Intersegment revenues		15		—		—		—		—		15
Depreciation, depletion and amortization		8		13		—		7		—		28
Basis of real estate sold		—		—		13		—		—		13
Operating income		21		48		27		10		4		110
	Northern Resources		Southern Resources		Real Estate		Manufactured Products		Other		Total (A)
Six Months Ended June 30, 2007
External revenues	$	146	$	253	$	110	$	244	$	11	$	764
Intersegment revenues		32		—		—		—		—		32
Depreciation, depletion and amortization		18		30		—		15		—		63
Basis of real estate sold		—		—		23		—		—		23
Operating income		33		87		68		1		10		199
Six Months Ended June 30, 2006
External revenues	$	164	$	243	$	113	$	264	$	10	$	794
Intersegment revenues		38		—		—		—		—		38
Depreciation, depletion and amortization		17		26		—		15		—		58
Basis of real estate sold		—		—		23		—		—		23
Operating income		56		98		71		18		9		252

(A) Consolidated depreciation, depletion and amortization includes unallocated corporate depreciation of $1 million and $2 million for the quarter and six months ended June 30, 2007, and $1 million and $2 million for the quarter and six months ended June 30, 2006.

13

PLUM CREEK TIMBER COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A reconciliation of total segment operating income to income before income taxes is presented below for the quarterly and six-month periods ended June 30 (in millions):

	Quarter Ended June 30,
	2007			2006
Total segment operating income	$	109		$	110
Corporate and other unallocated expenses		(14	)		(11	)
Other Income (Expense), net		(1	)		—
Operating Income		94			99
Interest Expense, net		(35	)		(34	)
Income before Income Taxes	$	59		$	65
	Six Months Ended June 30,
	2007			2006
Total segment operating income (A)	$	199		$	252
Corporate and other unallocated expenses		(29	)		(26	)
Other Income (Expense), net (A)		1			—
Operating Income		171			226
Interest Expense, net		(71	)		(65	)
Income before Income Taxes	$	100		$	161

(A) For the six months ended June 30, 2006, $2 million of other income was included in segment operating income for the Real Estate Segment.

Note 9. Subsequent Event

On July 31, 2007, the Board of Directors authorized the company to make a dividend payment of $0.42 per share, or approximately $73 million, which will be paid on August 31, 2007 to stockholders of record on August 16, 2007.

14

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

Following are the consolidated financial statements of Plum Creek Timberlands, L.P., a Delaware limited partnership and wholly owned subsidiary of Plum Creek Timber Company, Inc. These financial statements are provided pursuant to Rule 3-10 of Regulation S-X in connection with the shelf registration statement on Form S-3 filed in April 2006, pursuant to which Plum Creek Timberlands, L.P. has registered, and from time to time may offer and sell, debt securities. As of June 30, 2007, Plum Creek Timberlands, L.P. has sold $525 million of debt securities.

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Quarter Ended June 30,
(In Millions)	2007			2006
REVENUES:
Timber	$	190		$	193
Real Estate		71			52
Manufacturing		129			130
Other		5			5
Total Revenues		395			380
COSTS AND EXPENSES:
Cost of Goods Sold:
Timber		124			113
Real Estate		23			25
Manufacturing		123			117
Other		—			—
Total Cost of Goods Sold		270			255
Selling, General and Administrative		30			26
Total Costs and Expenses		300			281
Other Operating Income (Expense), net		(1	)		—
Operating Income		94			99
Interest Expense, net		35			34
Income before Income Taxes		59			65
Provision for Income Taxes		1			3
Income from Continuing Operations		58			62
Gain on Sale of Properties, net of tax		2			—
Net Income	$	60		$	62

See accompanying Notes to Consolidated Financial Statements

15

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Six Months Ended June 30,
(In Millions)	2007			2006
REVENUES:
Timber	$	399		$	407
Real Estate		110			113
Manufacturing		244			264
Other		11			10
Total Revenues		764			794
COSTS AND EXPENSES:
Cost of Goods Sold:
Timber		258			234
Real Estate		40			41
Manufacturing		236			240
Other		1			1
Total Cost of Goods Sold		535			516
Selling, General and Administrative		59			54
Total Costs and Expenses		594			570
Other Operating Income (Expense), net		1			2
Operating Income		171			226
Interest Expense, net		71			65
Income before Income Taxes		100			161
Provision (Benefit) for Income Taxes		(3	)		7
Income from Continuing Operations		103			154
Gain on Sale of Properties, net of tax		2			—
Income Before Cumulative Effect of Accounting Change		105			154
Cumulative Effect of Accounting Change, net of tax		—			2
Net Income	$	105		$	156

See accompanying Notes to Consolidated Financial Statements

16

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In Millions)	June 30, 2007		December 31, 2006
ASSETS
Current Assets:
Cash and Cash Equivalents	$	107	$	273
Restricted Advance from Customer		—		4
Accounts Receivable		47		40
Like-Kind Exchange Funds Held in Escrow		58		—
Inventories		75		83
Deferred Tax Asset		7		7
Real Estate Development Properties		4		3
Assets Held for Sale		86		82
Other Current Assets		20		21
		404		513
Timber and Timberlands – Net		3,836		3,876
Property, Plant and Equipment – Net		206		216
Investment in Grantor Trusts		27		29
Other Assets		34		28
Total Assets	$	4,507	$	4,662
LIABILITIES
Current Liabilities:
Current Portion of Long-Term Debt	$	72	$	125
Accounts Payable		42		42
Interest Payable		29		30
Wages Payable		18		27
Taxes Payable		22		24
Deferred Revenue		12		17
Other Current Liabilities		15		16
		210		281
Long-Term Debt		1,920		1,617
Line of Credit		345		581
Deferred Tax Liability		20		25
Other Liabilities		69		69
Total Liabilities		2,564		2,573
Commitments and Contingencies
EQUITY
Total Partners’ Capital		1,943		2,089
Total Liabilities and Partner’s Capital	$	4,507	$	4,662

See accompanying Notes to Consolidated Financial Statements

17

PLUM CREEK TIMBERLANDS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30,
(In Millions)	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	105		$	156
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation, Depletion and Amortization		65			60
Basis of Real Estate Sold		23			23
Deferred Income Taxes		(5	)		—
Gain on Sales of Properties and Other Assets		(2	)		—
Working Capital Changes Impacting Cash Flow:
Like-Kind Exchange Funds		(58	)		20
Other Working Capital Changes		(14	)		(6	)
Expenditures for Real Estate Development		(6	)		(2	)
Other		3			1
Net Cash Provided By Operating Activities		111			252
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (Excluding Timberland Acquisitions)		(33	)		(36	)
Timberlands Acquired		(9	)		(17	)
Proceeds from Sale of Properties and Other Assets		2			1
Other		2			(3	)
Net Cash Used In Investing Activities		(38	)		(55	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Distributions		(254	)		(328	)
Borrowings on Line of Credit		1,596			1,474
Repayments on Line of Credit		(1,832	)		(1,453	)
Repayment of Short-Term Debt		—			(50	)
Proceeds from Issuance of Long-Term Debt		350			216
Principal Payments and Retirement of Long-Term Debt		(99	)		(29	)
Net Cash Used In Financing Activities		(239	)		(170	)
Increase (Decrease) In Cash and Cash Equivalents		(166	)		27
Cash and Cash Equivalents:
Beginning of Period		273			369
End of Period	$	107		$	396

See accompanying Notes to Consolidated Financial Statements

18

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation

General. Plum Creek Timberlands, L.P. is a Delaware Limited Partnership and a wholly owned subsidiary of Plum Creek Timber Company, Inc. Plum Creek Timber Company, Inc. (“Parent”) is a Delaware Corporation and real estate investment trust, or “REIT”. References herein to “the Operating Partnership,” “we,” “us,” or “our” relate to Plum Creek Timberlands, L.P. and all of its wholly owned consolidated subsidiaries; references to “Plum Creek” relate to Plum Creek Timber Company, Inc. and all of its wholly owned subsidiaries.

At June 30, 2007, the Operating Partnership owned and managed approximately 8.2 million acres of timberlands in the Northwest, Southern, and Northeast United States, and owned and operated ten wood product conversion facilities in the Northwest United States. Included in the 8.2 million acres are about 1.7 million acres of higher and better use timberlands, which are expected to be sold and/or developed over approximately the next 15 years for residential, recreational or conservation purposes. In addition, the Operating Partnership has approximately 400,000 acres of non-strategic timberlands, which are expected to be sold over the next five years. In the meantime, all of these timberlands continue to be used productively in our business of growing and selling timber.

The consolidated financial statements of the Operating Partnership include the accounts of Plum Creek Timberlands, L.P. and its subsidiaries. The Operating Partnership is 100% owned by Plum Creek Timber Company, Inc. Plum Creek Timber Company, Inc. has no independent assets or liabilities. Plum Creek Timber Company, Inc. has no operations other than its investment in Plum Creek Timberlands, L.P. and transactions in its own equity, such as the issuance and/or repurchase of common stock and the receipt of proceeds from stock option exercises. Intercompany transactions and accounts between Plum Creek Timberlands, L.P. and its subsidiaries have been eliminated in consolidation. All transactions are denominated in United States dollars.

Plum Creek Timber Company, Inc. has elected to be taxed as a REIT under sections 856-860 of the United States Internal Revenue Code and, as such, is not generally subject to corporate-level income tax. However, the Operating Partnership conducts certain non-REIT activities through various taxable REIT subsidiaries, which are subject to corporate-level income tax. These activities include our manufacturing operations, the harvesting and sale of logs, and the development and/or sale of some of our higher and better use timberlands. The Operating Partnership’s tax provision includes the tax expense and/or benefit associated with Plum Creek’s taxable REIT subsidiaries, as well as any tax expense and/or benefit incurred by the REIT. The effective tax rate for the Operating Partnership is lower than the federal corporate statutory rate due to Plum Creek’s status as a REIT.

The consolidated financial statements included in this Form 10-Q are unaudited and do not contain all of the information required by accounting principles generally accepted in the United States of America to be included in a full set of financial statements. These interim consolidated financial statements in this Form 10-Q should be read in conjunction with the audited consolidated financial statements of Plum Creek Timberlands, L.P. for the three years ended December 31, 2006, which were included on Form 10-K of Plum Creek Timber Company, Inc. and filed with the SEC on February 27, 2007, and which include a summary of significant accounting policies of the Operating Partnership. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal and recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.

Accounting for Real Estate Joint Venture Arrangements. Under the terms of our joint venture arrangements, we receive proceeds in connection with the sale of our land to a joint venture and additional contingent consideration (i.e., joint venture earnings) as parcels of land are sold by the joint venture to unrelated third parties. Real estate revenue is recognized under the cost recovery method in accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate, in connection with the sale of land to a joint venture. Under the cost recovery method, no profit is recognized until cash received from the buyer exceeds our book basis in the property sold.

19

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Equity in earnings of unconsolidated joint ventures is recognized in accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock, as a result of parcel sales by a joint venture to unrelated third parties. Proceeds in connection with the sale of land to a joint venture are recognized as Real Estate Revenue and joint venture earnings are recognized as Equity in Earnings of Unconsolidated Joint Ventures in our Consolidated Statements of Income.

Accounting for Uncertainty in Income Taxes. In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). In summary, FIN 48 requires that all tax positions subject to Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, be analyzed using a two-step approach. The first step requires an entity to determine if a tax position is more-likely-than-not to be sustained upon examination. In the second step, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis that is more-likely-than-not to be realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006, with any adjustment in a company’s tax provision being accounted for as a cumulative effect of accounting change in beginning equity.

We adopted FIN 48 on January 1, 2007. The adoption of this standard did not result in a change to our beginning equity. As of the date of adoption and as of the quarter ended June 30, 2007, we do not have any liabilities for unrecognized tax benefits.

We recognize interest and penalties, if incurred, related to income taxes in our Provision for Income Taxes in our Consolidated Statements of Income. As of June 30, 2007 and December 31, 2006, we had a liability of $1 million for accrued interest related to income taxes in our Consolidated Balance Sheets. During both the quarters and six months ended June 30, 2007 and June 30, 2006, we recorded less than $1 million in our Consolidated Statements of Income for interest related to income taxes.

We filed our federal income tax return as part of Georgia-Pacific’s consolidated income tax return for all tax years through the date of the merger with The Timber Company on October 6, 2001. Under the agreement governing the terms of the merger with The Timber Company, we remain liable to Georgia-Pacific for any additional tax that would result from audit adjustments by the Internal Revenue Service (the “Service”) and by state and local taxing authorities. The Service has completed all examinations of Georgia-Pacific’s consolidated income tax returns through 2000. Georgia-Pacific’s consolidated income tax return for 2001 is currently under examination. Additionally, the Service has completed examinations of the federal income tax return of Plum Creek Timber Company, Inc. and the consolidated federal income tax return of the wholly-owned taxable REIT subsidiaries for the year 2003. We have no open tax years for Plum Creek Timber Company, Inc. prior to 2003.

New Accounting Pronouncements

SFAS No. 157. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements, but does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Operating Partnership will adopt SFAS No. 157 in the first quarter of 2008. The Operating Partnership is in the process of determining the effect, if any, the adoption of SFAS No. 157 will have on the consolidated financial statements.

SFAS No. 159. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of SFAS Statement No. 115 (“SFAS No. 159”). SFAS No.

20

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

159 allows entities to measure certain financial assets and liabilities and similar non-financial assets and liabilities at fair value. Generally, the adoption of this standard is optional. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007; early adoption is permitted for an entity’s first fiscal year that begins on or before November 15, 2007, provided that entity also adopts the provisions of SFAS No. 157 with the early adoption. We elected not to early adopt the provisions of SFAS No. 159. We are in the process of evaluating the impact the adoption of SFAS No. 159 would have on the consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2007 presentation. The reclassifications had no impact on operating income or net income.

Note 2. Timber and Timberlands, Property, Plant and Equipment, and Inventory

Timber and Timberlands consisted of the following (in millions):

	June 30, 2007			December 31, 2006
Timber and logging roads – net	$	2,611		$	2,631
Timberlands		1,225			1,245
Timber and Timberlands – net	$	3,836		$	3,876
Property, Plant and Equipment consisted of the following (in millions):
	June 30, 2007			December 31, 2006
Land, buildings and improvements	$	87		$	87
Machinery and equipment		302			296
		389			383
Accumulated depreciation		(183	)		(167	)
Property, Plant and Equipment – net	$	206		$	216
Inventories, accounted for using the lower of average cost or market, consisted of the following (in millions):
	June 30, 2007			December 31, 2006
Raw materials (logs)	$	16		$	25
Work-in-process		4			4
Finished goods		42			41
		62			70
Supplies		13			13
Total	$	75		$	83

21

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 3. Borrowings

The Operating Partnership has a $750 million revolving line of credit agreement that matures in June 2011. The revolving line of credit may be increased to $1 billion subject to certain terms and conditions. As of June 30, 2007, the weighted-average interest rate for the borrowings on the line of credit was 5.79%. The interest rate on the line of credit is based on LIBOR plus 0.425%. This rate can range from LIBOR plus 0.27% to LIBOR plus 1% depending on our debt ratings. Subject to customary covenants, the line of credit allows for borrowings from time to time up to $750 million, including up to $100 million of standby letters of credit. Borrowings on the line of credit fluctuate daily based on cash needs. As of June 30, 2007, we had $345 million of borrowings and $6 million of standby letters of credit outstanding; $399 million remained available for borrowing under our line of credit. As of July 3, 2007, $105 million of the borrowings under our line of credit was repaid.

On June 15, 2007, the Operating Partnership entered into a $350 million term credit agreement that matures in June 2012. As of June 30, 2007 the interest rate for the credit agreement was 5.77%. The interest rate on the term credit agreement is based on LIBOR plus 0.45%. This rate can range from LIBOR plus 0.3% to LIBOR plus 1.15% depending on our debt ratings. The term credit agreement is subject to covenants similar to those of our revolving line of credit and allows prepayment of the borrowings at any time prior to the maturity date without premium or penalty.

Plum Creek Timber Company, Inc. has a shelf registration statement filed with the Securities and Exchange Commission under which Plum Creek Timber Company, Inc., from time to time, may offer and sell any combination of preferred stock, common stock, depositary shares, warrants and guarantees, and under which Plum Creek Timberlands, L.P., the company’s wholly owned operating partnership, may from time to time, offer and sell debt securities. The shelf registration statement expires on April 25, 2009.

Note 4. Employee Pension Plans

Plum Creek Timber Company, Inc. sponsors defined benefit pension plans and a defined contribution pension plan. Substantially all employees of the Operating Partnership are covered by these plans. All of Plum Creek’s activities are conducted through the Operating Partnership. Therefore, all employee pension and retirement plan assets, obligations and costs are allocated to the Operating Partnership.

The components of pension cost were as follows for the quarterly and six-month periods ended June 30 (in millions):

	Quarter Ended June 30,
	2007			2006
Service cost	$	2		$	2
Interest cost		3			3
Expected return on plan assets		(3	)		(3	)
Total pension cost	$	2		$	2

22

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Six Months Ended June 30,
	2007			2006
Service cost	$	4		$	4
Interest cost		4			4
Expected return on plan assets		(4	)		(4	)
Total pension cost	$	4		$	4

Note 5. Commitments and Contingencies

Contingencies. The Operating Partnership is subject to regulations regarding forest and harvest practices and is, from time to time, involved in various legal proceedings, including environmental and regulatory matters, incidental to its business. Moreover, the Operating Partnership is currently in the early stages of several lawsuits related to property damage caused by various sources (“Property Damage Litigations”). The Operating Partnership believes it is more likely than not that the Property Damage Litigations will be resolved favorably. However, the final outcome of any legal proceeding is subject to many variables and cannot be predicted with any degree of certainty. The Operating Partnership believes that there are meritorious defenses for these claims and is vigorously defending these matters.

Environmental Contingencies. In connection with the October 6, 2001 merger with The Timber Company, the Operating Partnership agreed to indemnify Georgia-Pacific for substantially all of the liabilities attributed to The Timber Company. During 2003, Georgia-Pacific provided the Operating Partnership with information about the existence of mine tailings and approximately 4.5 billion gallons of acidic surface water on approximately 90 acres in Hot Spring County, Arkansas, on former Georgia-Pacific properties (“Arkansas Environmental Issue”). Barite mining and related activities were conducted on the site between 1939 and 1981 in part by lessees of an entity that was acquired by Georgia-Pacific. The site is currently being investigated and no remediation plan has yet been approved. No amounts have been accrued for this potential liability. Furthermore, to the extent the Operating Partnership is required to indemnify Georgia-Pacific for its share of the remediation costs, the Operating Partnership may be able to recover a portion of its cost from Georgia-Pacific’s insurance policy, or indemnity obligations of the various lessees that conducted mining operations on the property, or both.

Unrecorded Contingencies. The Operating Partnership believes it will be successful in defending the Property Damage Litigations and the Arkansas Environmental Issue. However, if the Operating Partnership is not successful in defending these claims, we believe the aggregate combined losses for the Property Damage Litigations and Arkansas Environmental Issue would range between $0 and $4 million. Other than the Property Damage Litigations and the Arkansas Environmental Issue, management currently believes that resolving pending legal proceedings against the Operating Partnership, individually or in aggregate, will not have a material adverse impact on our financial position or results of operations. However, these matters are subject to inherent uncertainties and management’s view on these matters may change in the future. Were an unfavorable final outcome in one or multiple legal proceedings to occur, there exists the possibility of a material adverse impact on our financial position and the results of operations for the period in which any unfavorable outcome becomes reasonably estimable.

23

PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6. Segment Information

The tables below present information about reported segments for the quarterly and six-month periods ended June 30 (in millions):

	Northern Resources		Southern Resources		Real Estate		Manufactured Products		Other		Total (A)
Quarter Ended June 30, 2007
External revenues	$	64	$	126	$	71	$	129	$	5	$	395
Intersegment revenues		15		—		—		—		—		15
Depreciation, depletion and amortization		8		15		—		8		—		31
Basis of real estate sold		—		—		14		—		—		14
Operating income		14		41		47		2		5		109
Quarter Ended June 30, 2006
External revenues	$	72	$	121	$	52	$	130	$	5	$	380
Intersegment revenues		15		—		—		—		—		15
Depreciation, depletion and amortization		8		13		—		7		—		28
Basis of real estate sold		—		—		13		—		—		13
Operating income		21		48		27		10		4		110
	Northern Resources		Southern Resources		Real Estate		Manufactured Products		Other		Total (A)
Six Months Ended June 30, 2007
External revenues	$	146	$	253	$	110	$	244	$	11	$	764
Intersegment revenues		32		—		—		—		—		32
Depreciation, depletion and amortization		18		30		—		15		—		63
Basis of real estate sold		—		—		23		—		—		23
Operating income		33		87		68		1		10		199
Six Months Ended June 30, 2006
External revenues	$	164	$	243	$	113	$	264	$	10	$	794
Intersegment revenues		38		—		—		—		—		38
Depreciation, depletion and amortization		17		26		—		15		—		58
Basis of real estate sold		—		—		23		—		—		23
Operating income		56		98		71		18		9		252

(A) Consolidated depreciation, depletion and amortization includes unallocated corporate depreciation of $1 million and $2 million for the quarter and six months ended June 30, 2007, and $1 million and $2 million for the quarter and six months ended June 30, 2006.

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PLUM CREEK TIMBERLANDS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A reconciliation of total segment operating income to income before income taxes is presented below for the quarterly and six-month periods ended June 30 (in millions):

	Quarter Ended June 30,
	2007			2006
Total segment operating income	$	109		$	110
Corporate and other unallocated expenses		(14	)		(11	)
Other Income (Expense), net		(1	)		—
Operating Income		94			99
Interest Expense, net		(35	)		(34	)
Income before Income Taxes	$	59		$	65
	Six Months Ended June 30,
	2007			2006
Total segment operating income (A)	$	199		$	252
Corporate and other unallocated expenses		(29	)		(26	)
Other Income (Expense), net (A)		1			—
Operating Income		171			226
Interest Expense, net		(71	)		(65	)
Income before Income Taxes	$	100		$	161

(A) For the six-months ended June 30, 2006, $2 million of other income was included in segment operating income for the Real Estate Segment.

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

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, 2006. 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 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2007.

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Results of Operations

Second Quarter 2007 Compared to Second Quarter 2006

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

	Quarter Ended June 30,
	2007			2006			Change
Operating Income by Segment
Northern Resources	$	14		$	21		$	(7	)
Southern Resources		41			48			(7	)
Real Estate		47			27			20
Manufactured Products		2			10			(8	)
Other		5			4			1
Total Segment Operating Income		109			110			(1	)
Other Costs and Eliminations		(14	)		(11	)		(3	)
Other Operating Income (Expense), net		(1	)		—			(1	)
Operating Income	$	94		$	99		$	(5	)

Northern Resources Segment. Revenues decreased by $8 million, or 9%, to $79 million in the second quarter of 2007. This decrease was due primarily to lower harvest volumes ($5 million) and a weaker product mix from log sales ($2 million). Harvest volumes during the second quarter of 2007 decreased by approximately 6% compared to the second quarter of 2006 due primarily to a planned reduction in harvest levels. Harvest levels for all of 2007 are expected to decrease between 7% and 13% from the 2006 harvest levels of 6.8 million tons. We decreased the percentage of sawlogs harvested and increased the percentage of pulpwood harvested, which resulted in a weaker product mix from log sales.

Northern Resources Segment operating income was 18% of its revenues for the second quarter of 2007, and 24% for the second quarter of 2006. This decrease was due primarily to higher per ton log and haul costs and a weaker product mix from log sales. Segment costs and expenses were $65 million for the second quarter of 2007 and $66 million for the second quarter of 2006. While log and haul costs decreased in total by approximately $2 million due to lower harvest levels, these costs were higher on a per ton basis. Log and haul costs per ton increased by 7% due primarily to longer hauling distances and higher fuel costs.

Southern Resources Segment. Revenues increased by $5 million, or 4%, to $126 million in the second quarter of 2007. This increase was due primarily to a higher percentage of delivered log sales compared to sales of standing timber ($10 million) and higher harvest levels ($6 million), offset in part by lower sawlog prices ($8 million) and a weaker product mix from log sales ($4 million).

Revenues increased $10 million due to the company’s increased percentage of delivered log sales. A portion of the increase in delivered log sales results from decreasing the percentage of standing timber sales. Under delivered log sale agreements, we are responsible for log and haul costs. Conversely, the buyer incurs the log and haul costs when standing timber is sold. We sell logs on a delivered basis when, in our judgment, log merchandising efforts will yield a net premium over selling standing timber. While revenues are higher under a delivered log sale, a large portion of that increase is to cover the related increase in cost of sales. As a result, for delivered log sales we realize lower operating income as a percentage of revenue, even though operating income is generally improved.

Harvest volumes during the second quarter of 2007 increased by approximately 8% (due to a 17% increase in pulpwood harvest volumes) compared to the second quarter of 2006 to take advantage of favorable pulpwood prices during the second quarter of 2007. Harvest volumes for all of 2007 are expected to be flat

27

to 4% lower than the 2006 harvest levels of 14.1 million tons. We decreased the percentage of sawlogs harvested and increased the percentage of pulpwood harvested, which resulted in a weaker product mix from log sales. This mix shift was due primarily to favorable pulpwood prices as a result of low mill inventories because of unusually wet harvesting conditions in certain parts of the south and weaker sawlog prices due to mill curtailments.

Sawlog prices during the second quarter of 2007 were 13% lower than during the same period in the prior year. The lower prices are due primarily to mill curtailments as a result of weak lumber and plywood prices caused by the significant decline in housing starts and a greater proportion of smaller-diameter sawlogs.

Southern Resources Segment operating income was 33% of its revenues for the second quarter of 2007, and 40% for the second quarter of 2006. This decrease was due primarily to lower sawlog prices, a weaker product mix from log sales and a higher proportion of delivered log sales. Segment costs and expenses increased by $12 million, or 16%, to $85 million. The increase was due primarily to a higher percentage of delivered log sales.

Real Estate Segment.

	Quarter Ended June 30, 2007					Quarter Ended June 30, 2006
Property	Acres Sold	Revenues (millions)		Revenue per Acre		Acres Sold	Revenues (millions)		Revenue per Acre
Small Non-Strategic	21,255	$	28	$	1,295	11,765	$	15	$	1,270
Conservation	480		3		6,660	2,185		3		1,500
Higher and Better Use / Recreational	8,695		27		3,150	7,225		30		4,140
Development Properties	595		13		21,260	645		4		5,295
Conservation Easements	n/a		—			n/a		—
Total	31,025	$	71			21,820	$	52

Revenues increased by $19 million to $71 million in the second quarter of 2007. This increase was due primarily to the timing of the sales of small non-strategic properties ($13 million) and higher and better use properties ($6 million), and the sale of a development property ($8 million), offset in part by lower prices from higher and better use sales ($9 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 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.

Our average sales price per acre for higher and better use / recreational lands was $3,150 per acre during the second quarter of 2007 compared to $4,140 during the same period in 2006. This price decline of approximately 25% is due primarily to sales mix. During the second quarter of 2007, we increased our sales in states with lower per acre prices and decreased our sales in states with higher per acre prices due to increased competition in states with the highest per acre prices. Development properties revenue increased by $8 million due primarily to a unique sales opportunity to a developer of a parcel in Georgia which was in the company’s planning process.

Real Estate Segment operating income was 66% of its second quarter revenues for 2007, compared to 52% for 2006. This change was due primarily to selling a unique development property in Georgia during the second quarter of 2007 and incurring higher investigatory and feasibility costs associated with our real estate development business in 2006. Real Estate Segment costs and expenses decreased by $1 million to $24 million in the second quarter of 2007.

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Manufactured Products Segment. Revenues decreased by $1 million, or 1%, to $129 million in the second quarter of 2007. This decrease was due primarily to lower lumber prices ($6 million) and lower plywood prices ($3 million), offset in part by higher MDF prices ($3 million) and higher residual wood chip prices ($3 million).

Lumber prices during the second quarter of 2007 were 12% lower than during the second quarter of 2006 due primarily to weak demand and excess supply. The demand for lumber has declined due primarily to lower housing starts. Housing starts during the first half of 2007 were 26% lower than during the same period in the prior year. Housing starts for all of 2007 are expected to remain weak at around 1.46 million starts compared to 1.82 million starts in 2006 and 2.07 million starts in 2005. The lower housing starts are due in part to a large supply of unsold homes on the market, rising interest rates for home mortgages, and mortgage lenders tightening their standards for home loans. There is approximately an eight-month supply of new homes for sale. In response to the decline in housing starts, North American lumber production has also been declining. The supply of lumber in the United States decreased by 20% during the first quarter of 2007 compared to the first quarter of 2006. Despite the recent decline in North American lumber production, there still remains an excess supply of lumber.

Plywood prices during the second quarter of 2007 were 11% lower than during the second quarter of 2006 due primarily to increased competition from commodity plywood manufacturers. Commodity plywood prices have experienced downward pressure for the past year due to lower oriented strand board (a substitute for commodity plywood) prices as a result of fewer housing starts. The lower commodity plywood prices have caused several plywood manufacturers to target the industrial markets we serve.

MDF prices during the second quarter of 2007 were 10% higher than during the second quarter of 2006 due primarily to a mix shift to higher value, specialized products. Part of this mix shift is attributable to weak commodity markets due primarily to the decline in the housing market.

Manufactured Products Segment operating income was 2% of its revenues for the second quarter of 2007 compared to 8% of its revenues for the second quarter of 2006. This decrease was due primarily to lower lumber and plywood prices. Manufactured Products Segment costs and expenses increased by $7 million to $127 million for the second quarter of 2007. This increase was due primarily to a $4 million increase in MDF raw material costs. MDF raw material costs increased as a result of higher wood chip (due to a regional shortage from lower lumber production) and resin costs.

Other Costs and Eliminations. Other Costs and Eliminations (which consists of corporate overhead and intercompany profit elimination) decreased operating income by $14 million during the second quarter of 2007 and by $11 million during the second quarter of 2006. This increase of $3 million is due primarily to a decline in the amount of intercompany log profit recognized. The profit on intercompany log sales is deferred until the lumber and plywood manufacturing facilities convert existing log inventories into finished products and sell them to third parties, at which time intercompany profit is recognized.

Interest Expense, net. Interest expense (net of interest income) increased $1 million, or 3%, to $35 million in the second quarter of 2007.

Provision for Income Taxes. The provision for income taxes was $1 million for the second quarter of 2007 compared to $3 million for the second quarter of 2006. This net decrease of $2 million is due primarily to a decrease in operating income earned by our taxable REIT subsidiaries as a result of lower earnings from our manufacturing business.

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Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

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

	Six Months Ended June 30,
	2007			2006			Change
Operating Income by Segment
Northern Resources	$	33		$	56		$	(23	)
Southern Resources		87			98			(11	)
Real Estate		68			71			(3	)
Manufactured Products		1			18			(17	)
Other		10			9			1
Total Segment Operating Income		199			252			(53	)
Other Costs and Eliminations		(29	)		(26	)		(3	)
Other Operating Income (Expense), net		1			—			1
Operating Income	$	171		$	226		$	(55	)

Northern Resources Segment. Revenues decreased by $24 million, or 12%, to $178 million for the first half of 2007. This decrease was due primarily to lower harvest volumes ($13 million), lower sawlog prices ($7 million) and a weaker product mix from log sales ($6 million). Harvest volumes during the first half of 2007 decreased by approximately 7% compared to the first half of 2006 due primarily to a planned reduction in harvest levels. Harvest levels for all of 2007 are expected to decrease between 7% and 13% from the 2006 harvest levels of 6.8 million tons. Sawlog prices during the first half of 2007 were 6% lower than during the same period in the prior year. The lower prices are due primarily to mill curtailments as a result of weak lumber and plywood prices and the significant decline in housing starts. We decreased the percentage of sawlogs harvested and increased the percentage of pulpwood harvested, which resulted in a weaker product mix from log sales. This mix shift was due primarily to favorable pulpwood prices as a result of a wood chip shortage and weaker sawlog prices, both due to mill curtailments.

Northern Resources Segment operating income was 19% of its revenues for the first half of 2007, and 28% for the first half of 2006. This decrease was due primarily to lower sawlog prices, lower harvest levels and a weaker product mix from log sales. Segment costs and expenses were $145 million for the first half of 2007 and $146 million for the first half of 2006. While log and haul costs decreased in total by approximately $4 million due to lower harvest levels, these costs were offset by higher log and haul rates per ton. Log and haul costs per ton increased by 3% ($3 million) due primarily to longer hauling distances and higher fuel costs.

Southern Resources Segment. Revenues increased by $10 million, or 4%, to $253 million in the first half of 2007. This increase was due primarily to a higher percentage of delivered log sales compared to sales of standing timber ($18 million), higher harvest levels ($11 million) and higher pulpwood prices ($4 million), offset in part by lower sawlog prices ($14 million) and a weaker product mix from log sales ($9 million).

Revenues increased $18 million due to the company’s increased percentage of delivered log sales. A portion of the increase in delivered log sales results from decreasing the percentage of standing timber sales. Under delivered log sale agreements, we are responsible for log and haul costs. Conversely, the buyer incurs the log and haul costs when standing timber is sold. We sell logs on a delivered basis when, in our judgment, log merchandising efforts will yield a net premium over selling standing timber. While revenues are higher under a delivered log sale, a large portion of that increase is to cover the related increase in cost of sales. As a result, for delivered log sales we realize lower operating income as a percentage of revenue, even though operating income is generally improved.

30

Harvest volumes during the first half of 2007 increased by approximately 7% (due to a 19% increase in pulpwood harvest volumes, offset in part by a 2% decrease in sawlog harvest volumes) compared to the first half of 2006 to take advantage of favorable pulpwood prices during the first six months of 2007. Harvest volumes for all of 2007 are expected to be flat to 4% lower than the 2006 harvest levels of 14.1 million tons. We decreased the percentage of sawlogs harvested and increased the percentage of pulpwood harvested, which resulted in a weaker product mix from log sales. This mix shift was due primarily to favorable pulpwood prices as a result of low mill inventories because of unusually wet harvesting conditions in certain parts of the south and weaker sawlog prices due to mill curtailments.

Sawlog prices during the first half of 2007 were 13% lower than during the same period in the prior year. The lower prices are due primarily to mill curtailments as a result of weak lumber and plywood prices caused by the significant decline in housing starts and a greater proportion of smaller-diameter sawlogs.

Southern Resources Segment operating income was 34% of its revenues for the first half of 2007, and 40% for the first half of 2006. This decrease was due primarily to lower sawlog prices, a weaker product mix from log sales and a higher proportion of delivered log sales. Segment costs and expenses increased by $21 million, or 15%, to $166 million. The increase was due primarily to a higher percentage of delivered log sales.

Real Estate Segment.

	Six Months Ended June 30, 2007					Six Months Ended June 30, 2006
Property	Acres Sold	Revenues (millions)		Revenue per Acre		Acres Sold	Revenues (millions)		Revenue per Acre
Small Non-Strategic	29,900	$	41	$	1,340	26,815	$	37	$	1,380
Conservation	4,690		10		2,240	4,765		8		1,815
Higher and Better Use / Recreational	12,445		43		3,495	10,320		47		4,490
Development Properties	640		14		21,310	1,720		13		7,355
Conservation Easements	n/a		—			n/a		8		1,300
Total	47,675	$	108			43,620	$	113
Proceeds from Joint Ventures		$	2				$	—

Revenues decreased by $3 million to $110 million in the first half of 2007. This decrease was due primarily to lower prices from higher and better use sales ($13 million) and no conservation easement sales in 2007 ($8 million), offset in part by the timing of sales of higher and better use properties ($9 million) and non-strategic properties ($4 million), and the sale of land to a joint venture arrangement ($2 million). Our average sales price per acre for higher and better use / recreational lands was $3,495 per acre during the first half of 2007 compared to $4,490 during the same period in 2006. This price decline of approximately 20% is due primarily to sales mix. During the first half of 2007, we increased our sales in states with lower per acre prices and decreased our sales in states with higher per acre prices due to increased competition in states with the highest per acre prices.

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. During March 2007, we completed the first sale of land to one of our joint venture arrangements. We received cash proceeds of $2 million and a note for $5.5 million. (See Note 1 of the Notes to Consolidated Financial Statements for our accounting policy covering joint venture arrangements.)

We expect revenues from real estate sales during 2007 to range between $330 million and $350 million from the sale of 150,000 to 190,000 acres. We estimate these sales will consist of 70,000 to 90,000 acres of non-strategic acres, 4,000 to 8,000 acres of development and joint venture acres and the remainder from the sales of higher and better use and conservation acres.

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Real Estate Segment operating income was 62% of its revenues for the first six months of 2007 compared to 63% for the same period in 2006. Real Estate Segment costs and expenses were $42 million for the first six months of 2007 and 2006. Costs associated with our development business for the first six months of 2007 were $8 million compared to $9 million in 2006.

At June 30, 2007, we were in the planning process on 23 internal development properties covering approximately 14,000 acres. Additionally, listed below are a summary of our entitled or developed properties and a summary of our joint venture arrangements as of June 30, 2007:

Development Projects

PROJECT STATUS Location (County, State)	Year Sales Begin	Total Acres	Acres Sold (A)	Average Selling Price Per Acre
Entitled or Developed Properties
Greene, GA	2007	170	—	$	—
Newton, GA	2007	396	—		—
Oconee, GA	2007	459	—		—
Oconee, GA	2009	295	—		—
Wayne, GA	2007	10	7		28,694
Piscataquis, ME	2002	450	395		16,380
Flathead, MT	2006	509	498		8,611
Flathead, MT	2006	932	89		6,855
Flathead, MT	2007	648	—		—
Flathead, MT	2010	22	—		—
Lake, MT	2006	436	150		24,184
Lincoln, MT	2007	222	—		—
Sanders, MT	2007	518	—		—
Sanders, MT	2007	654	—		—
Lamar, MS	2007	393	—		—
Lamar, MS	2007	364	—		—
Adams, WI	2007	40	—		—
Bayfield, WI	2008	77	—		—
Langlade, WI	2006	611	36		5,880
Oneida, WI	2005	47	20		11,325
Price, WI	2006	121	22		3,300
Price, WI	2008	214	—		—
		7,588	1,217
Properties Entirely Sold
Butts, GA	2006	305	305	$	4,328
Newton, GA	2006	413	413		12,349
Glynn, GA	2007	222	222		16,692
Greene, GA	2006	354	354		15,759
Greene, GA	2007	261	261		30,972
Lamar, MS	2006	37	37		11,211
Lake, MT	2006	140	140		6,200
King, WA	2006	1,905	1,905		22,372
Wood, WI	2006	469	469		4,125
		4,106	4,106

(A) Acres Sold represents sales since inception of the project.

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Joint Venture Arrangements

Location (County, State)	Expected Year of Initial Closing(A)	Total Acres(B)	Phase(s)	Non-Contingent Purchase Price(C) (millions)		Expected Participation Timeline
Volusia, Florida	2007	7,080	5	$	16	until 2017
Alachua, Florida	2008	1,785	4	$	8	until 2015
St. John, Florida	2009	3,590	5	$	15	until 2020
Glynn, Georgia	2007	1,360	3	$	8	until 2015
Camden, Georgia	2009	10,105	4	$	16	until 2019
Berkeley, South Carolina(D)	2007	2,010	1	$	8	until 2011

(A) Year land is expected to be sold to the joint venture. This represents the year of initial transfer for projects with multiple phases.

(B) Actual development acreage will depend upon final approval(s).

(C) Total proceeds for all phases in connection with sale of land to joint ventures. Does not include contingent consideration associated with future lot sales.

(D) During the first quarter of 2007, the property was transferred to a joint venture arrangement in exchange for $2 million in cash and a $5.5 million note.

Manufactured Products Segment. Revenues decreased by $20 million, or 8%, to $244 million in the first half of 2007. This decrease was due primarily to lower lumber prices ($13 million), lower plywood prices ($8 million), and lower MDF sales volume ($5 million), offset in part by higher MDF prices ($6 million).

Lumber prices during the first half of 2007 were 15% lower than during the first half of 2006 due primarily to weak demand and excess supply. The demand for lumber has declined due primarily to lower housing starts. Housing starts during the first half of 2007 were 26% lower than during the same period in the prior year. Housing starts for all of 2007 are expected to remain weak at around 1.46 million starts compared to 1.82 million starts in 2006 and 2.07 million starts in 2005. The lower housing starts are due in part to a large supply of unsold homes on the market, rising interest rates for home mortgages, and mortgage lenders tightening their standards for home loans. There is approximately an eight-month supply of new homes for sale. In response to the decline in housing starts, North American lumber production has also been declining. The supply of lumber in the United States decreased by 20% during the first quarter of 2007 compared to the first quarter of 2006. Despite the recent decline in North American lumber production, there still remains an excess supply of lumber.

Plywood prices during the first half of 2007 were 11% lower than during the first half of 2006 due primarily to increased competition from commodity plywood manufacturers. Commodity plywood prices have experienced downward pressure due to lower oriented strand board (a substitute for commodity plywood) prices as a result of fewer housing starts. The lower commodity plywood prices have caused several plywood manufacturers to target the industrial markets we serve.

MDF prices during the first half of 2007 were 10% higher than during the first half of 2006 due primarily to a mix shift to higher value, specialized products. Part of this mix shift is attributable to weak commodity markets due primarily to the decline in the housing market, which resulted in lower MDF sales volume during the first half of 2007 compared to the same period in the prior year.

Manufactured Products Segment operating income was 0.4% of its revenues for the first half of 2007 compared to 7% of its revenues for the first half of 2006. This decrease was due primarily to lower lumber and plywood prices. Manufactured Products Segment costs and expenses decreased by $3 million to $243 million for the first half of 2007. This decrease was due primarily to lower lumber raw material costs, and lower lumber, plywood and MDF sales volume, offset in part by higher MDF raw material costs. MDF raw material costs increased by $7 million as a result of higher wood chip (due to a regional shortage from lower lumber production) and resin costs.

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Other Costs and Eliminations. Other Costs and Eliminations (which consists of corporate overhead and intercompany profit elimination) decreased operating income by $29 million during the first half of 2007 and by $26 million during the first half of 2006. This increase of $3 million was due primarily to higher share-based compensation expense and increased costs associated with information technology.

Interest Expense, net. Interest expense (net of interest income) increased $6 million, or 9%, to $71 million in the first half of 2007. This increase was due primarily to our repurchase of approximately 5.1 million shares of common stock for $190 million in the second half of 2006 and the first half of 2007. The share repurchase was funded by using a combination of cash and debt financing.

Provision for Income Taxes. The benefit for income taxes was $3 million for the first half of 2007 compared to a provision for income tax of $7 million for the first half of 2006. This net decrease of $10 million is due primarily to a decrease in operating income earned by our taxable REIT subsidiaries as a result of lower earnings from our manufacturing business and lower earnings from our taxable real estate business.

Financial Condition and Liquidity

The following table compares our sources and uses of cash for the six months ended June 30 (in millions):

	Six Months Ended June 30,
	2007			2006
Sources of Cash:
Operations	$	189		$	240
Changes in Working Capital		(72	)		14
Cash from Stock Option Exercises		6			3
Increase in Debt Obligations, net		15			158
Other Cash Changes, net		4			(2	)
Total Sources of Cash		142			413
Uses of Cash:
Returned to Stockholders:
Dividends		(149	)		(147	)
Common Stock Repurchases		(111	)		(184	)
Reinvest in the Business:
Capital Expenditures		(39	)		(38	)
Acquire Timberlands		(9	)		(17	)
Total Uses of Cash		(308	)		(386	)
Change in Cash and Cash Equivalents	$	(166	)	$	27

Cash Flows from Operating Activities. Net cash provided by operating activities for the six months ended June 30, 2007 totaled $111 million, compared to $252 million for the same period in 2006. The decrease of $141 million was due primarily to a $55 million decrease in operating income and a $86 million negative working capital change. This negative working capital change was due primarily to the timing of when proceeds from a like-kind exchange trust are either reinvested in replacement property (primarily timberlands) or distributed to the company. Proceeds associated with a forward like-kind exchange are either reinvested in like-kind property within 180-days, or if the exchange is not successful, are distributed to the company at the end of either the 45-day identification period or the 180-day reinvestment period. During 2006, we received proceeds of $30 million from an unsuccessful like-kind exchange and in 2007 we had numerous real estate sales in which the proceeds were held in a like-kind exchange trust as of June 30, 2007.

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Debt Financing. The company has filed a shelf registration statement with the Securities and Exchange Commission under which Plum Creek Timber Company, Inc., from time to time, may offer and sell any combination of preferred stock, common stock, depositary shares, warrants and guarantees, and under which Plum Creek Timberlands, L.P., the company’s wholly owned operating partnership, may from time to time, offer and sell debt securities. The shelf registration statement expires on April 25, 2009.

The company has a $750 million revolving line of credit agreement that matures in June 2011. The revolving line of credit may be increased to $1 billion subject to certain terms and conditions. As of June 30, 2007, the weighted-average interest rate for the borrowings on the line of credit was 5.79%. The interest rate on the line of credit is based on LIBOR plus 0.425%. This rate can range from LIBOR plus 0.27% to LIBOR plus 1% depending on our debt ratings. Subject to customary covenants, the line of credit allows for borrowings from time to time up to $750 million, including up to $100 million of standby letters of credit. Borrowings on the line of credit fluctuate daily based on cash needs. As of June 30, 2007, we had $345 million of borrowings and $6 million of standby letters of credit outstanding; $399 million remained available for borrowing under our line of credit. As of July 3, 2007, $105 million of the borrowings under our line of credit was repaid.

On June 15, 2007, the company entered into a $350 million term credit agreement that matures in June 2012. As of June 30, 2007, the interest rate for the credit agreement was 5.77%. The interest rate on the term credit agreement is based on LIBOR plus 0.45%. This rate can range from LIBOR plus 0.3% to LIBOR plus 1.15% depending on our debt ratings. The term credit agreement is subject to covenants similar to those of our revolving line of credit and allows prepayment of the borrowings at any time prior to the maturity date without premium or penalty. The net proceeds of $350 million were used to reduce our borrowings on our line of credit.

The company’s borrowing agreements contain various restrictive covenants, including limitations on harvest levels, sales of assets, the incurrence of indebtedness and making restricted payments (such as payments of cash dividends or stock repurchases). The borrowing agreements limit our ability to make restricted payments based on available cash, which is generally our net income (excluding gains on the sale of capital assets) after adjusting for non-cash charges (such as depreciation and depletion), changes in various reserves, less capital expenditures and principal payments on indebtedness that are not financed. Additionally, the amount of available cash may be increased by the amount of proceeds from the sale of higher and better use properties and, under certain circumstances, by 50% of the amount of net proceeds from the sale of other assets. Furthermore, our line of credit and term credit agreements require that we maintain certain interest coverage and maximum leverage ratios. The company was in compliance with all of our borrowing agreement covenants as of June 30, 2007.

The company’s 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, the company’s objective is to maintain its investment grade credit rating. This is reflected in our moderate use of debt, good access to credit markets and no material covenant restrictions in our debt agreements that would prevent us from prudently using debt capital.

Capital Expenditures. Capital expenditures, excluding the acquisition of timberlands, for the six months ended June 30, 2007 were $39 million (including $6 million in real estate development expenditures) compared to $38 million (including $2 million in real estate development expenditures) for the first six months of 2006. Planned capital expenditures for 2007, excluding the acquisition of timberlands, are expected to range between $95 million and $105 million. Of planned capital expenditures in 2007, approximately 50% are considered to be discretionary. Discretionary expenditures consist primarily of silviculture, land development and information technology investments. Other capital expenditures consist primarily of reforestation and projects at our manufacturing facilities to sustain operating activities and improve safety. Included within the planned capital expenditures for our manufacturing facilities for 2007 is approximately an $8 million investment to expand our bio-filter emission control equipment at our MDF facilities to comply with stricter environmental standards that become effective October 1, 2008.

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Equity. On July 31, 2007, our Board of Directors declared a dividend of $0.42 per share, or approximately $73 million, which will be paid on August 31, 2007 to stockholders of record on August 16, 2007. Future dividends will be determined by our Board of Directors, in its sole discretion, based on consideration of a number of factors including, but not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, debt covenant restrictions that may impose limitations on the company’s ability to make cash payments, borrowing capacity, changes in the prices of and demand for Plum Creek’s products, and changes in our ability to sell timberlands at attractive prices. Other factors that our Board of Directors considers include the appropriate timing of timber harvests, acquisition and divestiture opportunities, stock repurchases, debt repayment and other means by which the company could deliver value to its stockholders.

Plum Creek’s Board of Directors has authorized a common stock repurchase program that may be increased from time to time at the Board of Director’s discretion. On May 1, 2007, the Board of Directors increased the remaining balance of the share repurchase authorization from $72 million to $200 million. For the six months ended June 30, 2007, the company repurchased approximately 2.8 million shares of common stock at a total cost of $111 million, or an average cost per share of $39.78. As of June 30, 2007, the company was authorized to repurchase an additional $111 million of the company’s common stock.

Future Cash Requirements. Cash required to meet our financial needs will be significant. We believe, however, that cash on hand and cash flows from continuing operations will be sufficient to fund planned capital expenditures and interest payments on our indebtedness for the next year. During the next 12 months, the company has approximately $72 million of scheduled long-term debt principal payment requirements. The company intends to refinance these principal payments at the time of maturity with the use of a combination of short-term and long-term borrowings, depending on interest rate and market conditions. Management believes that the company’s credit ratings, asset base and historical financial performance will allow these refinancings to be completed at attractive interest rates.

Off-Balance Sheet Arrangements, Contractual Obligations, Contingent Liabilities and Commitments

The company has no off-balance sheet debt. For information on contractual obligations, see the table Contractual Obligations in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2006 annual report on Form 10-K. Other than the discussion below, there have been no material changes to our contractual obligations outside the normal course of business.

On June 15, 2007, the company entered into a $350 million term credit agreement at a rate of LIBOR plus 0.45%, resulting in a rate of 5.77% at June 30, 2007. The term credit agreement matures in June 2012.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Approximately $1.7 billion of Plum Creek’s long-term debt bears interest at fixed rates, and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents contractual principal cash flows based upon maturity dates of the company’s debt obligations and the related weighted-average contractual interest rates by expected maturity dates for the fixed rate debt (in millions):

	2007			2008			2009			2010			2011			Thereafter			Total		Fair Value (A)
June 30, 2007
Fixed Rate Debt
Principal due (B)	$	25		$	147		$	200		$	59		$	423		$	796		$	1,650	$	1,676
Average interest rate (C)		6.9	%		6.9	%		6.8	%		6.7	%		6.6	%		6.0	%
Variable Rate Debt (D)		—			—			—			—		$	345		$	350		$	695	$	695
	2006			2007			2008			2009			2010			Thereafter			Total		Fair Value
June 30, 2006
Fixed Rate Debt
Principal due (B)	$	130		$	123		$	147		$	200		$	59		$	1,220		$	1,879	$	1,906
Average interest rate (C)		7.0	%		6.9	%		6.9	%		6.8	%		6.7	%		6.2	%
Variable Rate Debt		—			—			—			—			—		$	516		$	516	$	516

(A) The decrease in fair value of our fixed rate debt compared to June 30, 2006 was due primarily to the repayment of $130 million of senior and mortgage notes in 2006 and $98 million in 2007.

(B) Excludes unamortized discount of $8 million and $5 million at June 30, 2007 and 2006, respectively.

(C) Represents the average interest rate of total fixed rate debt outstanding at the end of the period.

(D) As of June 30, 2007 the weighted-average interest rate on the $345 million borrowings under our $750 million revolving line of credit was 5.79%. The interest rate on the line of credit is based on LIBOR plus 0.425%. This rate can range from LIBOR plus 0.27% to LIBOR plus 1% depending on our debt ratings. As of July 3, 2007, $105 million of the borrowings under our line of credit was repaid. On June 15, 2007, the company entered into a $350 million term credit agreement that matures in June 2012. As of June 30, 2007, the interest rate for the credit agreement was 5.77%. The interest rate on the term credit agreement is based on LIBOR plus 0.45%. This rate can range from LIBOR plus 0.3% to LIBOR plus 1.15% depending on our debt ratings.

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ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures

The company’s management, with the participation of the company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the company’s management, including the Chief Executive Officer and Chief Financial Officer, has concluded that the company’s disclosure controls and procedures were effective as of the end of such period.

(b) Control over Financial Reporting

There have been no changes in the company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None. (See also Note 7 of the Notes to Consolidated Financial Statements of Plum Creek Timber Company, Inc.)

ITEM 1A. RISK FACTORS

There have been no material changes to the company’s Risk Factors as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on February 27, 2007.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table contains information about the company’s purchases of equity securities during the second quarter of 2007:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (A)
April 1, 2007 through April 30, 2007 (B)	12 shares of common stock	$	40.13	—	$	72 million
May 1, 2007 through May 31, 2007	2,104,600 shares of common stock	$	40.30	2,104,600 shares of common stock	$	115 million
June 1, 2007 through June 30, 2007	114,800 shares of common stock	$	40.14	114,800 shares of common stock	$	111 million
Total	2,219,412 shares of common stock	$	40.29	2,219,400 shares of common stock

(A) On June 5, 2006, the Board of Directors authorized a $200 million share repurchase program. On May 1, 2007, the Board of Directors increased the remaining share repurchase authorization from $72 million to $200 million.

(B) Represents shares of the company’s common stock purchased from employees in non-open market transactions. The shares of stock were sold by the employees to the company in exchange for cash that was used to pay withholding taxes associated with the vesting of restricted stock unit awards under the company’s stock incentive plan. The average price per share is based on the closing price of the company’s stock on the vesting date of the awards.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The company’s 2007 Annual Meeting of Stockholders was held on May 2, 2007. Proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, to vote on four proposals: (1) to elect ten individuals to the company’s board of directors; (2) to ratify the appointment of Ernst & Young LLP as the company’s independent registered public accounting firm for 2007; (3) a stockholder proposal to require the company to provide disclosure of the company’s political contribution policies and activities; and (4) a stockholder proposal relating to the company’s short and long-term compensation programs.

Vote Required and Method of Counting Votes

The election of directors was determined by majority vote. In February 2007, the Board of Directors amended the company’s by-laws to provide that, in uncontested elections, a nominee for director shall be elected only if the votes cast “For” such nominee’s election exceed the votes cast “Against” such nominee’s election. Stockholders had the choice to cast their votes “For” or “Against”, or to “Abstain” from voting, on the election of each director nominee.

Approval of the proposal to ratify the appointment of Ernst & Young LLP and the two stockholder proposals each required the affirmative vote of a majority of shares present in person or by proxy and entitled to vote at the meeting. Stockholders had the choice to vote “For” or “Against”, or to “Abstain” from voting, on each of these proposals.

Effect of Broker Non-Votes and Abstentions

Under New York Stock Exchange Rules, brokerage firms and other record holders of stock may vote in their discretion on proposals to elect directors or ratify the appointment of an independent registered public accounting firm if they have not received voting instructions from the beneficial owner of the stock. In contrast, brokerage firms and other record holders that have not received voting instructions may not vote on stockholder proposals. When a record holder of stock votes on behalf of the beneficial owner of the stock on at least one proposal (because the record holder has discretionary voting power on that item), but not on another (because the record holder does not have discretionary voting power on that item), a “broker non-vote” occurs with respect to the second item.

In the case of the independent registered public accounting firm ratification and stockholder proposals, which require the affirmative vote of the majority of shares present (in person or by proxy) and entitled to vote at the meeting, broker non-votes and votes to abstain effectively count as votes against the proposals. In the case of electing directors by majority vote under the company’s by-laws, broker non-votes and votes to abstain have no effect on the outcome because such votes are not “cast” in the election of directors.

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Vote Results

Following are the vote results for each proposal submitted to a vote of the stockholders at the meeting:

(A) Ten individuals nominated by the board for re-election for one-year terms expiring at the 2008 Annual Meeting of Stockholders were re-elected by a majority vote, with no solicitations in opposition, as follows:

	Votes Cast
Nominee	For	Against	Abstain
Rick. R. Holley	148,856,761	1,368,598	1,534,013
Ian B. Davidson	148,559,634	1,635,852	1,563,887
Robin Josephs	148,613,555	1,626,625	1,519,192
John G. McDonald	148,472,053	1,760,151	1,527,168
Robert B. McLeod	148,810,047	1,415,083	1,534,241
John. F. Morgan, Sr.	148,426,260	1,381,838	1,951,274
John H. Scully	148,752,227	1,445,096	1,562,050
Stephen C. Tobias	148,452,998	1,839,839	1,466,535
Carl B. Webb	148,647,143	1,636,617	1,475,611
Martin A. White	148,351,216	1,494,890	1,912,266

There were no broker non-votes.

(B) The appointment of Ernst & Young LLP as the company’s independent registered public accounting firm by the audit committee of the Board of Directors was ratified by the stockholders, with 149,765,109 votes “For” the proposal, 722,992 votes “Against” the proposal, 1,271,271 abstentions and no broker non-votes.

(C) A stockholder proposal to require the company to disclose its political contribution policies and activities was included in the company’s proxy materials in accordance with Rule 14a-8 of the Securities Exchange Act of 1934, as amended. The proposal was not approved by the stockholders, with 23,101,490 votes “For” the proposal, 67,181,331 votes “Against” the proposal, 15,568,044 abstentions and 45,908,508 broker non-votes.

(D) A stockholder proposal relating to the company’s short and long-term incentive compensation programs was included in the company’s proxy materials in accordance with Rule 14a-8 of the Securities Exchange Act of 1934, as amended. The proposal was not approved by the stockholders, with 10,010,109 votes “For” the proposal, 93,198,765 votes “Against” the proposal, 2,641,991 abstentions and 45,908,508 broker non-votes.

Items 3 and 5 of Part II are not applicable and have been omitted.

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ITEM 6. EXHIBITS

List of Exhibits

Each exhibit set forth below in the Index to Exhibits is filed as a part of this report. All exhibits not filed herewith are incorporated herein by reference to a prior filing as indicated.

INDEX TO EXHIBITS

Exhibit Designation	Nature of Exhibit
2.4	Agreement and Plan of Merger by and among Georgia-Pacific Corporation, North American Timber Corp., NPI Timber, Inc., GNN Timber, Inc., GPW Timber, Inc., LRFP Timber, Inc., NPC Timber, Inc. and Plum Creek Timber Company, Inc. (Form 8-K/A, File No. 1-10239, filed July 24, 2000). Amendment No. 1 to the Agreement and Plan of Merger, dated as of June 12, 2001 (Exhibit 2.1 to Form 8-K, File No. 1-10239, filed June 14, 2001).
3.1	Restated Certificate of Incorporation of Plum Creek Timber Company, Inc. (Exhibit 3.1 to Form 10-Q, File No. 1-10239, for the quarter ended March 31, 2002).
3.2	Amended and Restated By-laws of Plum Creek Timber Company, Inc., as amended.
10.1	Credit Agreement, dated as of June 15, 2007, among Plum Creek Timberlands, L.P., Bank of America, N.A., as Administrative Agent, SunTrust Bank, as Syndication Agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Seattle Branch, and The Royal Bank of Scotland, as Documentation Agents, Banc of America Securities LLC and SunTrust Robinson Humphrey, a division of SunTrust Capital Markets, Inc., as Joint Lead Arrangers and Joint Book Managers, and the Other Financial Institutions Party Thereto (Exhibit 10.1 to Form 8-K, File No. 1-10239, filed June 21, 2007).
10.2	Amendment Agreement, dated as of June 15, 2007, among Plum Creek Timberlands, L.P., and Bank of America, N.A., as Administrative Agent under the Credit Agreement dated as of June 29, 2006 (Exhibit 10.2 to Form 8-K, File No. 1-10239, filed June 21, 2007).
12.1	Computation of ratio of earnings to fixed charges and computation of ratio of earnings to combined fixed charges and preferred stock dividends.
31.1	Certification of Rick R. Holley, President and Chief Executive Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of David W. Lambert, Senior Vice President and Chief Financial Officer, pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Rick R. Holley, President and Chief Executive Officer, pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of David W. Lambert, Senior Vice President and Chief Financial Officer, pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PLUM CREEK TIMBER COMPANY, INC. (Registrant)
By:	/s/    DAVID W. LAMBERT
	DAVID W. LAMBERT
	Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

Date: July 31, 2007

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